Recall back to March when everything in the New York tri-state area closed in order to slow the spread of corona virus. Outside of New York, your timeline may have been different but the experience is likely the same. We stayed home. Kids learned remotely. The economy slumped. Jobless claims skyrocketed. Uncertainty was the only thing certain. This week, the S&P 500 hit a new highs. Wait, what?!
With stocks trading at all-time highs, many investors are sitting on significant capital gains and may have positions that become untradable because of the potential tax implications. Whether the stock has appreciated over many years or accumulated as a company executive, dealing with a stock with a huge unrealized gain can become a good problem to have.
On October 1, Charles Schwab & Co. surprised the world by announcing that it would eliminate commissions for online trading of U.S. stocks, exchange-traded funds, and options trading. Trading costs were previously $4.95 and went to zero on October 7th. Company Chairman and Founder, Charles Schwab announced on CNBC, "We have a great deal for investors. You can buy and sell stocks for no commission."
Interactive Brokers Group Inc. had launched its free product in September, and rivals TD Ameritrade Holding Corp., and E*Trade Financial Corp. have quickly followed. Fidelity Investments announced that as of this morning, it stopped charging individual investors commissions. For investment advisers, commissions will be cut to zero on November 4th.
In a couple of months, drastic sector changes are coming to the S&P and MSCI indices which have potential implications to your investment portfolio. Some of the biggest names in tech, Netflix, Facebook, Google and others are changing sector classifications and if you aren't aware then it could have a major impact on your investment portfolio. Morgan Stanley has called the upcoming realignment "unprecedented" noting that there has only been one similar kind of sector change in the history of industry indexes when the real-estate sector was spun out of the financial group. This is different in that it is shifting some of the largest companies to a new sector called communication services.
Heading into 2018, I listened to many strategy calls from the leading Wall Street players and the consensus view was pounding the table on international stocks over US stocks. Their call was in favor of international because of cheaper valuations and long-term under-performance. This didn't sit well with me. Sure valuation is cheaper but there is a reason for it. The European economy has been recovering from significant issues with a deep Greek recession, the surprise Brexit, and Deutsche Bank whose stock is trading below its crisis 2009 low. Just this week, the ECB cut their growth forecasts and announced they will keep rates at record lows for at least another year.
Today, when you hear people talk about money, from politicians to central bankers, there are a lot of zeros involved. Hundreds, Thousands, Millions, Billions, Trillions... do you know what comes next? Quadrillions.
Rather than look at a single overwhelming number, you can get a better feel by starting with a familiar reference point and then doing a relative comparison. For global asset classes, it does not get much clearer than this infographic created by Jeff Desjardins of the Visual Capitalist.
In a recent US poll, 88% of respondents said that they had never heard of Alibaba. If you are one of those who don't know the Chinese e-commerce giant, then you can have a quick primer with this epic infographic from 16best.net. Here are a few interesting facts before you dive in:
- Alibaba has a market capitalization of $511 billion as of 3/16/18, just a hair less than Facebook's $535 billion.
- Alibaba has 528 million mobile active users.
- Interestingly 11.1% of Alibaba's visitors are from the US.
- CEO/Founder Jack Ma set up Alibaba with $60k that he borrowed from 18 people. At the end of 2017, the company employed over 50,000 people.
- The company sold over $25 billion in just one day on Singles Day.
The northeast has had a brutal last couple of weeks. Yesterday we saw a third nor'easter bring more snow to the area. The first had wind gusts of 50mph and knocked power out at our office for a week. The second brought close to 2 feet of snow and took down many trees and power lines. Many homes in my area were without power for 5+ days. I was one of the unlucky ones losing power on Wednesday night. Temperatures in my house dropped steadily down to a low of 46 degrees by day 3. The food in the refrigerator was a lost cause but the biggest worry was freezing pipes causing significant damage. Three of my surrounding neighbors had full-house generators and I'm sure many people that lived without power are now seriously considering installing one even at the cost of $8-10k.
The constituents of the S&P 500 are wrapping up an extremely strong 4th quarter earnings season. Even before tax reform kicks in, corporations reached record operating profit margins at 10.4%. Furthermore, companies beat on the top and bottom line with over 75% beating estimates which is an eight-year high. Looking ahead, it is no surprise that earnings revisions are trending higher across all sectors.
Today in the bond auction, the 1-year Treasury bill yield hit a 10-year high at 2.02 percent. This is good news for savers as they are finally starting to see some risk free returns on their money in the bank. Furthermore, new Fed Chair Jerome Powell testified on Capitol Hill and suggested that there will be 3-4 more hikes this year. That means that we may see 3 percent rates by year end. Powell said, “At the December meeting, the median [FOMC] participant called for three rate increases in 2018,” Powell said. “Now since then, what we’ve seen is incoming data that suggests a strengthening in the economy.”
IMPORTANT DISCLOSURE INFORMATION
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Runnymede Capital Management, Inc.-"Runnymede"), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Runnymede. Please remember that if you are a Runnymede client, it remains your responsibility to advise Runnymede, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Runnymede is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Runnymede's current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Runnymede does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Runnymede's web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.