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Moore Financial Solutions Second Quarter 2023

Tyler Moore • July 18, 2023

After many quarters of muted performance, the U.S. stock market was able to record an 8.3% return in the second quarter of 2023. This move from 4,109.31 to 4,450.38 on the S&P 500 comes as welcomed news to U.S. stock market investors who have diligently waited for the storm of rising rates to pass (1). This artificial intelligence (A.I.) boom in technology stocks sent stock prices and earnings expectations higher. This quarter, we’re excited to review our take on positive performance to the technology sector regarding A.I., recent positioning by the Federal Reserve on interest rates, and the Moore F.S. strategy on positioning of assets within your account.


 As the world rapidly evolves and mankind looks for the next big thing, it seems each quarter we can discuss a new global topic. Near a century and a half ago, electricity changed American homes and businesses meaningfully and opened the doors to the industrial production age. Looking back several decades, the creation of the internet increased business efficiency in ways few could truly fathom. Next on the horizon might just be artificial intelligence (A.I), which is a branch of computer science dealing with the simulation of intelligent behavior in computers and refers to the capability of a machine to imitate intelligent human behavior (2). As a hypothetical, A.I. could design your kitchen remodel and give you infinite options to consider. A.I. is open 24/7 to immediately answer every question you ask about kitchen remodeling. Then, when you give the approval, it can have the complete product list in your virtual cart or that product list waiting for pickup at the local home improvement store. A.I. could create an immediate boost to the financials of some companies, in this case, the home improvement store. Goldman Sachs strategists estimate that generative AI could create productivity gains that result in S&P 500 companies expanding profit margins by about 4 percentage points in a decade following widespread adoption (3). As a partial owner of S&P 500 companies, this might positively impact you financially. Many investors benefited from the iShares Global Tech ETF by Blackrock (IXN) which posted a 38.72% increase for the first half of the year, plus dividends (4). It benefited significantly from Nvidia (now the third largest holding) surging 189% on increasing expectations of future microchip dependency partially fueled by A.I. implementation (5). But A.I. likely comes at a huge risk, as many have discussed recently, due to increasing fears of the line between computers and human emotion being blurred. Although we won’t predict the timeframe or likelihood of implementation, we feel there is potential for companies to monetize A.I. in a safe and effective manner.


The Federal Reserve has clearly indicated their goal of 2% inflation and has used interest rate increases and balance sheet reduction as their primary means to accomplish this goal. These tools make the cost to borrow money high and money harder to come by, as there are fewer dollars floating around the economy. In May, the Federal Reserve raised rates by a quarter of a percent. A month later in June, they did not raise rates and voiced their intent to pause increases for that month. The S&P 500 responded nicely to this news, with a 6.5% increase for June. We believe Jerome Powell will utilize interest rate increases two to three more times, then, potentially back off within 18-24 months with a rate decrease. We use the inverted yield curve as the reasoning behind this. Currently, Moore F.S. can utilize a 1-year

U.S. treasury that yields about 5.25%. By contrast, a 20-year U.S. treasury only yields about 4.25%. Thus, the fixed income market is tipping its cap to rates likely not being as high a few years from now, in our opinion. Moore F.S. has adopted a strategy of buying short-term treasuries with a portion of the cash held in accounts, when appropriate for clients. Thus, instead of operating at a 1% weighting to money market funds, in many situations, we are reducing the cash to buy ultra short treasuries to take advantage of this yield opportunity. These ultra short treasuries are often purchased at a discount, $975 hypothetically, and typically mature at $1000 a few months later. We take seriously the task of making your money work hard for you and make every effort to create interest within your account. We welcome you back to the era of being able to receive decent interest on low-risk savings and believe inflation has created a higher need to ensure money isn’t sitting at a bank earning almost zero interest.


At Moore F.S. we strive to voice our goals and how we work with clients. Pridefully, we act as your fiduciary, meaning Tyler Moore will always manage your funds with what is your best interest, as opposed to simply setting up your funds and not providing on going management, as many firms will do. One very tough aspect of our strategy is riding out the down markets and resisting the urge to make changes. For example, in 2021-2022, we added Covid-19 recovery names such as Carnival Cruise Lines, Builders FirstSource Inc., Royal Caribbean, etc. as we anticipated vaccine development, herd immunity, and emotional tolerance of Covid would lead to a more normal way of life soon (we use this as a conversational example and not all clients hold these assets). Our strategy was to remain committed to the broad U.S. stock market while adding slivers of assets that we anticipated would perform well (because these assets fell farther and faster than the broad market generally speaking) in an effort to create better performance in your account. Though these assets have begun to perform as expected and many are posting nice returns, the lesson here has been patience, as these assets have been susceptible to pain from interest rate increases, banking concerns, etc. The conclusions that we draw here are that some of the best strategies may at first stumble out of the gate, and at times may seem as if we should be making changes. Investopedia details “Odd-Lot Theory” as a phenomenon where investors are chasing trends, instead of remaining committed to their plan (6). In booming markets, they aggressively buy into the market just before the peak. More than once we’ve heard something like, “it’s going to go to the moon I can feel it,” regarding assets like Dogecoin, Gamestop, etc. just to see these assets fall significantly. Additionally, in a panic, they sell their shares just before the market bottoms out, effectively buying and selling at the two worst times. It is in these down-market cycles that we aim to make our biggest impact on your money by remaining committed to our plan and your long-term goals. Some of the biggest investment mistakes were made by panicking out of the market only to get back in after the recovery, a situation Moore F.S. intends to avoid. In our strategy we will guide you through down markets and intend to guide you to better market cycles. We believe down markets will occur 20% of years and with the S&P 500 sitting at 4,450.38 today we have recovered 958.8 points from the October 2022 lows (up 27.46% since the lows) but need to climb another 368.24 points (8.27%) to get back to the January 2022 highs (7). We remain extremely optimistic on the direction of U.S. equities noting the reliance of U.S. companies on fuel prices. June 2022 offered U.S. diesel prices near $5.754 per gallon whereas this June, companies celebrate a $3.802 average cost per gallon of diesel (8). Additionally, a lower fuel price adds to consumer discretionary income. Moreover, the Federal Reserve claims work is not done as it relates to increasing interest rates, but in our opinion, we’ve likely experienced the worst of interest rate rises and the remaining increases are priced into U.S. equities. We feel these two factors in combination with a strong consumer still riding the sugar high of pandemic cash, and a strong labor market will serve as a strong back drop to equity performance.


I’d like to thank you for the continued trust and faith you have in me as it relates to providing you with fiduciary investment management. One year ago, my quarterly review mentioned, “bear markets historically last 449 days when they precede a recession, compared to 198 when a recession does not occur” (9). When markets have moments of sudden decrease it is tough on all of us, but we must remind ourselves not to be emotional and that, historically, broad equities will return to higher values. As a reminder, Charles Schwab will soon be the new custodian of all Moore F.S. accounts, and I look forward to answering any questions about this detail. Please refer to recent correspondence regarding this situation and feel free to call me directly with any questions you may have. I take pride in being your direct contact and remain committed to bringing you maximum efficiency through my platform, while providing the same personalized service you’ve come to know over the last eleven years.


Tyler A. Moore 

913-731-9105

TMoore@TMooreFS.com

  1. https://finance.yahoo.com/quote/%5EGSPC/history/
  2. https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp
  3. https://www.reuters.com/markets/us/wall-st-week-ahead-artificial-intelligence-gives-real-boost-us-stock-market-2023- 05-19/#:~:text=Goldman%20Sachs%20strategists%20estimate%20that,stock%20market%20facing%20numerous %20headwinds.
  4. https://www.marketwatch.com/investing/fund/ixn
  5. https://www.marketwatch.com/investing/stock/nvda?mod=search_symbol
  6. https://www.investopedia.com/terms/o/oddlottheory.asp#:~:text=The%20odd%20lot%20theory%20is,to%20generate% 20odd%2Dlot%20sales.
  7. https://www.marketwatch.com/investing/index/spx?mod=home-page
  8. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMD_EPD2DXL0_PTE_NUS_DPG&f=M
  9. https://www.forbes.com/sites/sergeiklebnikov/2022/05/23/heres-how-long-it-takes-for-stocks-to-recover-from-bear- markets/?sh=11bf99252565 (AND) https://www.tmoorefinancialsolutions.com/moore-financial-solutions-second- quarter-2022

 

This material has been prepared for information and educational purposes and should not be construed as a solicitation for the purchase or sell of any investment. The content is developed from sources believed to be reliable. This information is not intended to be investment, legal or tax advice. Investing involves risk, including the loss of principal. No investment strategy can guarantee a profit or protect against loss in a period of declining values. Investment advisory services offered by duly registered individuals on behalf of CreativeOne Wealth, LLC a Registered Investment Adviser. CreativeOne Wealth, LLC and Moore Financial Solutions are unaffiliated entities.

Moore Financial Solutions 4th Quarter 2024

By Tyler Moore • January 23, 2025
It is with great pleasure to work as your trusted advisor for another year! We hope you and your family had a Merry Christmas and you’re headed into a Happy New Year. To the surprise of some other financial firms, the stock market created sizable gains in 2024 with the S&P 500 increasing 23.3%, ironically within 1% of the year prior’s 24.23%. Additionally, that same market index returned a modest 2.06% in the fourth quarter of 2024, with all figures mentioned not including dividends (1). With Q4 of 2024 hosting one of the biggest elections of our lives, at least as described by some, we plan to discuss how our money management strategy evolves. We proudly stayed true to our strategy and didn’t decrease our allocation to stocks, while many other firms were selling covered calls and reducing their allocation to stocks as they incorrectly predicted a downturn in the markets for 2024.  Even if you were living under a rock, you were likely informed that Donald Trump is headed back to the White House. We reference this change with the understanding that the leadership of current President Joe Biden is quite contrasting to the leadership we’ve seen from Donald Trump in the past, and his campaign promises. The Federal Reserve seemed to have had to slightly adjust their projected pace of rate cuts with the understanding that Trump will be more favorable to the economy through deregulation, corporate tax cuts, and repatriation of jobs. These factors, along with the deportation initiatives, may reignite inflation in the short term. The Center for American Progress puts the undocumented immigrant population in the United States at around 11.3 million, with 7 million of them working (2). To make matters worse, many of these jobs are considered “difficult to fill” and/or “less desirable jobs”. We believe the Federal Reserve felt the need to signal plans to slow rate reductions, after reducing rates in 2024. In September, the median projection for the end of 2025 implied four more rate cuts next year, but the median projection from December’s meeting only projects two more cuts (3). Below is the Federal Reserve’s dot plot, which is a chart that visually represents each member of the Federal Reserve's policymaking committee's projection for where they expect the federal funds rate (the benchmark interest rate) to be over the next few years.

Moore Financial Solutions 3rd Quarter 2024

October 1, 2024
With an election looming and the market going through what has historically been a bearish period for stocks, all eyes are on the Federal Reserve regarding their interest rate policy. The third quarter of 2024 offered positive returns for the S&P 500 of 5.53% (not including dividends) to close the quarter at 5,762.48 (1). The real narrative of Q3 is the emergence of bonds finally complementing stocks and producing a positive return, as illustrated by the iShares 20+ Year Treasury Bond ETF (ticker TLT) being up 6.89% (without dividends) (2). We’ll discuss our active management as well as more thoroughly discuss our fixed income strategy. Additionally, we plan to highlight allocation strategies regarding various asset classes as the Federal Reserve goes through their interest rate decrease cycle, and of course we’ll discuss potential impacts from the election. In our last quarterly review we offered, “We currently expect that rate cut to occur during the fourth quarter of this year, or slightly sooner.” This was far from a bold prediction as most of Wall Street agreed on this timing. Nonetheless, September 18th, 2024, was a huge day for the markets and Moore F.S. as the Federal Reserve reduced rates by .5% (3). However, the rate cut of .5% was slightly higher than the typical .25% cut, leaving some wondering if this was a sign the Federal Reserve should have reduced rates sooner and more gradually. As a reminder, the Federal Reserve had to aggressively increase rates to stomp down inflation that had arisen very quickly, and this rate decrease was a means to normalize rates in response to normalizing inflation data. In the opinion of Moore F.S., the bond market was not only pricing in this normal rate reduction, but additionally pricing in a recession, an event that would even more significantly decrease interest rates. In other words, as time went on without a rate decrease, some feared this meant a “hard landing” was in store for the economy because not only did Jerome Powell drive down inflation, but he potentially drove down growth by leaving rates too high for too long. Moore F.S. stayed true to our belief, and continued to voice a high likelihood of a “soft landing” in which the Federal Reserve’s timing of rate reduction is just right, or at least close enough. In this Goldilocks situation that we forecasted; Americans were earning interest income at a much greater rate given the sudden increase in rates which increases their discretionary spending. In addition, the labor market remained strong, thus keeping the economy very strong and resilient in the face of higher rates. On September 18th, 2024, Jerome Powell stated, “Our economy is strong overall and has made significant progress toward our goals over the past two years. The labor market has cooled from its formerly overheated state. Inflation has eased substantially from a peak of 7 percent to an estimated 2.2 percent as of August. We’re committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal. Today, the Federal Open Market Committee decided to reduce the degree of policy restraint by lowering our policy interest rate by ½ percentage point. This decision reflects our growing confidence that with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 percent.” (4) We interpret this information to be straightforward and we give the Federal Reserve credit for the transparency it has given regarding policy change. In our opinion the bond market was pricing in a mild recession while the Chairman of the Federal Reserve was giving the message of confidence within the United States economy, it became the opinion of Moore F.S. that appropriate allocation changes needed to be made within our fixed income assets. On September 19th, 2024, we began the process of decreasing duration within our fixed income assets by selling our nearly million dollar position of iShares 20+ Year Treasury Bond ETF (ticker TLT) and received an approximate price of $98.95 per share. TLT closed the quarter at $98.10 (5). This longer duration debt ETF was generally replaced with the Blackrock Short Duration Bond ETF (ticker NEAR). This decision was reached for two primary reasons. First, we believe that TLT has moved rapidly higher on fears of a recession, not simply the Federal Reserve’s policy change. As rates ease back up as we envision, we believe that shorter duration debt will outperform. In other words, the bond market has gotten a bit ahead of the Federal Reserve. Secondly, TLT offered a yield of about 3.4% compared to the more attractive yield of about 5.14% in NEAR. We aimed to be heavily in long duration debt while interest rates decreased, and now aim to shift into shorter duration holdings. Not all clients hold fixed income funds. Though Moore F.S. tries to stay away from interest rate prognostications, we believe the yield curve will move entirely out of the inverted stage in 2025 as the Federal Reserve moves the Fed Funds rate back to a more normal level. Currently, the curve is still inverted in some areas. We believe banks will be a significant beneficiary of the normalization in interest rates as their lending operations become more profitable. When the yield curve is inverted, profit margins tend to fall for companies that borrow cash at short-term rates and lend at long-term rates, such as community banks (6). In other words, your bank was probably not as excited as you were to see moderate term certificates of deposit paying 4.00% and mortgages written at 6.5% than they would be to see rates on their deposits earning .5% and mortgages written at 5.00%. Simply put, banks care about the spread in interest rates not one given rate. In response to a normalizing yield curve, and potential steepening of the curve, Moore F.S. clients sold broad market ETF’s and purchased Goldman Sachs (ticker GS) within the third quarter. This, like the conversation regarding TLT previously, only applied to some accounts where we viewed this action as appropriate. In addition to the interest margins improving for Goldman Sachs, we see this adjustment as an advantage to investors for two reasons. First, Goldman Sachs offers a better P/E ratio than the broad market at approximately 16. For more information on P/E ratios please see our First Quarter ’24 review in paragraph two where we discuss how P/E ratios influence our management approach. Secondly, Moore F.S. is always attempting to keep expense ratios lower by using single stocks in small weightings when appropriate. We hope this exemplifies the firm working hard to keep your expenses under control, while many other firms might simply use pre-built models, passing that higher cost on to you. We feel it is important to mention that Moore F.S. will never attempt to time markets, but rather react to public information and manage each account individually to the best of our ability. Below charts the spread between two and ten year U.S. treasury obligations, which is generally the spread analyzed The yield curve on September 30th, 2024, showing short term debt obligations paying a higher yield than long term obligations by most technicians. Historically investors have been rewarded with a higher yield for risking their money for a longer duration, but not always. Keep in mind, ultra short rates, such as the three-month treasury obligation offer 4.73% (7), and moderate term rates, such as the ten-year treasury obligation offer 3.81%, as of the last day of the quarter (8). We feel this temporary inversion is holding banks like Goldman Sachs back from their full potential. From the perspective of the stock market and global economy operating smoothly, we view the best election outcome as one with a clear winner, with conventional wisdom offering that a result that drags on for days is bad for markets. With two candidates offering quite contrasting plans and visions, we see corporations as most likely in a holding pattern, waiting for more clarity in variables such as corporate tax rates or manufacturing location incentives. We imagine these are the same corporations that have been in a holding pattern waiting for more clarity on the path of interest rates for the last couple of years. We feel that corporations benefit from stability and clarity, and when those are low, our best chance to manage portfolios appropriately is to not take a side, but rather, feel that our portfolios can benefit from either candidate winning. Once the election is passed, we will plan to craft portfolios in the fourth quarter in preparation for 2025 based on our view of the path of leadership. With another quarter passing by, I want to take a moment to thank you for your continued trust in me as your advisor and remind you that your financial goals are my professional goals. As I continually say, investing on any scale tends to be an emotional experience and I very much try to cushion that emotion for a client, if possible, without becoming too conservative. In other words, I must walk a fine line between selecting assets that blend well to potentially bring correlation or risk down in a portfolio, without including such conservative assets that reduce our chances of hitting your long-term goals. This will be my fourth U.S. presidential election while entrusted to manage assets, and my focus tends to be twofold; not try to predict a winner in my style of investing and to get clients through it. One key take away I have from listening over the years is how people have managed their own money through elections. Though I don’t have solid research or data to back it up, it is my experience that do-it yourself investors often make far too drastic of allocation changes that are far too dependent on the outcome they have predicted. I highly encourage you to take just a moment to think of someone that could benefit from the no pressure advice and strategies that Moore F.S. offers. In today’s transient labor market, everyone knows someone that has transitioned jobs and has left behind 401(k) assets. Think to yourself how those assets might perform sitting there, compared to how they might succeed over long periods of time at Moore F.S. My hope is for you and your family to have another great holiday season and a great end to 2024 between now and my next review. As always, I’m personally just a phone call away if you need anything or have any questions. Tyler A. Moore
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