July's Market Update with John Chidwick and Chuck Foresyth, CFP®

If you could have a candid conversation with financial advisors who have decades of experience helping professionals, business owners, and families just like yours plan for their financial future, what questions would you ask? I'm Chip Munn, financial advisor, author, host, and CEO of Signature Wealth Group. For decades, my partners and advisory teams have had the opportunity to answer the tough questions. For hundreds of our clients. Now we want to do the same for you. On the Signature Life Show, you'll hear answers to your burning and most perplexing finance, investing, and retirement questions from our Chief Investment Officer, Senior Wealth Advisors, Certified Financial Planners, and more. We aren't just financial advisors. We're parents, children, community leaders, and entrepreneurs with a passion for helping empower our clients to live life intentionally. What we call a Signature Life.

Welcome back to the Signature Life Show. I'm Chip Munn, and today I am joined by two of my favorite people in Charlotte and Mooresville, North Carolina, Chuck Forsyth and John Chibbick. What's up, guys?

What's up, Chip?

If we are your favorite people in North Carolina, how many people— we want to know, do you actually know in the state of North Carolina? Are we the only two? Is this what's happened here?

Slim Pickens, John, truth be told. I mean, you know, you guys are in the top 20% of my 10 friends.

I mean, you went to Clemson, so you got to know a lot of North Carolina people.

I know a lot of people in North Carolina, truth be told. And you guys still rank way up.

I feel really special. I feel really special.

As well you should. As well you should. So, guys, one of the things we wanted to do today, in addition to maybe giving some suggestions of things things that people could consider, uh, as we head into the second half of the year was just to kind of give an update on where things stand from a market perspective. John, well, what are your thoughts on, on where we are right now?

I wish, and I know that we did, Chuck, so we, we, we must go back to January when we forecasted the year because we have a little contest in our office where we each forecast where the markets are going to end the year And, um, I don't recall. Um, I think, I think with, with much certainty that, that I was the most optimistic of the crew, um, for the upcoming year. But we have to go pull that to see. But, um, I never thought it would be as good as it is, as it has been through the first half of the year. Um, we couldn't ask for, for a better, um, market with not a— might not feel that way, but not a lot of volatility. We've had a little bit one month But, you know, the market itself, the S&P 500 year to date, it's up 15%. The Nasdaq's up 18%. The Dow has kind of lagged a little bit at 4.87%. Mid-caps and small caps, the Russell 2000, continue to kind of languish a little bit behind. Valuations look good, but again, it still hasn't gone over to, you know, the Magnificent Seven, which has kind of dragged up, you know, the performance on the S&P 500 as well as the Nasdaq and mid-caps. Are only up 5% for the year. The Russell 2000 is actually flat, um, going into, uh, June. Um, the bond market, um, is not, not, not a drag on the market, but, uh, interest rates have, you know, kind of, kind of hovered around. Um, and they're at good, good rates that we can, we can get in individual bonds as well as bond, bond funds. But they're, they're up a little bit, slightly, a couple percentage points, plus the yield that you're getting. So bonds are doing what they're supposed to be doing, and yields are are hovering in that area. International markets up 11%. There's a couple countries that have done a little better, but again, as far as the equity markets in the US, when you look back, have just outperformed everything.

Yeah, John, I think, you know, I remember when we do our Christmas events, we all kind of write on a piece of paper what we think the S&P was going to do. And, you know, my prediction for this year was 8 to 12%. And now we're sitting here at 15%. I mean, we hit 8 to 12 in first quarter, right? And I think a lot of that was because normally election years are really bullish because politics don't get in the way. And so companies can then figure it out without the constriction of politics. So at 15% year to date, it's kind of been crazy.

What's crazy, it's even crazier that 83%, I went back and looked, Got a piece from the Harper Group and they sent out a piece just recently and said 83% of the presidential years have been up. And the average in the first half of the year, which we've experienced a really good first half, is normally actually only up 3% in an election year. And the back half of the year is the strongest, which is normally up better than 9%, puts it at 11.57% for election years. And if you take all other years, they average 10%. But if you add in election years, they're the best at 11.5%, which I thought was kind of an interesting statistic.

I mean, the S&P is now— sorry, sorry, Chip.

No, I was just— it's counterintuitive. I think that most of our clients expect that election years are different than they actually are. I think that if you had asked that question to 1,000 people, you'd have gotten the opposite answer. You were saying, Chuck?

Oh, I was just, you know, once the market closes today, we'll have the S&P 500 up 9 out of the last 10 weeks, which is absolutely crazy. So, you know, it's been a great market. Obviously a lot of people are on vacation, so that volatility is low 'cause you don't see a lot of action. But I think, you know, as we go forward, you know, July tends to be pretty good in election years, and then not so much August. And maybe this big 15% run-up that we had this year, maybe we, uh, don't have as much in the second, second half of the year, right? Or maybe even pull back.

I don't, I don't know what you guys think, um, John, maybe I'll, I'll toss it over to you. My, I think one of the things could be interesting in the second half of the year, uh, so let's let's say, for example, the stock market did stay flat the second half of the year. Um, and so you'd, uh, if that were the case, you'd finish the year at 15%. Uh, most of us and most of our clients have some form of balanced portfolios. If I was looking for potential upside the second half of the year— John, you mentioned bonds being flat, uh, or relatively flat the first half of the year. It— this may be the time where we pick up a little bit on that side of the portfolio, uh, the second half of this year. If stocks were to stay relatively consistent with where they are now, if I was looking for excess or additional return for the rest of the year, it could end up coming from the, uh, from the bond portion of the portfolio.

Sure. And, and it— a lot of that comes back to, does the Federal Reserve drop interest rates um, one time, um, or I heard somebody this morning say two or three times, which I don't anticipate they do it two or three times, but I don't also, uh, don't think that I'm an expert on interest rates. But if they do drop it, you know, one time, I, that wouldn't shock me towards the end of the year. That would help returns on the bonds, uh, the bond portfolios. The yield on the, on the portfolios are 4 to 6 to 8%,, on our high-yield portfolio that we've been using. So that would be a nice little, little boost. Um, we just saw just in the last couple weeks, actually, it, it did come down a little bit. And, you know, to get a yield of 8% and a return of 2%, you know, you're getting equity-like returns from bonds, which again, when we run the, the reviews, it's really nice to finally see, you know, that year-to-date, you know, we're up 2.5%, 3.5%, 4% on bonds, and we're halfway through the year, and we haven't even gotten a, a spike from interest rates going down. Um, it's kind of nice to see a balanced portfolio, you know, not be dragged down, um, by fixed income, which for the last 3 to 5 years has definitely been an anchor, um, that we were dragging behind us as we're trying to, you know, go down, go downriver.

Yeah, I was, I was actually seeing, I was reading a study, uh, put out by Natixis, um, Investments, and they were talking about, yeah, by the way, my birthday's coming up, uh, this, this week. I'm gonna turn 54, of all things. It's kind of crazy.

I think he wants us to sing happy birthday, Chip. I'm not—

I was going to do it at the end.

We can do it at lunch yesterday and we didn't give it to him, so we're not going to do that today. We're going to wait for his birthday. All right.

But in this study, it was actually pertinent to me because the, the upper edge of Gen Xers, which I'm a Gen Xer and you're a Gen Xer, right? Chip, you're a Gen Xer. But the oldest demographic, the oldest group is turning 55. And, uh, Natixis did this study and they said the median, the median of that group of 55-year-old Gen Xers only has $50,000 in retirement savings, which is just absolutely crazy, right? And, and they were saying at that point of your life, you need really 8 times your average salary you should have in retirement savings saved up so you can retire in the next decade. And then The second part of the study said that 7 out of 10 of these Gen Xers were saying that inflation is the number one reason why they're not able to save that much money. So I'm tying this in where Chip was talking about rate cuts. We're seeing inflation come down rapidly. We just got the PCE or Personal Consumption Index readings come out for May. It's 2.6. It's the lowest reading it's been since March of 2021. So we do expect rates to start getting cut soon and then rapidly, probably next year in 2025.

So do you believe that, Chuck? Do you? I'm curious, uh, just anecdotally, do you believe that the reason that most people haven't had— most— the median 55-year-old, the reason they only have $50,000 saved up is because of inflation?

No, I think that's absolute garbage. I think the reason people don't have money saved up is because they didn't start when they were younger trying to save, trying to max out their 401s, or at least meet the matching in the 401s, and then have that, you know, time value money, the compounded interest go over, over time. You can't start saving in your 50s. You gotta do it in your 20s and 30s and early 40s when you're, when you're making buck, right? It's like, You can't wait this long. And, and we haven't had inflation for decades, and now we have.

Well, that's where, that's where I was going. I think inflation is a convenient excuse right now. Like, it's everybody, and again, it's painful for everybody, but it is— again, I think it's a little bit of—

it's tighter though. There's a lot of people out there that are a lot tighter today than they were 2, 3 years ago, 4 years ago, for sure, on housing and certain things that aren't going to come back down. No, no, we got to increase what people are making. You know, there's a lot of things that need to go on in the economy to, to continue to, to, to grow, which is the primary reason why the market's doing so well this year.

My, my only point was that inflation started going up when they were 52 years old. Like, it's not— the inflation didn't take from their retirement account balance. That's all I was saying. No, I agree. And the other thing to point out, inflated— just because inflation has slowed doesn't mean that prices have come down, because they haven't in a lot of cases. And so again, I think the average person, a lot of, a lot of, a lot of pain still at the pump. If you're having to get a mortgage on housing, I mean, you know, it can be— you're right, John, it is, it is tighter than it has been. Uh, I don't know if I shared this the last time we were together, but I, I did a a basic calculation. And I'm 48, Chuck, so I'm in the middle of the, of the Gen Xers, I think.

Much hipper, much hipper.

48, there is no doubt. I am a, I am a hip 48. But, uh, since I was born, the average household income is up 6 times. The S&P is up 40 times. The housing market is up 8 times. All that to say, if all you were doing is earning an income and not putting any away, you haven't even kept up with the, the price of, of housing. And, and so it's, again, we need to own things. Let it all be a lesson. If we could all be 20 years old, we would all save our money. Most of us have kids who are somewhere in that range or younger. Let's start now. Let's help them get the benefit of that.

So here's 3 things. Here's 3 things as you say that, that I just, just to tie into what you're saying about CPI and inflation, going back to, this is numbers from a Nick Murray presentation, so I'm good at stealing from people, but from 1972, um, the CPI index, uh, has gone from, from 43 to 297, which is 7 times. Okay, 7 times. If you look at earnings, earnings have gone from 1972 from $6.17 to $219, and this year are going to come in, you know, at $243. But at $219, that's 35 times. So that's 5 times the rate of inflation is what earnings has grown at. And the market has trailed right with it at 32 times. So the S&P's gone from 118 to, you know, even more than that now at 53 or whatever, wherever it's at. But more than 32 times is incredible. But I think that's one of the things that I kind of dug into this year is why are we doing so well? People ask that all the time, you know, what's going on here? And, you know, the, the forecast for earnings for the year for 2024 were $221. And you know what they're actually coming in at as we speak halfway through the year and what should happen by the end of the year?

What's that?

$243. So you've got to the upside, you know, a massive, a massive difference. And that normally, you know, is what drives stock prices is earnings. And so if earnings are going to be that good and jump up that much when they were expected to grow at just a couple percentage points and they're going to grow in the mid-teens plus, that's the reason that we've seen, you know, and again, a lot of this AI and the things that are going to boost are, yes, of course, you know, future projected earnings and whatnot driving it. But earnings, actual earnings for the year look like they're going to come in around $243.

Yeah, never bet against America. Speaking though, Chuck, America isn't the only place. One of the areas I know that you pay attention to is kind of some of the stuff in the international markets. What's going on outside the US?

I guess, you know, it's one of the most challenging times in history to invest outside the US because the US has dominated for so long and the US dollar today is as strong as it's ever been in history. So you've got a couple of things happening. Which just makes the US seem like 100% better to invest in. But we are starting to see some elements of deglobalization, right? We had a client ask me, hey, Chuck, what's the effect of the petrodollar? Because Saudi Arabia is now selling oil to China and using Chinese currency versus US dollars, and Russia is starting to use Chinese currency, and other countries are starting to get away from this US dollar. So, We've got this huge deglobalization happening, and it's happening because we've got rising tariffs, we've got sanctions, and we've got these trade wars. All right. So, all that makes countries want to set up shops outside of where they used to. And if you're a US company and you're saying, hey, I want to do business, do you really want to look at China now after what you've seen? Maybe you're doing business in Mexico. And what's really helped is you'll see India is up. I think they're up almost 11% year to date as business starts to go away from China and go into countries like India. And Japan's having a great year. And Chidi, you mentioned earnings earlier. What I was reading from the Capital Group, they put out their earnings projections for 2025. US earnings are supposed to increase in 2025, but believe it or not, Europe's earnings are supposed to double. Next year in 2025 in emerging markets earnings. So I still think international is a viable part of everyone's portfolio. I don't think it's 30 to 40% like most people have in their portfolio. In fact, Chidi, what's our average weighting in international within most of our models?

It's like 8 or 9%.

And that's been extremely alpha driver for us over the last couple years in our performance. But, but again, we'll, we'll talk as, as we see the US dollar weaken, as we see the globalization happening, it may make sense to start increasing that over time. And, and maybe we just do it like most of the time we do it company specific.

Yeah, we've been doing it with ASML and Taiwan, you know, semi and, and just different names. Novo Nordisk has been a home run. So individual names is what we've done and we've done that. I think a lot of that because of, again, it hasn't caught up to the, to other markets, the, the U.S. markets, um, but also because a lot of the companies that we own are global companies and, and do business in China and all over the world, in Europe and whatnot. So even though they're a domestic company, they're actually an international play because 20 or 30 or 40% of their business— Tesla being one of them, um, you know, really high, um, have a lot of, a lot of their business and a lot of their earnings coming from overseas.

So one of the things we touched on, John, the power of compound interest, and, and Chuck, you touched on the, uh, the average Gen X balance. What, what are some things— I like to try to be action-oriented— what are some of the things now we, we've given a, a bit of a broad market update, what are some things that you're talking to clients about now that you feel like they need to be focused on here? Mid-2024?

So we have definitely, um, revisited the, the long-term care, um, area. And, and, and we, we, we did early on a lot of long-term care policies and talked to a lot of people about them. Um, when interest rates went drastically down, um, the products kind of, you know, we, we were analyzing them and, and, and self-insuring and whatnot. We just didn't sell as much for whatever reason. Now they've gotten a lot, a lot more lucrative now that interest rates have come back in. The internal rate of return on those products are actually really good right now. And especially, you know, I have— we've had a lot of people actually going through, you know, the event of being in a long-term care facility, and the expense of that has gone, you know, way up. And we see that as we're having to liquidate portfolios to pay for those items. I've yet to run into somebody who's bought a long-term care policy that came in and said, boy, I'm really upset that I bought this long-term care policy. They're happy they bought the long-term care policy because it's there for their protection in case they need it. It just— they didn't seem to be as lucrative as we thought from a product standpoint. But again, now they are. And that sweet spot would be somewhere in your 50s or early 60s where you could pay the premium up front, whether you do it over one lump sum or 5 years or 10 years, however you decide to pay it before you retire, because you'll never have to pay it again. And it's just one of those items that you can check the box on, pay your premiums into it, and get a really good, again, internal rate of return depending on when you might use it through long-term care. And we've recently readdressed that with a lot of people.

If you were 54, about to turn 54, you'd start considering long-term care insurance.

Absolutely.

I'll tell you the benefits. The younger you buy it, right? One, we can talk about medical and everything, but like John, John brought up earlier, I just talked to a client the other day and they put their mom here in Southminster, here in Charlotte. It was a $300,000 buy-in for this retirement community, but she's got nurses and full-time staff there. And as you mentioned, we've got lots of clients who are now liquidating assets to pay for their care. It's better to talk about it when you're younger because the older we get, the more, as John can tell you with his MCL strain, the more injuries we tend to occur. And I think technology has been fantastic because long-term care 20 years ago, we had one type of product, a full insurance-based product. Now we have long-term care solutions that invest in the market, and then you can get the upside to, you know, the S&P 500 or other types of investments. And if you never use it, then you get a death benefit to your heirs. So there are a lot more options out there today than there were just 5 years ago within this type of industry.

And again, we'll tend to reposition some of the assets, um, you know, from the fixed income side of the portfolio, um, because again, the return— you can actually get a return on the product And, and when it does pay out, it comes out tax-free. So again, you could fund it now, never think about it again. You're not going to get premium increases in your 70s and your 80s, which we're dealing with a lot of that with older policies that were written, where the older you get, the more you got to continue to pay that premium, and those premiums could go up. We're kind of staying away from those types of products, um, and looking at one in particular too is Bright House is one that we've, we've, we've looked at quite a bit.

Yeah, big changes. If nothing else, folks who are somewhere in and around there, if you have an older, uh, policy, worth having somebody take a look at. If you don't, worth having a consideration. I think you, you hit on a good point, John, of potentially even repositioning a different component of the portfolio to give this to you as an additional benefit as part of as part of the bigger picture. So we talked a little bit, John, about older folks, but what about for, Chuck, for younger investors? What are some of the things that, again, here at mid-year you'd want to make sure they're doing, or for anybody for that matter?

Yeah, I think, you know, we really want to look at your Roth IRA, your Roth 401. Both of those limits, as we mentioned in our last call, were increased this year, and we still have clients who aren't maxing out their Roth contributions, or at least meeting the match into their 401s. And those are the biggest things that you should be doing. And then, as I mentioned last time, 529s, right? That 529 is critical of if you've got children starting a 529. And the IRS made that tax law change where you can now roll over any 529 asset, a portion of it, into a Roth IRA every single year if you don't use it for college. So Those are the big things I would look at doing if I were younger.

John, I do want to mention one thing. It's not necessarily for somebody who's younger, but as somebody who's approaching retirement, one of the new tools that Raymond James has added to the system, which wasn't there before, is a Roth conversion tool and a calculator that we can use where we could actually dig in and take a look at those folks that have saved really well for retirement. And have 401 plans. Maybe they have some money that they're not going to spend in their lifetime, and that money is going to go from one generation to the next. It's kind of a really neat tool that you really want to get ahead of before you retire so that you can plan around it by having the money sitting on the sideline to maybe fund your first couple of years of retirement to keep your income low so you can do some conversions on your IRAs to a Roth stay in a low tax bracket. We'll work with your CPAs to figure all that out. But, you know, it saves— when we run the projections, it could save $100,000 to $200,000 to $300,000. I've seen $500,000 in savings over one generation to the next. And then they're receiving the money tax-free as opposed to being taxable.

I think you're— again, just a reminder to folks to be having update conversations with their advisor. Because when I had a client last week that had up to $75,000 or $80,000 that they could convert and not change their tax bracket. Yeah, it was substantial that— and if I'm not mistaken, I think they were in the 12% federal rate and they had a big, a big chunk. And again, the question is, we were talking politics earlier, we won't go too deep into that. Um, but do you think taxes are going to go up or down? And, and if you think that the answer is up, it's worth at least seeing what the potential, having one of these conversion calculations done. Yeah, it's definitely, it's not what you make, it's what you keep. Chuck, any, uh, any closing thoughts?

Again, it's been a great first half of the year. Uh, just want to wish everyone a happy Independence Day. Uh, super blessed to be here in America. It's the greatest country in the world. And, uh, thank you all.

Amen, Chuck. Amen, Chip. Thank you, guys. Thank you to our clients, friends, family, um, everybody that has trusted, um, us with their, their finances and their money. We, we, we love what we do, and we love working with each and every one of you and look forward to, again, a great weekend, July 4th, Independence Day weekend, and getting back to it.

May all the fireworks in the stock market not end on July 4th. Guys, enjoyed it, and I look forward to seeing you again soon.

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