A Tale Of Two Markets

For as bad as the market returns were during the fourth quarter of 2018, the first quarter of 2019 returns for investors has been equally impressive – this time to the upside!

Here is a chart of the S&P 500 that helps illustrate the situation:

S&P 500 - Q4 2018 vs Q1 2019

In 2018 the bears were in full control. It was a challenging situation because everything that should have worked during 2018, in the end, did not.

In searching for an explanation for “why” Q4 2018 was so bad, I learned on a conference call with Market Analyst Jeffrey Saut, that 140 hedge funds closed their doors for good an had to liquidate all holdings to return cash to their investors.

The closing of these funds, paired with tax loss selling, computer-based algorithm trading and many portfolio managers being on vacation due to the holiday season, gives a good explanation as to why day after day the market was filled with sellers and no buyers.

The reality of the situation was the sellers just overpowered any and all buyers.

Fast forward to 2019.

2019 has seen a resurgence in the stock market. With the holidays over, portfolio managers returned to their desks with fresh new money from 401k and IRA contributions and started buying stocks that had been marked down during the end of 2018. Additionally, I expect much of the money pulled from those 140 hedge funds was recycled to other managers and put back to work in the stock market during 2019.

The rally we have seen since the first of the year has been equally impressive in relation to the losses experienced at the end of 2018.

My belief at this point is the bulk of the evidence remains bullish for the market. There are a few negative crosscurrents, but they are not yet large enough to impact the larger bull market trend.

Earning Season Is About To Heat Up

The start of corporate earnings season is important to us as investors because it gives us a glimpse into the financial performance and strength of the companies we own.

With 150 companies set to announce earnings in the next few days, we believe it’s going to provide a lot of clarity on the fundamentals of companies here in the United States.


Taxes and Tax Freedom Day 2019

My colleague and good friend Max Larsen shared this recently and I liked it so much I did a simple “cut and paste” so you could see it too.

Tax Freedom Day and Cheating

As Benjamin Franklin once said, “Nothing is certain except death and taxes.”  Well, last week on April 16th we also celebrated Tax Freedom Day which, according to Wikipedia is:

Tax Freedom Day is the first day of the year in which a nation as a whole has theoretically earned enough income to pay its taxes. Every dollar that is officially considered income by the government is counted, and every payment to the government that is officially considered a tax is counted. Taxes at all levels of government – local, state and federal – are included.

I found this graphic on the Tax Foundation’s website which shows that our country’s tax obligations have been steadily increasing since the 1900s.  Thankfully we’ve seen a little reprieve over the last few years.

Where you live also makes a huge difference as this next chart by state shows:

When taxes keep creeping up we can all guess what will also increase – cheating of course.  Our politicians keep telling us that we aren’t paying our “fair” share.  Their desire to keep spending money we don’t have – wringing the last drop of money out of our pockets – leaves many citizens frustrated – believing it’s a rigged game.  Is it any wonder why we’re seeing more cheating than ever? It’s difficult to see so just click on the chart to go to the website.  I’m glad Ohio’s Tax Freedom day is a few days early on April 14th, but those living on the coasts aren’t treated as nicely.  Heck, if you live in New York you have to work until May 3rd.  Is it any wonder why people are leaving?

If you Google “U.S. tax fraud” you will find cheating in the range of $450 to $500 billion per year!  According to an article in Accounting Today:

Another Tax Day has passed, and tens of millions of American citizens and corporations have filed returns showing they paid their fair share. Unfortunately, many did notConsider that the “tax gap” — the IRS’s standard measure of tax evasion — has exceeded $400 billion, according to the agency’s latest figures. Tax evasion “is illegal and is an underappreciated problem in the United States,” the Brookings Institution says. “About one out of every six dollars owed in federal taxes is not paid. The amount of unpaid taxes every year is plausibly about three-quarters the size of the entire annual federal budget deficit.”To make matters worse, the IRS pursues fewer cases of tax evasion than it used to. The number of criminal cases brought by the IRS in 2017, in which tax fraud was the primary crime, declined by almost a quarter since 2010, the New York Times reported.

I suspect that the average taxpayer’s definition of “fair share” is a lot different than what the politicians think.  Still, the bureaucracy and incompetence in the Treasury Department – IRS – is legendary.  Just try calling the IRS for an answer to your tax question or, heaven forbid – if you have an actual problem.


Closing Thoughts

That’s all for this market report. Remember to get outside and enjoy the Spring weather we are experiencing. Sunshine provides much needed Vitamin D and helps lift spirits, so remember to take a little time for yourself and have some fun.

Speaking of fun, My parents and I took the girls down to Hunting Island State Park in South Carolina for a few days last week while they were on Spring Break. We had a great time and got to see some amazing sights.

Here’s a photo we took while sitting on one of the many sand dunes.

Family at Hunting Island State Park

To wrap things up, let me remind you, we will continue to monitor our indicators and will make portfolio changes as warranted by market and economic data.

If you would like to discuss how this directly impacts your account or other financial endeavors, please give us a call at 800-722-5862 and we can go into more detail. We appreciate the trust you have placed in us, and we continue to do our best to navigate current market conditions.




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