MAY MARKET UPDATE

Now that we’re in May,?Falcon Wealth Advisors ?Portfolio Manager?Conner Hanlon, CFA?, joined me and Cory on?Upticks ?to discuss the market’s recent performance, the importance of diversification, what we’re doing for clients and more.

A summary of our conversation is below. If you’re interested in this topic, I recommend checking out our recent webinar that focused on the stock market and client questions.

Jake:?I’m not sure it has received a lot of attention, but the broad?stock market ?is off to a strong start on the year. As we record this episode in early May, the S&P 500 is up 8-9%, with bond markets and the international markets up as well. Conner, can you explain what’s going on with this stock market recovery? It seems to me like a few particular stocks are leading the way.

Conner:?Thanks for having me, Jake. A large percentage of gains we’re seeing are coming from a relatively small pool of stocks—many of which were significantly down in 2022.

Jake:?Yes, a lot of these companies drug the S&P 500 down last year, but now they’re helping it recover. And I think the relatively quick recovery of these stocks highlights the importance of?not?trying to time the market and?not?selling stocks when they’re low. Investors who sold these stocks when they were down in 2022 are likely kicking themselves now, as they’re missing out on this recovery.

Cory:?And I think this situation highlights that if you invest in an index fund and mutual funds that mirror the S&P 500, you have to ride the market up and down with these big stocks.

Jake:?That’s why we don’t invest our clients in these broad funds. We think these funds can overexpose you to stocks that may not be right for your financial plan. And that means while many of our clients didn’t lose as much last year as the S&P 500, their gains may not be matching it now. And that’s ok.?We carefully build and diversify client portfolios ?to serve them in any market condition. We don’t want to throw diversification out the window to go buy a stock doing well at the moment. Our goal is to invest for the long-term and hit our clients’ targeted rate of return to fuel their?financial plan .

How do you think the rest of the year will play out, Conner?

Conner:?We think we are getting close to the Federal Reserve ending their interest rate hikes, as inflation continues to tick down. We believe this will give investors confidence and markets will hopefully stabilize. While there may still be some more volatility, I expect we will finish the year in positive territory.

Jake:?We are of course speculating here a bit—and as we often say, no one can predict the future—but with inflation cooling, rate hikes concluding and those big stocks we mentioned doing better, do you think this will present an opportunity for a diversified portfolio to catch up?

Conner:?I do. As those big stocks get back to normal, other stocks will hopefully continue to chug along at a steady pace.

Cory:?And with all the concerns around the banking industry, I think one reason those big stocks, especially big tech companies, have performed so well is their lack of exposure to the financial sector.

While no one can indeed predict the future, I find it encouraging that earnings in recent quarters have been better than many people expected. They haven’t fallen off a cliff, as many predicted in 2022. But again, predictions and trying to time the market is a fool’s errand.

Jake:?Yes, we buy stocks for long-term capital appreciation. While we closely follow and analyze the market, I don’t encourage clients to micromanage their portfolio and make regular changes to it. Our portfolios are carefully built and even if some stocks are way up and others are way down, as long as the overall portfolio is performing well and hitting your target rate of return, you should have confidence in your financial plan.

Let’s now talk about the bond market, which is a bit more confusing. Bond values decreased last year but are up 2-3% this year. What’s going on in the bond market, Conner?

Conner:?Interest rate hikes last year caused the value of?bonds ?to fall, leading to an?inverted yield curve . This year, the yields for short-term bonds have risen as the Fed has continued to increase interest rates. But medium-term and long-term bonds have seen their yields come down and their value go up.

Jake:?Yes, we don’t like to see that inverted yield curve where longer-dated bonds are paying less interest than shorter-dated bonds. So is this yield curve starting to flatten?

Conner:?Well, I think we will see the curve normalize as the Fed ceases raising interest rates. Investors are wanting to take advantage of better-than-normal yields on long-term bonds, which is pushing bond prices up.

Jake:?While?Upticks ?shouldn’t be considered investment advice, I do think there is an opportunity for investors to buy those long-term bonds and lock in appealing yields. We haven’t seen bonds pay this kind of interest in many years. We’re working with some clients to lock in these high-yielding bonds, and if you want to discuss your bond portfolio, please contact us and set up a meeting.

Cory:?And we’re careful to invest clients in short-term, medium-term?and?long-term bonds. If an investor focuses only on one-year bonds because they’re offering nice returns, they run the risk of yields being much lower when that year is up. We diversify bond portfolios just as we diversify stock portfolios.

Jake:?A related topic: with all the concerns around the banking industry, we don’t want to see any client with more than the FDIC-backed amount of $250,000 in a bank account, regardless of the account’s yield. So if there’s an opportunity to take some of that cash from your savings account and invest it in bonds, that could make a lot of sense.

I know a lot of clients were interested in?I-bonds , but their yields have fallen to about 4 percent. If you have an I-bond and want us to review it, let us know. But given the complexities and rules around them, I’m not sure if it makes a ton of sense for?Falcon Wealth Advisors ?clients to continue to invest in them.

Let’s now talk about international markets, as our clients have global exposure in their portfolios. Why are the international markets rallying this year?

Conner:?Mainly for the same reasons the S&P 500 has rallied—recovery from some of those big stocks we mentioned.

Jake:?A lot of people are concerned about the dollar. What would it mean for international stocks if the dollar weakens?

Conner:?Interesting question.While it wouldn’t be good for American companies, it would likely boost international markets.

Jake:?We don’t want to see the dollar weaken, but this is why we invest in international stocks. If the dollar weakens, our clients will make money because they are globally diversified.

I want to wrap up the show by discussing a question we receive often. In the current environment, should a client take money out of their portfolio to pay off their mortgage? Or should they leave money invested and continue to pay a mortgage payment?

I recently met with clients who assumed it would be safer to use cash to pay off their home, but I don’t think that’s necessarily the case. This is because if you pay, say, $500,000 for a home with money from your portfolio, depending on how much money you have, you may be putting a significant amount of your savings into a single investment. As we’ve discussed, our clients are invested in a globally diversified portfolio. I would argue leaving money in this portfolio is?less?risky than investing it all in a single asset that can be affected by external factors. Not to mention it’s not the ideal time to sell stocks, as the market is down since the start of 2022.

Obviously these big decisions vary from client to client, but diversification and liquidity are top goals for our team. That’s why we recommend working with fiduciary wealth advisors like?Falcon Wealth Advisors ?to make these big decisions.

Thanks so much for joining me today. If you would like to talk about how the stock, bond and international markets are impacting your financial plan, and how we can help you diversify your portfolio, please contact us today. You can reach us directly at?[email protected] ?and?[email protected] .?

Clients choose to work with us to enhance their financial literacy and explain exactly what?their?financial plan means to?them.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.