Category: Insights

Read all of the insights coming from the experts at confluence financial partners.

  • Multi-Generational Legacies: Communicating Your Estate Plan

    $96 Trillion is going to pass from one generation to the next over the coming 30 years.

    This is either going to go smoothly or poorly, and much of that answer will come down to estate planning.

    Your estate plan is a crucial aspect of securing your family’s future, and communicating this wealth plan effectively to your children is perhaps even more important.

    Here are 4 key strategies to help ensure your heirs are ready:

    1. Talk About It

    This might seem basic, but start the conversation early. Don’t wait for a crisis to discuss your estate plan. Start the conversation with your children while everyone is in good health and spirits. Choose a suitable time and place for the discussion, ensuring minimal distractions. This will allow your children to focus on the important matters at hand without feeling rushed or pressured.

    • Clarify Roles and Responsibilities

    Clearly communicate who will be responsible for executing your wishes and managing your affairs if you are unable to do so. If your adult children will be filling these roles, tell them. Don’t assume that your oldest child will understand why you made your middle child the executor. Explain your decisions and choices so that when the time comes there won’t be any confusion or hurt feelings.  

    • Educate Your Heirs on the Structure of Your Estate Plan

    You don’t have to share all of the details right away, but make a plan for bringing in the next generation into your financial picture. These discussions are difficult to begin in most households, but at some point you should consider letting your adult children know what you have and how all of it will be transferred. Eventually you should share detailed information about your assets, including properties, investments, and savings. Do you have a financial plan with your financial advisor? It would be wise to share it with your children.

    When in doubt, over communicate. You would be amazed at the disagreements that will come up after you are gone, many of which are due to a lack of direction and clarity on your part. Don’t assume your children will know what to do. Spell it out for them.

    • Address Potential Concerns and Questions

    You don’t have to share all of the details right away, but make a plan for bringing in the next generation into your financial picture. These discussions are difficult to begin in most households, but at some point you should consider letting your adult children know what you have and how all of it will be transferred. Eventually you should share detailed information about your assets, including properties, investments, and savings. Do you have a financial plan with your financial advisor? It would be wise to share it with your children.

    When in doubt, over communicate. You would be amazed at the disagreements that will come up after you are gone, many of which are due to a lack of direction and clarity on your part. Don’t assume your children will know what to do. Spell it out for them.

    Nobody likes to have these conversations, but they are important. We often talk at Confluence about helping our clients maximize their legacies, and typically children are the most important part of a legacy. We are here to help you facilitate meaningful conversations with the next generation that help you ensure your wealth impacts future generations positively. Don’t wait, the time to communicate is now.

    Chuck Zuzak
    About the Author

    Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.

    Pittsburgh

    412-391-0377
    chuck.zuzak@confluencefp.com
    Email Chuck Zuzak

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    Chuck Zuzak

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  • Stock Market Recap: February 2024

    Month in Review

    • Rally continued for stocks in February, with the key development of broader participation- for example, US small cap stocks had a strong month.
    • String of inflation data and commentary from the Federal Reserve pushed bond yields higher during February.
    • The inflation report released during the month (January CPI) showed prices rising more than expected, driven by higher housing related costs.

    Attention to Interest Rates

    Investors are curious as to when the Federal Reserve will start lowering interest rates. During February, investors recalibrated expectations once again for the start of rate cuts, believing that the first reduction will be pushed back to June 2024. This change makes sense for various reasons: inflation continues to remain somewhat firm, and the labor market remains very strong.

    Historically, forecasting the path of interest rates has been notoriously difficult to do and ultimately, introduces unwarranted noise into investors’ outlooks. The chart below shows how even the Federal Reserve struggles to predict its own interest rate decisions.

    Source: Capital Group, Bloomberg. As of February 23, 2024. Federal funds rate data from January 2016 to February 2024. Forward looking dot plot projections are reported quarterly from September 2016 through December 2023.

    What’s on Deck for March?

    • Inflation data will be in focus as investors watch for any signs of continued increases of prices. The February CPI report is released on March 12th and expected to show declining inflation.
    • The Federal Reserve’s March meeting (FOMC) will be closely watched for commentary around the outlook for growth and inflation. Fed Chair Jerome Powell has already indicated a March rate hike is off the table.
    • As of February 29th, 97% of the S&P 500 companies had reported earnings, with the remainder wrapping up in March. With 97% of companies reporting, year-over-year earnings growth came in at +4%. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    Feb 2024 Market RecapDownload

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    William Winkeler

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  • Should Millennials Plan on Social Security?

    Social Security, started in the 1930s as a part of FDR’s New Deal, has been under fire since I can remember. All the while, the program has been helping fund the retirement of some 47 million Americans, with another 19 million on survivor or disability benefits. What started out as a way to ensure elderly Americans had some form of income has turned into a major piece of the US economy.

    As we help our younger clients plan for retirement, we often hear, “Let’s not plan on Social Security, I don’t think it will be there by the time I retire.” While we understand where this attitude is coming from, we don’t think it reflects reality.

    Here’s why:

    • Social Security is funded by a separate payroll tax (FICA) that comes out of paychecks up until an individual reaches $160,200 in earned income (2023). That means, that for the first $160,200 each earner makes, 6.2% goes to Social Security, with another 6.2% coming from the employer.
    • That’s a total of $19,864 that goes to Social Security for someone who earns $160,200.
    • These amounts are then paid out directly to retirees, survivors, and disabled individuals.

    As long as there are people working in the United States, there will be money going into, and then out of Social Security.

    “But what about the trust fund?”

    • As discussed above, Social Security is funded directly from payroll taxes. Up until very recently, the ratio of working to non-working Americans had been high enough that Social Security benefits were fully funded each year.
    • However, as Baby Boomers retire and birthrates continue to decline, this is changing. If payroll taxes are not enough to current obligations, the difference is paid by the asset reserves in the Social Security trust fund. As more and more workers retire, the trust fund is expected to be depleted.

    By the most recent estimates, the trust fund assets will be spent down by 2034. At that point, Social Security would officially be insolvent.

    “That’s what I mean! Once Social Security is insolvent, I won’t get any benefits!”

    But what does insolvency actually mean?

    • Assuming no legislation is passed to shore up the program, all benefits will be cut to about 79% of what they are today.
    • 79% is not 0%. Far from it, in fact, 79% is still solid amount of guaranteed income that the younger generation can plan on as a piece of their overall retirement picture.

    “That’s it? That doesn’t sound as bad as what I’ve read in the news.”

    No, it doesn’t. For younger workers who have plenty of time to factor such a possibility in their long-term planning, the potential reduction would not be life changing. A relatively modest increase to retirement savings would make up for the potential shortfall.

    In reality, Congress will be forced to act, there will likely be changes to Social Security at some point. These changes will probably make sure that current benefits are not cut, and that Americans with no time to adjust will not have the rug pulled out from under them. For younger Americans, the fact remains that as long as we have workers and payroll taxes, Social Security will be there in one way or another.

    Disclaimer: This analysis could certainly change pending action by Congress. We are in no way trying to predict the future, but we believe this analysis is reasonable based on the current landscape.

    Chuck Zuzak
    About the Author

    Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.

    Pittsburgh

    412-391-0377
    chuck.zuzak@confluencefp.com
    Email Chuck Zuzak

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    Chuck Zuzak

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  • Stock Market Recap: March 2024

    Month in Review

    • Stock and bond markets rallied during March, with broadening of results- large cap value stocks (+5.0%, Russell 1000 Value TR Index), small cap stocks (+3.6%, Russell 2000 TR Index), and international stocks (+3.3%, MSCI ACWI Ex-USA NR Index) finished the month ahead of large cap growth stocks (+1.8%, Russell 1000 Growth TR Index).
    • Economic data continues to look strong in the United States. The Federal Reserve also confirmed their forecast of three 0.25% interest rate cuts in 2024.

    Time to Look Beyond Cash?

    Last month we discussed the difficulty in forecasting changes in interest rates. During March, investors spent the month aligning their outlook with the Federal Reserve’s guidance, which remains some level of interest rate cuts sometime later this year. While the exact timing cannot be known, we do know that historically there have been opportunities to shift out of cash investments near peak interest rates.

    Going back to the six previous cycles since 1984, investors have been better off investing in bonds, US stocks or a balanced portfolio compared to staying in cash during the 12-months following the peak level of interest rates. Forecasting the exact time of peak interest rates/rate cuts is fruitless, but for long-term investors there is an opportunity to look beyond cash.

    Source: Bloomberg, FactSet, Federal Reserve, Robert Shiller, J.P. Morgan Asset Management. The 60/40 portfolio is 60% invested in S&P 500 Total Return Index and 40% invested in Bloomberg U.S. Aggregate Total Return Index. The S&P 500 total return figure from the 1984 period was calculated using data from Robert Shiller. The analysis references the month in which the month-end 6-month CD rate peaked during previous rate hiking cycles. CD rate data prior to 2013 are sourced from the Federal Reserve, whereas data from 2013 to 2023 are sourced from Bloomberg. CD subsequent 12-month return calculation assumes reinvestment at the prevailing 6-month rate when the initial CD matures.

    What’s on Deck for April?

    • The Federal Reserve meets at the end of April, they are expected to hold interest rates constant. Investors will look for updates around the timing of interest rate cuts and balance sheet changes during the presentation. 
    • The inflation report and jobs report for March will be watched by investors for signs of continued progress on the inflation front, and for any weakening in the jobs market.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    March-2024-Market-RecapDownload

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    William Winkeler

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  • Is Your Family Financially Prepared for the Unexpected?

    If you were gone tomorrow, would your family be financially OK?

    That is a jarring question, and one that most of us try to avoid.

    As difficult as this scenario is to consider, however, we owe it to ourselves and our loved ones to be able to answer the question with certainty.

    Below are some points to consider:

    • Estate Plan
      • Do you have up to date wills, trusts, and other applicable documents? Have you gone through the documents in the past 5 years? What has changed since they were written? Is it time for an update?
      • Does your estate plan help and encourage family collaboration while safeguarding relationships? Many a family has been torn apart by disputes regarding an inheritance.
    • Life Insurance
      • Do you have life insurance in place? Is it enough so that your spouse and children would not have to worry about money when you are gone?
      • We can’t control very much in this situation, but we can control the windfall that our dependents would receive if we die unexpectedly.
    • Communication
      • Do your loved ones know the structure of your estate plan? Do they know what your expectations are for the money? If you have young children, this may be a conversation to have with your spouse and the person who would be the legal guardian for your children. If you have adult children, this could be a family meeting where the plan is fleshed out in more detail.
      • Studies show that aging parents have a difficult time bringing up finances with their children. This is understandable, but it needs to happen at some point. Your adult children can handle it, and the risks of them knowing how much money the family has pale in comparison to the burden that an unexpected inheritance can be.
    • The Things No One Thinks About
      • Passwords, document locations, lock boxes, safe combinations, utilities, iPhone lock codes, and anything else that your loved ones would need.
      • If you knew you weren’t going to wake up tomorrow, what information would your loved ones need to handle everything? Consider a tool like everplans to help with this.
    • Trusted Person
      • Is there someone in your life whom trust to be there for your family if something happens to you? We work with many clients who view us as that person who they trust to be across the table from their spouse should this situation arise. We are often one of the first calls that is made, because we know where everything is and we’ve helped clients through this before.

    So, we ask again.

    If you were gone tomorrow, would your family be financially ok?

    If you aren’t sure, take time to reflect. We at Confluence Financial Partners have been helping clients answer that question in the affirmative for decades, and we would be honored to be able to help you as well. We know this isn’t a pleasant thing to work through, but it’s worth it, and you owe it to those you love.

    Chuck Zuzak
    About the Author

    Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.

    Pittsburgh

    412-391-0377
    chuck.zuzak@confluencefp.com
    Email Chuck Zuzak

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    Chuck Zuzak

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  • Your Financial Guide for a Career Transition

    Navigating a job change is a significant undertaking, especially for those with considerable assets and financial interests. This guide is designed for professionals, including executives, physicians, and business owners as they work through the intricacies of transitioning to new opportunities.

    Here are some important things to consider:

    • Review your compensation plan.

    Understanding your compensation package is important, because compensation is usually a huge part of transition decision. Beyond salary, bonuses, and deferred compensation, it’s essential to assess the long-term value of your total package. For example, if you are re-locating, consider the impact of cost-of-living adjustments.

    Don’t forget to evaluate non-monetary benefits such as professional development opportunities, wellness opportunities, and overall company culture. All of these can have a significant impact on your job satisfaction and overall well-being.

    • Evaluate your retirement plan.

    What do I do with my old retirement plan(s)?

    Roll into an IRA: Working with a financial advisor can help you determine if rolling into an Individual Retirement Account makes sense. The benefits of this option include having more investment flexibility and control. Typically, you will have a broader range of investment options compared to an employer sponsored 401(k) plan. This allows you to diversify your portfolio while also consolidating accounts if you have multiple 401(k)s with previous employers. If you work with an advisor, you will have professional investment management as well as financial planning available. A good financial advisor will also be able to help with tax and estate planning matters, though he/she cannot replace your CPA or attorney.

    or

    Move your old retirement plan to your new employer: Most employer sponsored retirement plans allow for assets from previous retirement plans to flow into the new plan. This is certainly better than leaving the assets with your old employer’s plan, but this option likely does not include the investment options and flexibility as well as professional management and planning found if you roll assets into a managed IRA. That said, it may be your lowest cost option.

    • Understand changes to your health insurance.

    Be aware if there is a waiting period for health insurance with your new employer. If that is the case, look into extending your previous employer’s coverage through COBRA if there is a gap.

    Have a solid understanding of the different health insurance plans offered by your employer and consider factors such as the network of providers, deductibles, co-pays, coverage for prescription drugs and preventative care to name a few.

    Take advantage of  tax-advantaged accounts like Flexible Spending Accounts (FSA)s and Health Savings Accounts (HSA)s if your employer offers them.  These accounts can help you save money on qualified medical expenses. Additionally, HSAs can serve as an additional retirement savings vehicle.

    • Review Stock Options and Equity Compensation Programs.

    If your previous employer offered stock options or equity, be sure to understand the vesting schedules and the implications of leaving.

    Equity compensation can significantly increase your wealth, but also add complexity to your financial and tax planning picture. For example, the decision to exercise stock options should be timed to optimize tax implications and align with your broader financial goals, risk tolerance, and time horizon. Working with a financial advisor can help you make an informed financial decision.

    A job transition is an important time and opportunity to reassess your financial strategy. By taking a look at your compensation, retirement planning, healthcare options, and equity compensation, you position yourself for both peace of mind and long-term success.

    If Confluence can be a resource to you during this transition, please reach out. We are happy to help!

    Chuck Zuzak
    About the Author

    Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.

    Pittsburgh

    412-391-0377
    chuck.zuzak@confluencefp.com
    Email Chuck Zuzak

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    Chuck Zuzak

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  • Finding Balance: Living in the Now, Learning from the Past, and Planning for the Future

    Are you focused on the past, present, or future?

    What is your time ratio? Here are a few thoughts to consider:

    10% – Past
    We benefit greatly from history, experiences, and lessons from our past. Unfortunately/fortunately, the past is over. We can no longer control or change it. Hold on to the positive experiences and valuable lessons, and leave the regrets behind.

    60% – Present
    It’s really all we have! Living in the moment is a gift. Waking up to the now and having a “be where your feet are” attitude is an important perspective to keep as you focus on the present. Let’s be careful not to allow fear, or distractions like cell phones, to steal our moments.

    30% – Future
    Happiness comes from believing your best days are ahead. Planning reduces stress, creates energy and increases the likelihood of a bright future. Don’t wonder if your best days are ahead of you, take concrete steps so that you can be sure!

    Let’s encourage each other to learn from the past, live in the present and believe in the future.

    We are grateful to be a part of your journey!

    Greg Weimer
    About the Author

    At the core of his personal and professional life, Greg is passionate about helping individuals and families maximize their lives and legacies. His dedication to this mission shines through as an individual, wealth manager, and leader.

    McMurray, Naples

    724-271-8801
    greg.weimer@confluencefp.com
    Email Greg

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    Greg Weimer

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  • Navigating Estate Taxes: 4 Mistakes to Avoid

    In the past decade, estate tax conversations have been steadily decreasing. As the lifetime credit has climbed to unprecedented highs, many wealthy Americans have come to believe that they are safely out of Uncle Sam’s reach. However, recent history is just that, it’s recent. Historically, estate taxes have been a major factor for both middle class and high-net-worth Americans. Furthermore, estate taxes are often easy targets for adjustments when fiscal gaps need closing. This article explores why estate taxes should continue to be a priority in your wealth planning, and how you can be prepared for whatever the future may hold.

    Don’t Assume Estate Taxes Won’t Be a Problem

    The current estate tax lifetime exemption is $13.61MM per individual, or $27.22MM per couple. These numbers have become so high in recent years, that many high-net-worth Americans have come to believe that they no longer need to worry about estate taxes. My advice is to be careful, because congress can change the rules at any time. As recently as 2008, the exemption was only $2MM per individual, and it was even lower than that in the 1990s and early 2000s. Even under current law if nothing else changes, the $13.61MM exclusion will be cut in half on January 1st of 2026. When tax shortfalls arise, estate taxes are often viewed as low hanging fruit for Washington. The current exclusion level is an aberration, not the historical norm.

    Don’t Let Your Estate Documents Become Stale

    The rule of thumb for most families is to have their estate plan documents reviewed every 5 years. However, if you are a high-net-worth individual with an estate tax issue, these reviews should be much more frequent. In fact, estate tax considerations should be a part of your financial plan to be reviewed and discussed at least annually and perhaps more if there is a significant change in the law. Vehicles such as irrevocable trusts and joint insurance policies can help mitigate the risk of owing estate taxes, and these vehicles and strategies should be a part of the normal cadence of planning.

    Don’t Forget to Incorporate Charitable Giving into Your Estate Plan

    Charitable giving is one of the many strategic ways to avoid estate taxes, especially if you’ve already set aside the amounts that you plan to leave to your children. Wealth that is left to charitable organizations is not subject to the 40% estate tax. This means that instead of giving $600K to your children and $400k to the government, you give $1MM to an organization you care about, or to a foundation or Donor Advised Fund that is run by your children. Most people would prefer that their heirs decide which causes receive those funds rather than a large chunk being sent to Washington.

    Make Sure You Have the Right Team:

    Your team of professionals should include not only an excellent wealth manager who can help you plan around these issues, but also an attorney and a CPA who are experts in their fields when it comes to estate taxes. These issues are complex, and they can change quickly. Make sure that you are working with professionals who have the knowledge and the bandwidth to give these issues the attention they deserve.

    In Summary

    Estate planning is a dynamic field that requires regular attention, especially for those with significant wealth. High-net-worth individuals should not only reassess their estate plans frequently but should also consider incorporating charitable giving as part of their strategy. Be sure your planning team includes knowledgeable wealth managers, attorneys, and CPAs as this is crucial as you navigate the ever-changing landscape of estate taxes. Complacency can be costly – proactive estate planning should remain a critical element of your financial health.

    If we can be of help to you and your family, please give us a call!

    Chuck Zuzak
    About the Author

    Chuck joins Confluence Financial Partners with 13 years of experience in the financial services industry, most recently as Director of Financial Planning at JFS Wealth Advisors. At a fundamental level, Chuck’s passion for financial planning stems from the desire to help clients connect their personal values and purpose with their financial resources.

    Pittsburgh

    412-391-0377
    chuck.zuzak@confluencefp.com
    Email Chuck Zuzak

    Confluence Financial Partners and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

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    Chuck Zuzak

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  • Banking Safety in Uncertain Times: A Guide to Deposit Accounts and Cash Investments

    The banking system recently became front-page news following the failure of two banks in March. The headlines related to bank failures can illicit very emotional responses about safety of deposit accounts and cash investment solutions.

    We believe it is more important than ever to look through the headlines to the fundamentals of cash management.

    Cash management fundamentally breaks down into two categories:

    1. Deposit accounts, and
    2. Cash investment solutions.

    While the two have similarities, there are fundamental differences with structure and protection.

    Deposit Accounts

    • Bank Deposits: Interest-bearing account at a banking institution, such as a savings or checking account.
      • These accounts do not have market risk.
      • Insured by the Federal Deposit Insurance Corporation (FDIC) to applicable limits
        • FDIC deposit insurance is backed by the full faith and credit of the United States government. Currently, FDIC coverage extends to $250,000 per owner (and per account type), considering the underlying banking institution. For example, a joint account may have $500,000 of FDIC coverage at a single banking institution.

    Cash Investment Solutions    

    • Certificates of Deposit (CDs):  Investment that earns interest on a lump sum basis for a defined period of time.
      • In contrast to deposits, CD’s typically offer higher interest rates versus bank deposits to compensate for monies being unavailable during the life of the investment.
      • FDIC coverage applies to $250,000 per individual per issuing institution.
    • Individual Treasuries: Securities issued by the US Government, can be interest-bearing or zero coupon (earn lump-sum at maturity). The term of Treasuries can vary significantly: 4 weeks to 30 years.
      • Exempt from state and local taxes, but subject to federal tax.
      • Not covered by FDIC insurance, rather explicitly backed by the full faith and credit of the United States government.
    • Government Money Market Mutual Funds: Mutual funds that invest in Treasuries and US Government securities, paying interest on a recurring basis. Government money markets target a stable $1.00 value (not guaranteed)
      • Not FDIC insured.
      • Money market mutual funds underwent significant changes starting in 2016, which introduced redemption fees and liquidity gates, an effort to introduce a tool to combat any “run” on money markets. Only government money market funds are exempt from the rules surrounding redemption fees and gates (however, they can adopt them if previously disclosed to investors). Currently, none of the government money market funds offered by Raymond James have adopted redemption fees and gates.

    In addition to FDIC insurance and backing of the full faith and credit of the US government, most assets held at firms such as Raymond James are covered by the Securities Investor Protection Corporation (SIPC), to applicable limits. The SIPC was established in 1970 and protects client assets up to $500,000, including $250,000 of cash. SIPC account protection would apply in the event a firm fails financially and is unable to meet obligations to clients, not against a loss in market value.

    Despite the negative and unsettling headlines, there are multiple robust cash management solutions available to clients, with multiple layers of risk mitigation. At Confluence Financial Partners, we believe in the soundness of our banking system and maintain complete confidence in our client cash management tools. 

    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Stock Market Recap: April 2024

    Month in Review

    • April saw major bond and stock markets decline due to a shifting interest rate outlook, following higher-than-expected inflation data. The S&P 500 had its first 5% or greater drop since October 2023 in April.
    • In the equity market – areas with greater sensitivity to high interest rates lagged, such as small cap stocks (-7.04%, Russell 2000 TR Index). Large cap stocks also declined, with value stocks down -4.27% (Russell 1000 Value TR Index) and growth stocks down -4.24% (Russell 1000 Growth TR Index). Emerging market equities bucked the trend and finished in positive territory (+0.45% MSCI Emerging Market NR Index).
    • As of April 30th, investors were no longer pricing a cut to the Fed Fund rate for 2024, leading major bond markets to 2024 lows (-2.53% in April, Bloomberg Barclays Aggregate Bond TR Index).

    Looking Beyond Narrow Equity Market Leadership

    Large growth companies continue to drive a large portion of the US equity market’s results during the past three and five years – April was no different. The S&P 500 (weighted by the size of the companies in the index) has outperformed the equal-weighted S&P 500 (representing the results of the average company) by an increasingly wide margin over the past 18 to 24 months.

    This has been driven by fast-growing technology companies: technology stocks represent roughly 30% of the market-cap weighted S&P 500, compared to 14% weight in the equal-weighted S&P 500. However, it is important to adopt a longer perspective during these unusual periods. Over the past 15- and 20-year periods, as well as since 2003 – the equal weighted S&P 500 index is ahead or in-line with the market cap weighted S&P 500. On a calendar year basis, the equal-weighted S&P 500 has finished ahead 12 out of 21 years through 2023.

    Although the market has been very top heavy, with the fast-growing technology companies driving the market, markets are cyclical, and longer-time horizons highlight the balance over time.

    Source: Raymond James, FactSet. Data as of 2/29/2024. Since inception date of the equal-weighted is 1/3/2003.

    What’s on Deck for May?

    • Inflation data will be top-of-mind given the recent hot streak in data. Federal Reserve commentary around the data will also be closely watched by investors.
    • First quarter 2024 earnings will wrap up in May. Through the end of April, earnings have finished ahead of expectations for S&P 500 companies that have reported. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    April-2024-Market-RecapDownload

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    William Winkeler

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