Dear Valued Clients and Friends –
No podcast or video today, just the written word to finish off DC Today for this Easter Week.
It was a generally positive trading day in markets overall. One thing that really is quite remarkable is just how quickly the amount of negative-yielding debt has vanished from global bond markets at this point. From over $18T to now just a few hundred billion, shown in the chart below, is an end to a financial experiment for the ages. Did negative yields in Europe and Japan lower savings rates and drive consumption? No, they did not.
What’s On David’s Mind
As I am typing this Thursday morning all three major market indices are basically flat. Maybe something will have changed in the daily action by the time you are reading this, but with the market closed tomorrow for Good Friday and the month of March coming to a close, we basically know the following about Q1:
- The major market indices are all up in Q1, a lot
- We started the year expecting six rate cuts and now expect three or maybe four (ambiguous odds in the futures market between 75 basis points and 100 basis points of rate reduction by year-end)
- We started the year expecting a rate cut in March and now expect the first one in June at the earliest.
- See #1
The Fed does not drive markets. The noise around the Fed is unhelpful and pitifully stupid. And this crucial forecast we had for 2024 took one quarter to play out, not the whole year.
Market Action
*CNBC, DJIA, March 28th, 2024
Dow: +47 (.12%)
S&P: +.11%
Nasdaq: -.12%
10-Year Treasury Yield: 4.20% (+1 basis point)
Top-performing sector: Energy (+1.10%)
Bottom-performing sector: Communication Services (-.31%)
WTI Crude Oil: $83.00/barrel (+2.03%)
Key Economic Points of the Day
- Q2 GDP was revised higher by two-tenths to 3.4% from a previous 3.2%, and a positive sign for the economy.
- Initial jobless claims came out just slightly lower than expected at 210K versus 214K expected in continued support in employment.
- Pending home sales came in higher than expected, up 1.6% versus 1% expected, so there you have it—a three-for-three to the positive in today’s economic calendar.
Ask Brian
“Good evening. I’d like to follow up on today’s “Ask Brian.” As in the example given, if a client has a 90% capital gain on a portfolio of stocks and you sell them, depending on his/her bracket and state, he/she might owe 15% to ~38% in capital gain taxes. If it’s 38%, which means giving up 34.2% [.38 X .90] in capital to invest, that’s a pretty big hole to make up with new investments. Of course, if the original investments are not promising in any way or have a terrible risk profile, one is better off selling, but if they just look like they’ll underperform, isn’t the investor often better off just staying with the original investments and keeping the additional 32.4% of capital at work for him/her for either further capital gains and/or dividend payouts on the much larger investment base?” -Mark K. |
Yes, as mentioned originally, the first step is minimizing that tax effect on repositioning the portfolio from the beginning. It would be rare that we would do it in such a way day one (or even year one) that would start us off like the black and white example you mention.
Keep in mind, though, that failing to reallocate portfolios to align with actual client goals, investment needs, and returns is far worse over time. I suppose if capital gain tax rates are the devil, then it’s better to deal with the one you know versus the one you do not know that would come from the long-term damage caused by financial misalignment. |
On Deck
- We’ll have Dividend Cafe live in your inboxes tomorrow.
- Markets will be focused on the PCE data out in the economic calendar tomorrow.
Send questions any time, and have a great night!
With regards,
Brian T. Szytel
Co-CIO, Senior Managing Director, Partner
bszytel@thebahnsengroup.com
The Bahnsen Group
www.thebahnsengroup.com
The DC Today features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.