October'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 Signature to Life Show. I'm Chip Munn, and today I am joined by the team from Charlotte, John Chidwick and Chuck Forsyth. What's up, guys?

Hey, Chip, how are you doing, buddy? Good to see you.

I'm awesome, man. Good to see you.

Thank you, Chip. Right now, there's a lot going on in the economy and with elections and everything else, and look forward to talking about it.

Yeah. So as we're recording this, Uh, we, we've just seen, um, a change in interest rates. So the first time in what feels like forever, uh, if you've borrowed any money, it feels like interest rates have gone up and stayed up for a really, really long time. I, I don't know in reality if it is as long as it's felt like, but kind of a change of pace now, John, kind of, you know, but a pivot, if you will. Um, what are your thoughts on kind of where things are now, that along with some of the other current events that you mentioned?

My thoughts, my thoughts are that, that we are always, always, always proven that we don't know everything for sure, because Chuck and I sat with two other individuals in the office this morning and we were discussing this exact topic of interest rates and whether they were going to do 50 basis points or 25 basis points And, uh, there was zero people in the room that felt like 50 basis points was gonna happen. And lo and behold, it's usually, um, that we are proven wrong. And, uh, you know, they dropped at 50 basis points, and, uh, the market's reaction to it at first here seems to be okay. Um, and, um, I know it was priced into the market, um, because rates had moved quite a bit. And one of the things, if you look at that moved a lot since the last time that we just talked was the fixed income market. You know, you're starting to finally see some good returns out of bonds and that part of the portfolio, which makes up, you know, between probably 20 and 40 or 45% in most of the portfolios.

You know, as I was watching the news today, out of all the investment banks that were basically predicting rate cuts, only one had a 50 basis point rate cut. So all of us were wrong and one investment bank got it got it correct. So just goes to show you it's, it's guessing sometimes.

Yeah, it, it's really going back to, um, one point, I guess last year, where 100%— or maybe it was the end of '22— where 100% of economists, um, said that we were going to have a recession. So a lot of it is, you're right, in the, the micro, in the day-to-day, if we're only making daily decisions, it's really hard for it to be much more than a coin flip. I think the market on any given day is up, um, on a daily basis, I think like 54% of the days or some somewhere thereabouts. Over 15 years, it's 100% of the time. I like the second odds a lot better. In fact, over I think a 5-year period of time, it's more like 85% or so. So, uh, hard to know on any given day or any particular piece of information. But guys, this is only one ingredient, as my partner Scott would call, inside the stew of what's going on these days. There's a lot. Uh, we've had interest rates and now a change kind of in posture there since the last time We've had 2 debates, 2 presidential debates, 3 candidates, 2 assassination attempts. And that's just since the last time we talked.

It's crazy. I mean, a lot has gone on, seriously. But I think the old saying is that more money is lost preparing for the recession than the actual recession itself. You know, and sometimes not making a change is actually making a change. So, you know, doing nothing and just sitting tight and waiting to see how things play out, because a lot of times it's not— it's not what you think it's going to be.

About 48 days away from the election. And I can't tell you how many clients I've spoken to are afraid. They're nervous and they have been. And when we go back to all these election cycles and election cycles are typically bullish. And one of the things we try to do with our clients is keep them on track to hit their goal and not go down that rabbit hole of politics and what can happen if the Democrats win or the Republicans win. Because at the end of the day, for our jobs, it's about the markets and stocks and bonds or fixed income or assets.

Yeah. And people, right? It's interesting. I have to admit, I was absolutely wrong. I said, well, yeah, I'll stay on that. Trajectory.

I was wrong.

I said this was going to be the spiciest election in, uh, in history, and that it was going to be one guy saying it was the other guy's fault, and, um, and, and both of them kind of dual incumbents almost kind of pointing at each other. And, and here we are now. Again, in that respect, I was wrong. Then again, for one of the candidates, two assassination attempts would indicate things have been pretty spicy. So It's just, it's been the interesting thing to me, guys, and I want to ask you about kind of portfolio adjustments, you know, broadly that maybe you guys have made. But it's interesting to me, and I think to our clients, the resilience of the market despite— again, just, just say all those— Colin Cowherd, the sports guy, used to say, say it out loud and see how it sounds. Say it out loud. You know, we've, we've had a lot going on.

We say a few things out loud. You know, you look not only this year, like, like we're having a great— it's been a, it's a pretty good year from, from all the different indexes, fixed income, equities, everything. But I was looking at just the history going back here. And why— before the call preparing, you know, looking at why, why is it up this year and looking at earnings, um, one of the big huge bright spots has been earnings. I mean, earnings for the year, um, up something like 10% from forecasted is the reason that the market's doing what it's doing. Um, $243 a share is what's expected to come in for 2024. Um, but if you go back and look at, you know, not, not only this year but last year and, and 5 years back and 10 years back and 15 years back, um, we've been in a really, really, really, really good run, um, in, in equity returns, above average equity returns, um, of an, you know, 3 years look back at 10% annualized, 5 years look back at 15% annualized, 10 years back at 13% annualized, 15 years back at 14% annualized. I mean, I had to like go back over those a couple times because I was like, did I make a mistake here? Um, but I went back and I looked at the earnings, and the earnings going back over that same time frame went from $56 a share to $243 a share. So it kind of like lockstep— earnings grew, stock prices went up. Um, COVID, earnings fell off, market fell off. Earnings came back, market came back. You know, everything has been in lockstep with earnings And I think all the hype about AI and what it's going to do, and rightfully so or wrongfully so, right, it'll play out.

We don't know.

Um, but I do know that the next 2 years forecast is that the market's expecting a $279 number next year and $313 the following year. So they're expecting earnings to actually accelerate a little bit, and it's got to be because of AI. I didn't dig in here, but I'm just looking at, at different, uh, things before while I was preparing for the call and you know, inflation going down further, rates going down, all good news. There's a lot of good things going on, and it seems like most of our conversations are negative conversations, and, you know, doom and gloom and what's happening. And, you know, I throw my hands up and say hallelujah, man. We've been on a really, really, really, really good run.

It's been a, it's been a great run. And I think, I think too, you know, Some of the things we've done this year to the portfolios, as everyone knows, when we're building portfolios, we're building those portfolios based on every single client, their risk tolerance, their goals, their timeframe, but we don't just leave them there and set it and forget it. We're actually making tactical decisions across all the portfolios. And this year, just like last year, has been an extremely busy year for us making these tactical calls. And I think we started adding the small caps in November-ish of last year, of 2023, and we've been adding the smalls throughout the entire year.

I'll admit Chuck forced me to do more small caps and midcaps than I wanted to do, and I'm glad they're in the portfolio now. I'm glad that we increased it. So thank you, Chuck.

I'll give that one to you. You know, I will tell you that, you know, the small caps, it's kind of crazy because you can see them, you know, over the last 7 days, small caps are up 7%. I mean, it's absolutely crazy, right? And this month we've seen the S&P 500 down almost 5% in one week, and then the next week it gets it all back. So, it's been really volatile whether people have noticed that or not, but extremely volatile in small caps. And now, with today's rate cut, it kind of just doubles down on that. These small companies, think of as rates go down, a lot of these small companies, they're out there getting debt. And so, when they're getting those loans to finance their their companies, if their rates go down, these small companies make more money. And that's basically what it comes down to. So we've made that small-cap change. And then, John, you want to hit on the other changes we have this year?

Yeah. No, the other change was somewhat us and somewhat just the nature of what's gone on in the bond market is that a lot of our bonds, as everybody— well, you might know, might not know— we've added a lot of individual bonds into our portfolios. Most portfolios had individual bonds., and money market accounts and, and the Raymond James Bank account that, that was paying 5%, uh, that still is paying 5%. Um, we moved a lot of money into things that, that we knew were not gonna— could not go down. Um, because when the Fed obviously raised interest rates and we saw bond values drop a few years back, we made that move. Um, but a lot of our bonds were getting called, and they have been getting called all year long, and it seems like it's really ramped up just recently. To where we've had a lot of, a lot of individual bonds and client portfolios get called and we've got to put that money back to work. And so a while back, I would say, Chuck, 6 months, 7 months ago, we started using a lot more bond funds, short-duration bond funds to intermediate bond funds in the 5, 6-year range, added in 2 or 3 different funds to the portfolios that have really just in the last 30 days, seen a nice pop because interest rates have come down a little bit. And obviously now you got a rate decrease today, should continue to bring rates down. We not only had a good yield from the portfolios, but most of the returns I've been looking at in the reports in the last week or so, you know, 5 to 9%. I saw yesterday on one of the reports I ran, for fixed income, which we haven't seen for quite some time, a 9% return, uh, on bond funds. And so that's nice, and we've continued to add those into the portfolio. So that was a big change we made.

Worst point now that you're talking about, John, total return, because, you know, if I'm hearing it, you know, I hear, well, rates are going down, but you're talking about a bigger number and things doing well, right? Bond prices go up when rates go down, which means for those people who already own them, the price of what you own goes up. So again, interesting how, uh, you know, those things work. And it's important, I think, probably for us to point out, yes, yield on new bonds, uh, is going down, but if you already own bonds, this is a time, I think, or at least relative to the last couple of years, where we kind of play some catch-up on the 40% side of a 60/40 portfolio. Uh, it has been, um, really helpful there. I have to think, and I don't know you guys' opinion, um, that— I mean, that money's going to have to go somewhere. So as we get through the election, as some of this, uh, you know, change in posture by the Fed, uh, you know, either continues or even settles out here you'll start to see, I think, at some point the money's got to go somewhere. And so I, I think that, um, you know, money always goes where it's treated best. And I, I do think that means there's a lot of money in fixed income, and in particular kind of cash-equivalent type things that could very easily go into other asset classes and, uh, and, and could prop up either prop us up here or push us higher, I think.

I think you're right on both of those aspects. I mean, just if we look back a year ago, we were able to buy 6% bonds. Now we're lucky if we can get a 5% bond. And a year ago, CDs were paying 5.5%, some 6%, and now you're lucky if you get a 4.5% 1-year CD. So those rates are going to go down. And the Fed today says it expects to cut rates another 50 basis points before year end. And then another 100 basis points into, uh, 2025. Again, those numbers can always change, but with the Fed pushing rates down, you're going to see that money that's just been sitting in cash earning a sweet 5, 5.5%. Once it starts dropping lower and lower, money's going to move to people saying, okay, where can I make more money or earn, earn interest? And I think that's where you see the bonds come back into play. Um, Bond funds have been in net redemptions for 3 years now. Municipal bond funds are still in net redemption. So you see a lot of opportunity there within the bond funds. This is, to me, the sweet spot about owning a bond fund right now.

Yeah. So as we start looking, so we've talked about what has happened and what is now. Here we sit headed into the fourth quarter. What are some things, guys, that you feel like people need to be paying attention to or, or that they need to do maybe between now and year end? Chip, what do you think?

You know, I think as we get to year end and we're sitting together with our families for the holidays, one of the big things to do is talk about— I hate to say this, but succession planning, right? Making sure you've got your beneficiaries correct. That the money's going to your spouse or your kids and not your ex-spouse or to someone else. So definitely beneficiary check on life insurance, on your actual assets. You know, if it's a husband and wife joint account, you know, who's, who's the beneficiaries on that? If it's the children's accounts, who's the beneficiaries on that? So it's a good time of year to kind of put your financials together and look at beneficiaries, especially if we start thinking about there's going to be some tax changes coming in 2025.

In addition to what Chuck just said, because he's spot on, but also just, just, just look at your, you know, go back and look at your 401s and look at how you're allocated. Make sure that it's doing okay. Make sure that it's allocated properly. We can help you, you know, take a look at all your different investments that you have out there. Also look at your Roth accounts. Make sure you're maxing out your Roth accounts. Make sure you're maxing out your IRA accounts, your 401s. Make sure your contributions you're putting in, you know, what you should be into your plans. If you're, if you're not maxing that out and you need to be maxing that out, we can help you by doing a GPM and, and showing you, you know, what that does to your results 5 years from now, 10 years from now, to help you get to retirement. So again, just take a check back at a look at everything that you've got from an investment standpoint and make sure that it's positioned properly. And if we haven't helped you with it, we'd love to help you with any of it.

I'm a big fan, guys, of controlling what you can control. And we talked earlier about the economists being wrong about the recession, about people kind of misguessing on how much the Fed was going to do. Big believer in controlling what you can control. And John, to your point, um, your contributions are something you can absolutely control. Chuck, the beneficiaries are something you can absolutely control. We're going to get continually— and you guys probably more so in North Carolina than me in South Carolina because it's supposedly contentious, um, uh, up there— but it is, uh, we're going to get told about all the things, none of which we can control other than voting, over the next, you know, 2 or 3 months. But again, what you're contributing who your beneficiaries are. I would throw out, um, tax planning between now and year-end. We do know what the rules are for this year and for next year, for the most part. And so, uh, you can control to some extent whether or not— at least whether or not you overpay taxes. So doing some tax planning, because it's not what you make, it's what you keep. And then also, if you've got any debt, like you were talking about earlier, Chuck. I mean, if you've bought a house in the last 18 months, chances are mortgage rates— I'm not saying when somebody should refinance, whether it should be now or later. But what I did see was something yesterday by a local, local mortgage person that sent out something where their rate was 5.75% on a 30-year fixed with no points and no origination, which is a solid 0.5 points higher or lower than some of the numbers that I saw kind of at the peak. And so for those people, there's already probably a worthwhile savings, not to mention—

and I don't know, Chip, I don't know if you've used Raymond James Bank lately, but their rates have been really good and very attractive as well, um, for, um, and, and better than, than what I've seen outside of Raymond James have been really good.

They have been. And I'll tell you the other thing that, you know, I usually joke with clients because I have used them a fair amount, that Raymond James has a bank that loans money to people who don't need it. I mean, that's how I think they can be competitive, is that, yeah, they have— they literally, unlike the average bank that has a branch on every corner, Raymond James has literally a branch on a corner. And so all of their distribution, if you will, is, um, is through the financial advisors. And again, it quite frankly is a higher quality client, less credit risk. And I, I think that that ends up playing in there. The last thing I'll say with regards to rates in specific, John, since you mentioned it, the Raymond James Bank is one of the mortgage guys told me a few years ago that the average homebuyer stays in a home 7 years. And Raymond James has 5, 7, and 10-year fixed, fixed arms. So they're fixed for 5, 7, or 10 years at lower rates in a lot of cases than the 30, amortized over 30. But the rate's only good for, again, 10 years. But I've seen a— that, that has worked incredibly well for me since that person said— because again, the average person, life's going to change. You're going to have more kids and move up. You're going to have less kids, as my wife and I will soon. And probably move down. You don't need as much space. And so again, being mindful of all those different options versus just the standard, you know, talking to you guys and consulting you on some of the different options available. And Raymond James Bank does have a lot of them.

Hey Chip, just on a side note, this month, September, Gail, Gabby, and I have now been here for 7 years in Charlotte. And this is the longest in the 30 years we've been together that we've ever lived in one place. So 7 years, we're not selling, by the way.

We love it here. Yeah. Well, but again, you look at folks who have or have interest in a second home. And again, most, for most people, even if they buy it to retire there, it's rare that they buy one place and stay there. They buy and then they move down and then they live there for a few years and then they do something different. So again, that's neither here nor there. You know, options. And again, figure out what it is that you're solving for and solve for that. And again, Raymond James Bank, again, not to shill that too much. Pay attention to what you're spending and why you're spending it, and then spend as little as possible on things you don't care about.

Yeah, just so everyone knows, we're actually not compensated No, I, at all. Yeah. If someone does something with Raymond James Bank. Yeah, I think I saw this stat the other day. If the market's up double digits after Labor Day in a presidential election cycle, 7 times this has happened and all 7 times a year from now the market was higher. So again, the next 12 months looking pretty optimistic.

I would just say again, you know, everything that's been going on, inflation coming down, rates, earnings being good, election, there's always a reason not to invest. I feel like, you know, managing the portfolios today in this environment with rates where they are, that we've got really good solid investments on both sides, offense and defense, and a 60/40 portfolio, you know, should work. Going forward as it did not a couple years ago. I think that's back in our favor. And I think there's plenty of really amazing companies that are continuing to grow and continuing to add jobs, to add earnings, and the market continues to reward them for that. So I think that the cream will continue to do well. And there's plenty of other, you know, smaller, medium-sized companies too that we've identified that we've added to the portfolios that That should help us going forward. So I'm really comfortable and confident in everything that we're doing in the office to work on the portfolios.

Yeah, no matter who wins, bet on America.

That's right.

You bet on America, we all win. I got— that's just what history says. And I'm a big believer at some point, if, if watching the TV is giving you heartburn the next little while, just turn the TV off, go meet John at the pickleball court. And, uh, because that's not stressful at all, right, John? Um, and, uh, yeah, go outside, enjoy the moment. It's college football season, uh, again, uh, that can, uh, for my team got a victory.

He's coaching football.

Chip, tell us about that. Uh, yeah, no, I did, uh, we did, uh, call John for a pep talk, and, uh, our boys won 6 to nothing on a, uh, uh interception return for a touchdown. So yeah, so it was, uh, again, it's one of those things where historically we— our team plays, uh, bigger schools early in the year in an effort to prep for the conference season. And our coach preaches, you know, I don't really care about the first 4 like, but I care a lot about the last 7 or 8. And I'll tell you, it is— it's still hard going through the first 3, getting bludgeoned, even if it's supposed to be for the good. So again, it's one of those things. Sometimes you endure short-term frustration and pain knowing that it's in service of something bigger and better. And again, historically, I was about to gain—

wondering what was going on. We got to get a win. And I said, you're going to win tonight, Chip. You're going to win.

Need it. I pulled out all the stops, man. I gave them all the you never have to feel this way again. Imagine how you felt last week. You never have to feel that way again. I took a— John, I took a rock, a geode. If you guys are familiar with geodes, they look like a rock on the outside, but on the inside they have the crystals. A lot of times they'll They'll saw them in half, uh, and, and make them into decorative things. But I had two of them I had bought. I've been saving them, trying to figure out like when I was gonna pull them out. And, uh, and I tossed them to two of the kids and I'm like, what is that? And they're like, that's a rock. And I said, that's what it looks like on the outside. And I took a hammer and I slammed it on the— and it cracks open. You can see all the crystals. And I said, But on the inside, this is what it is. It's special, you know, and you're special on the inside. Yeah, the Panthers are prepped up here, man, inch by inch, like, like, uh, you know, any given Sunday, man. It was, uh, like, that was all I had, guys.

If that didn't step forward, one step back, three steps forward, one step back. Control your emotions, buy quality, good to go.

Listen, it's much easier to control your emotions or to predict and deal with the stock market than it is to deal with the emotions of 15 to 18-year-old young men. Uh, it is— you can hang it up. So, uh, but guys, I appreciate it. I think that, uh, super insightful. I think it gives folks a lot to think about. Between now and the end of the year. And I would just encourage them, if you've got a question or a concern, uh, just, just give these guys a call.

Appreciate you, Chip.

Thank you. Thank you, Chip.

Talk soon, fellas.

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