Tips to Adjust Your Retirement Plan (and Earnings, Too) -- Jarvis® Update February 2, 2024

Early in the year is the best time to make major changes to your retirement plan. We cover that along with the latest week of earnings on this week's Jarvis Update. I'm your host, Brian Dress, director of research here at Left Brain, joined as always by our CEO and chief investment officer, Nolan Langford. Nolan, welcome to the program.

Thanks for the intro, but you forgot number one NFL fan as well. And we only got one more week to talk about it.

That's right, my Chiefs have made it to the final game. Hopefully we can make it to the next championship here. With that, let's jump right in. We'd first of all ask you to like and share the video if you find these videos useful. It does help the channel. And hit the bell for notifications and subscribe. That way you find out next time we're out with these. We also want to put a quick little message out to our clients. We're always accepting new clients here at Left Brain. So if you've got anybody that might fit the bill, go ahead and, uh, pass this video along. Let's jump into a quick preview. First of all, we've seen a mixed bag in markets for the first month of 2024. We've got two topics for you as we usually do. The first is making the right financial moves for 2024, and then the second topic is earning season is in full swing. Before we jump into the meat of the program, we got a few announce— first of all, we'd like to ask you to sign up for the Jarvis newsletter. That way you can receive all of our content to your inbox every Saturday morning. That's the Jarvis newsletter, and it's these YouTubes and any other videos that we put out. Also, our goal is working with clients to help them live their best lives, and we think investing in public securities is one of the best ways to achieve this. Whether or not you currently work with an advisor, we'd love to be a resource for you and help you reach your goals by helping you make the right moves for your future. Call us at the number below, and that— for the podcast listeners, that's 630-547-3316. If you're looking for a second opinion on your financial plan, and if you just want to learn a little bit more about what we do here at Left Brain. And just a quick market recap for you. We had a mixed picture in the market averages this week. The S&P was up just a fraction of a percent, up a quarter percent. The NASDAQ was down about 1.15%, and the Russell was down just 7/100 of a percent, so just about unchanged there. Also, we've got, we've got the January index numbers for you. The S&P was up 1.6% for January. NASDAQ was up 1.02%. And then a big change, uh, was in the Russell. That was down nearly 4% at 3.93%. A little bit of a divergence in those small caps have started to underperform relative to bigger stocks, uh, as they were for most of last year. This week's major news was the Fed, the latest Fed meeting. So we've been watching the Fed for the last couple of years. Interest rates have been a big topic for market participants. Of course, we like to look toward the, the micro and toward individual businesses, but we can't look away from interest rates. Jerome Powell was talking tough this week. He noted that the committee's work with regard to inflation isn't quite done. And we saw the 10-year U.S. Treasury drop precipitously, started the week around 4.15%, ending the week around 3.85%. So kind of an unexpected reaction. Hard to predict those reactions in the macro world. We also saw some negative action in the banking sector, specifically in regional banks. Some really bad earnings coming out of a community bank, New York Community Bancorp, that had some connection to Signature Bank from last year, one of the failures from last year. Nolan, what are your impressions? What are your impressions this week and specifically regarding the Fed?

My first wish is that the Fed meeting wasn't on the last day of the month because their comments certainly tanked the market the last day of January. So I wish we could vote to have moved the meeting. Now that the meeting's over, hope that, um, that's the tone of 2024, that we can start ignoring the Fed and stop obsessing over recession and inflation, and then interest rates get back to normal profit-making stock watching. I think we've seen the end of interest rate increases. We know that, and we know at some point we're going to get interest rate decreases or cuts. How many How fast and when they're going to start, that's an open question. And we're not going to spend a bunch of time this year debating over it. It'll happen when it happens.

So if anyone out there knows exactly when interest rates are going to drop, please let us know with a comment below. And that way we can all retire on a beach somewhere soon. We'll jump right into the first topic. So topic 1 for us this week is doing the right financial stuff to start the year. As it is in every year, there are new contribution limits for retirement accounts. That's for IRAs, 401(k)s, 403(b)s, 457s, and everything else. I'm going to throw it up on the screen. We've put together a slide for you guys to let you know most of those contribution limits have increased from last year. And then also, if you're over 50, there's a catch-up contribution. So you're able to contribute a little bit more than you were at an age below 50. So make note of that. It's all on the screen. Those are all important details for you, as we're hoping most of the investors out there are trying to max out on these, on these retirement plans. Also, when the year turns, oftentimes investors are asking about Roth conversions. This is a topic that we hear all the time from clients. It's a very powerful technique, the Roth conversion, and we've used it for many clients. In the spirit of kind of making sure things are in order at the beginning of the year, are there any other topics or financial techniques that investors you think should consider at this time of year?

Yeah, there's a few. One, you know, you mentioned the contribution limits at work, and most people, especially most working professionals, the majority of their money is going to be in some retirement plan tied to either their current job or past jobs. So it is really important that we take an active management of those assets, and we should be paying attention to how much money we're contributing, how much money we're getting as a match, and then how that money is invested. Oftentimes at work, because those plans are set it and forget it, we tend to set up our contribution amounts, set up where the money's going. But the market changes, economic conditions change, and actually plans change. They actually update their investment mixes quite often. And some plans, one of the things that we look for is plans that have instituted the Roth 401(k), because now you have some planning opportunities where high-income professionals, a lot of our clients, couldn't normally just write a check and make a $7,000 contribution. There is no income limit on conversions. Those are things you really want to pay attention to. And especially if it's a past job that you had where you just left the money there, you really need to take a look and see if there's actions you can take to put yourself in a better financial situation.

No, I'm glad you mentioned that last one. I know the beginning of the year is kind of a lot of times people are trying to do a physical checkup. They're trying to get back in the gym, but also it's a great time to do a financial checkup. And a lot of times people have old 401(k)s at previous jobs that are just kind of orphaned there. This is a great time to go back, take a look at those, and potentially look at rolling those into an IRA and where you have a little bit more control over your money and your investments there. So definitely take a look at those concepts and Roth conversions. Definitely something to take a look at and consider at this time of year. So with that, let's jump into topic 2. So Nolan, topic 2, earnings season is in full swing. We love talking about the microeconomics and the individual businesses out there. So this is the best time of year, as we always say. We love hearing earnings. We're hearing the Q4 full year 2023 earnings now. Seen quite a few earnings reports so far, kind of a mixed bag. We heard from Tesla and we heard from Alphabet, the old Google. Those were a little bit lower than expectations. And the stocks were punished. We also saw some standout earnings, some surprises. A name that kind of got away from us that we haven't been looking at for a while is IBM. That's an old stalwart from back in the old '60s, '70s, and '80s, but it's starting to get some, some legs now too. And then we've had some standout earnings reports from some real behemoth companies that we have been following for some time now. That's one of those, the Supermicro, SMCI. As you can see here, kind of a parabolic move in the stock. And then in Netflix, NFLX, another quite strong move out of Netflix. So Nolan, tell me, uh, which earnings reports were most interesting to you and why?

The big losers and the big winners were both important, although as you know, we have a, a group of a lot of companies we follow, and we want to listen to the commentary even if the stocks weren't moving, just to see what's happening underneath the hood. So you mentioned a couple names— IBM, Supermicro— obviously those earnings were really impressive. And then we had some companies like UPS that kind of didn't do so well. On a flop, we had a couple financials continuing their pain from last year. That's been really interesting to see when they're going to heal up. Well, really what I'm looking forward to, Brian, is next week. I got the list off 9 pages of earnings releases next week. So people will be under our desk. If it's not urgent next week, we'll be finding out who's doing what. Very busy week of earnings next week. I think the general takeaway though, from the transcripts that I've, I've read and that we've paid attention to from the earnings releases, very positive. A lot of optimism. It's cautious optimism, still a lot of optimism. One of the things that really has us excited, interest rates aren't increasing anymore. And going back a couple of years, the interest rate increases caused a lot of pain in several areas of the market. One of those areas were growth shares. So it's not just technology, consumer cyclicals, a couple other groups that were really hurt when interest rates started rising. So now that interest rates are flat and possibly lowering, some of these all-time favorites, some of these really good businesses that we've been following for years that had a, a really rough go of it back in '21, '22, we're really interested. The earnings expectations are starting to come out, but the bar has been lowered. It should be much easier for these companies to meet expectations, if not increase the expectations. And also the boot of interest rates, you know, were firmly on the neck of the valuations of these corporations. Even though the earnings may have gone up, investors weren't willing to pay as much for those earnings in a higher interest rate environment. Now that interest rates are down, we expect valuations to actually start to float back up again. So the growth sector, particularly tech, is an area we're interested in. So we'll really keep a keen eye out. So far, give the earnings releases a B, B+. And I think this will be a theme we're watching throughout the course of the year.

And Nolan, any business trends that you've been noticing?

There's a huge focus on margins. So a lot of these companies, you know, one of the ways you get your profits up, you can either hold costs steady and just increase sales, or you can keep sales steady and decrease costs. Either way, you're going to get your cash flow or your earnings up. That's why you'll hear a lot of companies come out and say, hey, we're cutting 5% of our workforce. And you think as an investor, well, that's really bad, right? But no, often the stocks go up, and a lot of times they go up a lot because investors know when you cut cost out of your system, profits are going to go up. And then I'll be remiss, Brian, if I didn't mention to viewers the 3 areas of growth, particularly in technology, that we're really going to be focused on, uh, this year. And we'll bring in some ideas to our investors' attention. Uh, one of them is AI, artificial intelligence. Clearly everybody listening to this YouTube is familiar with artificial intelligence. What people may not understand is how early we are in that theme. Again, if it's a ball game, it's not only that players aren't on the field. It's that the, the fans aren't in the stands yet and they haven't even started warmups yet. Most corporations still don't know how they're going to use AI and they haven't started their plans. And a lot of them can't get the chips from NVIDIA. We're going to be following this thing for a while. We do think there's a lot of money to be made with these artificial businesses, particularly we'll be looking for the ones that have real profits, not just pie-in-the-sky business models. So artificial intelligence is a thing. The other theme that we want to talk about and continue to talk about is cybersecurity. Bad guys getting into your system, not only yours at home, but corporate networks. It's not a week that goes by we don't hear about some announced hack at some big Fortune 500 companies. You're going to continue to hear this, and with the spread of AI, the bad guys are going to have more tools. And with the spread of more devices connecting to the internet, they're also going to have more attack surfaces. Cybersecurity stocks, I think, play a crucial role And then the third area we're going to be focused on for growth and technology is digital transformation. This started several years ago during COVID where a lot of these companies that were set up to do business with people face-to-face put off modernizing their systems. COVID came and then it accelerated that because during COVID if you couldn't do business face-to-face, you couldn't do business. So now all of a sudden there's a huge rush to actually get systems, tools, technology, employee engagement, all of that done digitally. So the digital transformation that started in earnest after COVID is still alive and well. We think those trends are going to be moving far into the future.

All right, Nolan, thank you. Those are great areas that we're going to be taking a look at for the remainder of the year. And let's just shift gears quickly, Nolan. It's the last video we're going to have before the Super Bowl. I know you've picked, I think, 9 of the last 10 winners. So let's get your thoughts before we head out here.

I think I'm going to go with Mahomes. One of the things I learned about football is the quarterback is the most important position. And when you got arguably a guy that's on track to be the GOAT playing quarterback against another guy who is Mr. Irrelevant, I'm going to go with the former. And then if you take coaching, have Andy Reid, who may go down as the best coach of the modern era, Patriots fan be darned, against Shanahan, who hasn't won yet, I think you'd have to give the slight edge to Andy Reid. So All of my voice power cash I decide to put on DraftKings will be on the Kansas City Chiefs.

Well, Nolan, that's the smartest thing you've said for this entire video. So we'll just leave it there and we'll say go Chiefs as we move into the Super Bowl. We want to thank the viewers for being with us. Take a look at some of the strategies that we mentioned, some of the areas of the market that we mentioned, and we're happy to speak with you. With that, we'll see you again next time.