Gifting Strategies to Manage Unrealized Gains: Downstreaming and Upstreaming

Navigating the complexities of wealth management often involves strategic moves to optimize tax efficiency. Two such strategies, Downstreaming and Upstreaming, are approaches to managing unrealized gains by moving securities between generations.

Downstreaming: Passing unrealized gains to someone in a lower tax bracket

Gifting stocks with unrealized gains to people in lower tax brackets can be a thoughtful and potentially tax-efficient way to share wealth. The cost basis and acquisition date of the stock will carry over to the recipient. They will not owe taxes at the time of the gift but will owe taxes at the time of sale. However, since the recipient is in a lower bracket, the amount of taxes due could be lower.

For example, consider the hypothetical case of the Clampett family. They have amassed a large amount of wealth in the family’s oil business and live in Beverly Hills, California. The patriarch, Jed, has a combined Federal and State long term capital gain tax rate of 33%. Jed has a large amount of Clampett Oil stock with a zero-cost basis that currently has a market value of $100 per share.

He wants to support his nephew Jethro and his wife by giving them each an annual gift of $18,000. They live in Florida, have a household income of $80,000 and two children. Thus, an extra $36,000 annually would be a significant windfall.

If Jed sold Clampett Oil stock to raise cash for the gift, for each share sold he would realize $100 of long-term gains taxed at 33%. Thus, he would have to sell $53,731 of stock to transfer $36,000 of cash.

If Jed were to give Jethro and his wife shares of Clampett Oil totaling $36,000 market value and have them sell the shares instead, due to their income, living in Florida, and having two dependents, they would owe zero capital gains. Downstreaming the appreciated stock allowed Jed to avoid paying $17,731 in taxes to make his $36,000 gift.

An additional benefit for those who may be facing estate taxes is that these gifts help reduce the size of the giver’s taxable estate.

There are many common situations where it may be advantageous to use appreciated securities rather than cash:

  • Wealthy parents or grandparents helping their less-wealthy adult children or grandchildren with rent and other living expenses.
  • Helping extended family members who are living on fixed income or Social Security.
  • New college graduates, who commonly have income from only May to December of their graduation year.

It is essential to have a good understanding of both the giver and the receiver’s Federal, State, and Local taxes. In the example above, California has a high tax on capital gains, while Florida has none. If Jethro and his wife were residents of New York City rather than Florida, their Federal tax bracket would not change but they would have faced both New York State and City taxes when the shares were sold, thus decreasing the final amount of the total gift.

Your Crestwood team can help you identify situations where Downstreaming may make sense and work through each step of this process.

Upstreaming: Passing unrealized gains up one or more generations

In contrast to the gifting strategy above, Upstreaming is the practice of giving appreciated securities from a younger generation giver to an older generation receiver who then passes assets back to the younger party upon their passing.

The process works like this:

  1. A younger party who has significant unrealized gains makes a gift to the older party.
    • This can be in the form of recurring annual exclusion amount gifts ($18,000 in 2024) or as a larger amount in a single year (which requires the giver to file a gift tax return as this uses a portion of the giver’s lifetime exclusion amount.)
  2. After the gift is given, the older party updates his or her estate documents to bequeath the assets back to the younger giver or another party upon their passing.
    • If multiple family members are Upstreaming, a best practice is to create individual accounts to track each person’s gifts to simplify estate settlement.
  3. At death, the older party person’s assets receive a “step-up” in cost basis, meaning the cost for determining taxable gains is adjusted to the market price at the time of passing.
  4. The earmarked assets are then passed back to the younger party with the stepped-up basis.

This strategy works particularly well if the younger party would likely have estate taxes at their passing while the older recipient’s estate is below the lifetime estate tax exemption ($13.61 million in 2024).

Section 1014(e) of the tax code does place restrictions on how this process works, however they can be manageable by planning ahead:

  1. The older party must live beyond one year from the gift date OR
  2. The older party must bequest the appreciated asset to someone other than the original donor or their spouse

Failure to meet either requirement would result in the securities not receiving a step-up in basis.

Returning to the Clampett Oil family above, Jed’s mother-in-law Daisy is 80. Daisy owns her home but has no assets of her own. Jed’s daughter Elly has $6 million of Clampett Oil stock gifted to her by her father with the same zero cost basis. She has no other assets and thus would like to diversify her portfolio, but capital gains are an obstacle.

Using the Upstreaming technique:

  1. Elly transfers her $6 million of Clampett Oil to Daisy. Elly will need to file a gift tax return since this is over the $18,000 annual gift exclusion amount.
  2. Daisy updates her will and creates a new taxable account to hold the shares.
  3. Daisy passes away over a year later and in that time, Clampett Oil stock has increased in value from $100 to $120 per share.
  4. The cost basis of the Clampett Oil shares in the account for Elly is stepped up from zero to $120 per share.
  5. The executor follows through on the instructions in the will and distributes the shares back to Elly. Daisy’s other assets such as her home pass through her will normally.
  6. Elly is now free to sell the Clampett Oil shares and diversify without having to pay capital gains.

Managing Capital Gains is an Ongoing Process:  Start Planning Now

A small investment of time and planning today may lead to lower tax bills tomorrow. Whether you’re looking to support loved ones or safeguard your legacy, Downstreaming and Upstreaming strategies may offer tangible benefits. If you are interested in learning more about these and other strategies, please reach out to your Crestwood team.

 

 

 

 

 

 

 

The information contained in this document is provided by Crestwood Advisers Group, LLC (“Crestwood”) for general informational purposes only. For estate planning advice, consult with your team of advisers. Crestwood is not a law firm and does not provide legal advice. Crestwood is not a CPA firm and does not provide tax, audit, or attest services.

April Economic Update: Grounding Expectations in Reality

“The secret to happiness is having low expectations.” – Warren Buffett

We have written numerous times in the last six months about the disconnect between investor expectations of Fed rate cuts and the Fed’s own projections. In Q4 2023 when the Fed made clear they were holding off on further rate hikes and were expecting two cuts in 2024, investor expectations were for at least four. Earlier this year, when the Fed adjusted their projections to three possible cuts, investor expectations climbed further to a starry-eyed seven cuts.

February and March saw a reversal of these overly optimistic hopes, which was a welcome change.

Fed Chair Powell finally brought the message home to investors with an appearance on 60 Minutes in February, echoing the same talking points he and the Fed governors have shared for months. Two economic reports in February supported the Fed’s decision to delay: a hot January CPI report and higher than expected forecasted growth in nonfarm payrolls. In January, a steeper than expected decline in retail sales suggested that the Fed’s approach is working, albeit slowly. Last week, the San Francisco Fed updated the central bank’s favorite inflation gauge, the Personal Consumption Expenditures price index (PCE). The index rose 2.5% last month on an annual basis, still well above the Fed’s 2% target. Powell noted that this was “pretty much in line with our expectations” and cautioned investors again that the Fed is not in a rush to cut rates: “If we reduce rates too soon, there’s a chance that inflation would pop back and we’d have to come back in and that would be very disruptive.”

The message seems to be getting through. Investor expectations for the first rate cut shifted from March to June. In addition, the number of cuts expected is now in line with the Fed’s projections.

This removes a potential distraction for investors, who should accept two undeniable truths:

  • Forecasting the time it will take to curb inflation is an exercise in futility.
  • Progress will be made at a sluggish pace.

While we cannot predict when the Fed will cut rates, we can look at how the market has reacted after past rate hike cycles ended.

The chart below shows S&P 500 returns for the 12 months before and 24 months after the end of a rate hike cycle. The 12-month periods leading up to a final hike tend to have negative returns, while the periods following the final hike tend to fare much better. Our current hiking cycle is marked in red, and the hope is that we continue to see a return pattern similar to the 1994-95, 1983-84, and 1988-89 cycles.

Most importantly, historically, for long-term investors: S&P 500 returns for periods 3+ years following a final hike were healthy, with only the 1999-2000 hiking cycle showing negative returns 3 years out.

 

Capital Markets

In March, most major equity indices finished higher. The All-Country World Index (ACWI) was up +3.4%, the S&P 500 rose +3.4%, the EAFE gained +3.5% and Emerging market equities rose +2.5%. U.S. Small caps had another strong month, finishing up +4.2%. Bonds rose slightly by 0.76%. Treasuries were virtually unchanged for the month, with the 2-year yield at 4.6% and the 10-year yield at 4.2%.

 

 

Affirming your Financial Foundation for 2024

Following our January conversation about starting the year with strong financial health, we invite you to keep the momentum going with Crestwood Advisors. As your life and goals evolve, so should your financial strategy. Let’s take this opportunity to deepen our collaboration, ensuring your financial plans are as dynamic and forward-looking as you are.

Focus on What Matters to You:
• Thinking about a big purchase or investment? Let’s plan it together.
• Experiencing changes in your life priorities, like family or health? Your financial plan should reflect these.
• Considering adjustments in your family or living situation? We’re here to guide you.
• Approaching a significant birthday or milestone? Let’s make sure you’re prepared.

Strengthen Your Financial Base:
• Review your emergency fund to ensure it’s sufficient.
• Maximize your retirement contributions, based on this year’s limits.
• Explore the best tax strategies for your situation, including Roth contributions.
• Consider other savings options, like HSAs and brokerage accounts, for long-term benefits.

Family and Future Planning:
• Need help with family financial goals, like buying a home or saving for college? We can help.
• Estate planning is crucial, especially with changing tax laws. Let’s discuss how to best secure your legacy.

At Crestwood Advisors, we’re more than just advisors; we’re partners in your financial journey. Building on our earlier insights, we’re here to support, guide, and empower you as you navigate through 2024 and beyond. Whether you’re refining your goals, boosting your savings, or planning for your family’s future, we encourage you to reach out with any questions or for further discussion. Let’s work together to make this year one of growth, security, and financial well-being.

Crestwood Advisors Named to WealthManagement.com’s RIA Edge 100 List for 2024

Crestwood Advisors is pleased to announce it has been recognized by WealthManagement.com in its prestigious RIA Edge 100 list. This list showcases RIA firms reinvesting in their businesses, maintaining a high level of client service and achieving intentional growth.

As a growing advisory firm committed to client success, this acknowledgment underscores the team’s dedication to delivering exceptional wealth management services and guiding clients through their financial journeys.

Access the full ranking by clicking here. Crestwood did not pay a fee to appear on the published list.

Please view Crestwood Advisors’ list of important disclosures regarding awards and recognitions here.

 

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About Crestwood Advisors

Crestwood Advisors is an independent, fee-only, wealth management firm with over $5.3 billion in assets under management. Founded in 2003, Crestwood Advisors provides investment management with financial planning strategies to help high-net-worth individuals and families identify and prioritize their goals and build sustainable wealth so that they may enjoy more financially secure and purposeful lives. For more information, please visit https://www.crestwoodadvisors.com.

March Economic Update: Don’t Mix Politics and Investing

As we approach Election Day, investors are increasingly nervous about the outcome of the November Presidential election.  Political anxiety is high and rising as the country seems more divided than ever.

Fortunately, we have a long history of stock market returns which includes either government control by one political party or a divided government.  The below chart shows S&P 500 Index returns by calendar year dating back to the 1940s:

The main takeaway is that shifts in power between Republicans and Democrats show little effect on investment results. Market returns have been healthy during Republican (+12.9%), Democrat (+9.3%) and divided governments (+8.3%).  These positive outcomes are an important reminder that staying invested regardless of the outcome of elections is the wisest investment strategy. We understand that political angst is a concern, but we emphasize that the U.S. economy and stock market are driven by market fundamentals which so far this year are supportive of continued growth.

Capital Markets

In February, most major equity indices finished higher. The All-Country World Index (ACWI) was up +4.3%, the S&P 500 grew +5.3%, the EAFE gained +1.8% and Emerging market equities rose +4.8%. U.S. Small caps rebounded after a rough January, finishing up +5.7%. Bonds yields rose, pushing down returns for U.S. Bond Aggregate which fell -1.4%. Treasuries yields moved higher across the curve, with the 2-year yield reaching 4.57% and the 10-year yield at 4.19%.

January Economic Update: We’re not there yet, Goldilocks…

January reports on the labor markets and GDP continue to support our thesis that a “soft landing” is the most probable scenario. However, investors are impatient for the Fed to begin rate cuts and thus were again disappointed by recent strong economic data.

As we highlighted last month, we expect continued volatility around Fed rate expectations. Prior to the Fed meeting, investors expected a March rate cut. This dream was squashed by comments from Fed Chair Powell and Fed Governor Waller, who reiterated there was no reason to move quickly or cut rates meaningfully in March. While acknowledging the past six months of favorable inflation trends, Powell emphasized the necessity for additional data. Following Powell’s comments, market expectations shifted from the high chance of a rate cut in March, to a high chance that rates will remain unchanged. This allowed the Fed to leave their options open.

While the January FOMC meeting didn’t provide a clear signal on timing, all signs point to a Fed more likely to ease monetary policy in the coming months as we are seeing a mix of Hot numbers that need to fall and Cold numbers that need to rise.

What’s “Too Hot”?
• Headline CPI above the Fed’s 2-2.2% target.
• Q4 GDP increasing 3.3% annual rate exceeding expectations.
• Housing costs remain elevated and will take time to come down. In the interim, they provide a hard floor that keeps inflation from falling as rapidly as the Fed wants.
• Investor expectations for the Fed to cut rates quickly.

What’s “Too Cold”?
• Unemployment consistently trending below 4%, which suggests there remains too much potential for wage-based inflation pressure for the Fed to relax.

What’s “Just Right”?
• December Retail Sales were strong, which supports the case that the economy can sustain the current interest rate environment for a period.
• Delinquencies in mortgages remain at pre-pandemic levels.

Taken together, it appears that the Fed will cut rates, but we are not there yet.

It’s an election year! Is that Good News or Bad News for stocks?

Since 1928, stocks have performed slightly better in non-election years (+8.0%) than election years (+7.5%)1. While returns have not been markedly different, election years tend to have noticeably higher levels of volatility and intra-year drawdowns. Since 1980, the average election year had a peak-to-trough drawdown of 17% compared to a 13% drawdown in non-election years2. Thus, we should expect the market’s road to the White House to be lined with potholes, speed bumps, and detours. However, investors have historically benefited from staying the course.

1 & 2 Source: J.P. Morgan, 3 election year myths debunked, 1/19/24

Capital Markets

In January, the All-Country World Index (ACWI) was up 0.61%, the S&P 500 was up 1.68% and the EAFE was up 0.59%. Emerging market equities, lead lower by China, fell -4.64%. U.S. Small caps also pulled back, falling -3.89%, after rallying greater than 20% from November to December. Bonds were nearly flat, declining slightly by -0.27% for the month.

Treasuries yields moved slightly higher across the curve, with the 2-year yield reaching 4.46% and the 10-year yield at 4.16%.

2024 New Year Financial Health

Starting a new year is a great time to make sure your financial health is strong and secure. Tax season is just around the corner, but before it gets here, now is the time to review your financial plan, income, and goals.

Your stage of life will drive your financial priorities. Here are some key aspects of your financial life that should be important for you to reevaluate.

Under 40 – The Growth Phase:

For those who are working in your early careers, perhaps starting family, evaluating the purchase of your first home, and looking ahead, consider the following:

  • Short Term Goals – House purchase (mortgage), wedding, car, travel, further education, paying off or reducing debt
  • Income – New employment, increase in salary or bonus, stock options (vesting)
  • Savings – New target goals, emergency savings fund, 401(k) retirement contributions, IRA, Roth, employee benefits, other
  • Changes to marital or family status – considerations for filing in April, joint accounts, titling of assets
  • Receiving financial gifts – Do you have family considering annual gifts to you, funding 529 accounts, or assisting with a home purchase?

40-65 – The Prime Years:

For folks in your prime professional working years or just at a stage in life where you’re thinking more seriously about the timing of retirement, you’ve got a lot on your mind! You may be playing a more active role with aging parents, growing children, and everything in-between. Consider these points:

  • Goals – Timeline to retirement, second home, renovations, philanthropy, travel
  • Income – Employment changes, increase in salary or bonus, stock options (vesting), future grants
  • Savings – New target goals, HSA, 401(k) retirement contributions, IRAs, employee benefits
  • Family – Support for children, gifting, weddings, parental assistance, college funding, graduation
  • Cash Flow Needs – Portfolio income, liquidity requirements, HELOC, line of credit

65+ – The Golden Horizon:

For those of you in retirement or soon to be, you have a different perspective on life than when you were younger. Consider the following:

  • Cash Flow Needs – Annual liquidity requirements, anticipated expenses from portfolio, larger expenditures (family vacation, etc.), withdrawal rate
  • Income Replacement – Develop income strategy, Social Security benefits, RMD’s, pensions, rental income, annuities, rollover options, etc.
  • Family – Support for adult children, gifting, weddings, parental assistance, estate plans, college funding, graduation
  • Time – What is keeping you occupied during retirement? New hobbies? Luxury travel?

Keeping Your Financial Health Strong

As you review your financial picture, remember that a well-thought-out plan is key to long-term success. We’re committed to helping you navigate the complexities of financial planning, ensuring you’re well-equipped to make informed decisions throughout 2024 and beyond. With a healthy plan in place, you’ll be able to enjoy the entire year just a bit more relaxed and confident, knowing you have a strong financial foundation underneath it all.

Here’s to a year filled with prosperity, wise investments, and financial peace of mind!

The December Rally – Powell Spikes the Eggnog

Driven by expectations of a soft economic landing and potential Federal Reserve interest rate cuts, U.S. stocks rose 4.5% in December, extending the momentum that began in November.   The S&P 500 closed the year with nine consecutive weekly gains, the longest streak since 2004, finishing the month just 0.6% below its January 2022 record close. The small-cap Russell 2000 also had its best month since November 2020, gaining 12.2%. The so-called “Magnificent Seven” stocks trailed as December witnessed a rally in speculative investments, including a strong performance for junk bonds.

The December rally was fostered by the FOMC meeting when the Fed confirmed a shift toward rate cuts in 2024. In the updated Summary of Economic Projections, a.k.a. the Fed’s “Dot Plot”, the forecast for the median Fed funds rate is in the range of 4.5-4.75% by the end of 2024, down from a projection of 5.0-5.25% in September. This pivot sets the Fed’s expectations at three rate cuts in the upcoming year.

This shift in stance encouraged investors to increase their own rate cut expectations, which were already overly optimistic. Surveys show investors expect double the number of rate cuts that the Fed is projecting. While rate cuts are generally good for investors, a wide disconnect between investor expectations and economic reality reflects an environment where markets are likely to experience bouts of volatility.

Economic data for December supported the soft-landing narrative with disinflation gaining traction. Despite some positive economic indicators such as November payrolls beating expectations, there were revisions to the previous two months, and average hourly earnings gains slowed.  The JOLTS report showed job openings fell for the third straight month to the lowest level since March 2021, reflecting a cooling but persistently strong labor market.

However, despite the rally in the past two months, we believe investors should have grounded expectations. We are optimistic, but some patience is warranted given that markets may have fully priced in the most optimistic Fed rate cut scenarios, posing short-term downside risks if the Fed does not meet these expectations.

Capital Markets

The All-Country World Index (ACWI) was up 22.81% for the year, the S&P 500 was up 26.26% and the EAFE up 18.95%. Emerging market equities and U.S. Small caps lagged but were up 10.12% and 16.88% for the year, respectively.

Treasuries saw a rally across the yield curve, with the 2-year yield dropping by nearly 0.45% to 4.25%, the lowest since May. The 10-year yield also decreased by almost 0.50% to just above 3.85%, the lowest since July. 6-month Treasury Bill yields declined slightly to 5.26%.

Navigating the 2024 Economic Landscape: Trends, Challenges, and Opportunities

2023 Consensus Forecasts – A Big Miss:

At the beginning of last year, 85% of economists forecasted a recession for the U.S. as many indicators, including an inverted yield curve, were flashing red.

Throughout 2023, the U.S. economy not only avoided a recession, but growth accelerated in the 3rd quarter to a robust rate of 4.9%.  Low unemployment and strong wage growth helped consumers shrug off higher interest rates and continue spending.

The best news from last year was that inflation continued to trend lower toward the Fed’s target of 2.0%, falling to 3.1%, even with strong economic growth. At the December Federal Reserve meeting the Fed indicated that interest rates have peaked for this cycle, shifting their focus to maintaining current growth.

Resilient U.S. Economy Continues:

This time last year, we were more optimistic than consensus forecasts because we believed consumer spending was less sensitive to interest rate increases than in past cycles.  Today, we believe that the forces affecting 2023’s growth are still in place for 2024.

Economists have underestimated two trends.  First, more stable service sectors have come to dominate the U.S. economy. Second, consumers are locked into low interest rates mortgages which have helped shield them from the Fed’s 11 interest rate hikes.

The U.S. economy is a service economy.  In 1970, consumption of services surpassed that of goods. Today, 80% of jobs in America are service jobs in industries like business services, health care, governments, and leisure. Spending on services tends to be more recession-resistant and helps to stabilize GDP growth.  Conversely, spending on goods tends to decline during recessions and sometimes the declines have been steep. During the Global Financial crisis in 2009, the consumption of goods fell -6.8%, while consumption of services fell only -1%.

Today, the strength in the U.S. economy is focused on these service sectors, driving wage growth, consumption and, in turn, contributing to inflation.

Implications: As the U.S. economy evolves and becomes more service-oriented, we should expect more consistent growth and less severe recessions. Tightness in labor markets, especially in service areas, suggests inflation may be slower to come down than many expect. As a result, it could take longer than expected to reach the Fed’s target of 2.0%.

Consumers have less variable-rate debt. Compared to prior economic cycles, higher interest rates have had less of an effect on consumer spending.  In prior cycles, higher borrowing costs pinched consumers who had credit card debt or variable-rate mortgages.  Today, it is estimated that 82% of mortgage holders have a mortgage rate below 5% and most of those loans are fixed rate.  Also, many consumers used the pandemic stimulus payments to reduce credit card debt, so consumer finances have been excellent and supported spending growth despite higher interest rates.

Implications: Consumer spending will remain healthy as higher rates pinch consumers less due to changes in consumer debt.  We expect housing markets will remain tight as many current homeowners are reluctant to transact if their house has a low-interest mortgage.  Considering consumers are somewhat interest rate immune, we expect rates to remain elevated for the foreseeable future.

Soft Landing Likely in 2024

Crestwood’s 2024 outlook for economic growth is positive.  We expect consumer spending to remain healthy considering the durability of the service economy and consumer rate insensitivity.  Combined with tight labor markets and solid wage growth, we remain optimistic that the backdrop for markets is supportive.

Since 1960, the Fed has achieved only one economic soft landing, where higher interest rates slowed the economy without an ensuing recession. 2024 is shaping up to be the second soft landing.  We are encouraged by the Fed’s comments that they are pleased with progress on containing inflation. Rates have likely peaked and appear poised to decrease in 2024.

Still, we expect this ride to be bumpy as inflation will remain sticky and slow to fall.

What could delay or derail the path forward:

  • Global geopolitical recession. Ian Bremmer of the Eurasia Group believes we are in a geopolitical recession which is like an economic recession except it affects many countries and lasts longer. With the outbreak of war in the Middle East, the ongoing war in Ukraine and the U.S. struggling with political dysfunction, geopolitical good news may be hard to find in 2024.  While the U.S. economy is largely unaffected by these conflicts, the humanitarian toll on civilians and soldiers in these regions is staggering and tragic.
  • Rates stay higher for longer. Even though the cost of debt has fallen recently, higher rates could be a risk, affecting low-end consumers and highly leveraged companies that need refinancing. Higher defaults could stress non-bank lenders who have experienced rapid growth and face little regulation.
  • Commercial office real estate is facing significant headwinds. Falling demand and increased supply are the result of a restructuring of the modern workforce to a mix of in-office, hybrid and fully remote workers. The market adjustment in office prices will likely be significant and take years to unfold. Sizable nonperforming real estate loans have yet to materialize.  If they do, losses could affect banks’ balance sheets and force them to reduce lending. Small banks are particularly exposed as 44% of their assets are commercial real estate loans.
  • China is a source of uncertainty. China’s growth model that focuses on exports and infrastructure investment has reached its limits and efforts to support domestic consumption need to be expanded. Elevated debt burdens and falling real estate prices will continue to affect consumer spending and growth. International investors are frustrated with the decline of legal protections for shareholders and increased government intervention.

Market Outlook: Optimistic Backdrop

With a positive economic backdrop, we expect 2024 to bring continued modest growth and opportunities in financial markets.  Federal Reserve commentary has become less restrictive and more positive for markets.

For equity markets, the positive economic backdrop should support continued revenue and earnings growth.  All eyes will be on the Magnificent Seven stocks – Apple, Microsoft, Alphabet, Tesla, Meta, Amazon and Nvidia – to see if they can sustain their fundamentals and valuation.  These companies are huge, with their combined market capitalization totaling over 30% of the S&P 500 Index which is equivalent to the value of all the stocks trading in Canada, France, China, UK and Japan!

In 2023, the magnificent seven were up a combined 107% and accounted for 60% of the gain in the S&P 500 index.  Should investor sentiment sour on these companies, the S&P 500 index will struggle. For individual equities, we remain focused on quality investments which we believe outperform over a market cycle with lower volatility.

For bond markets, after decades of low interest rates, we believe higher yields – around 4% – will provide attractive returns for fixed-income investors. We believe the Fed’s December pivot towards lowering interest rates gives investors a solid backdrop to investing in fixed income.  Investors should be rewarded by extending maturities and locking in attractive interest rates.

As always, we view all market forecasts with skepticism and keep a close eye on economic data and markets.  Considering forecasters’ big miss for 2023, it is important to be flexible in our views and remain focused on improving long-term outcomes for client portfolios.

 

 

 

 

 

This document is provided for general informational purposes only and should not be construed as containing investment advice. For individualized investment advice, please consult your adviser.  This document contains forward-looking statements, predictions and forecasts (“forward-looking statements”) concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.