Portfolio updates we anticipate in the near future

December 1, 2022

Last week, we updated portfolios (as suitable) with tools we believe are better suited to the next part of the investment cycle and which also free up capital losses to help reduce 2022 income tax. The new positions emphasize momentum a bit less and volatility cushion a bit more.

I’d also like to share what we are monitoring for next potential investment moves.

Foreign bonds may offer opportunity

Currently, Europe is increasing interest rates to defend their currencies against the dollar. However, due to its energy challenges, we believe that Europe would prefer to reduce interest rates to support their economies during their challenging energy transition.

Our outlook is that the U.S. Federal Reserve Board (FED) may slow interest rate increases in 2023. If this occurs, we think there is a good chance that Europe may begin easing interest rates at that time. If European interest rates ease, foreign bonds will provide opportunity.

We are keeping a keen eye on likely U.S. FED interest rate activity as a key catalyst.

International stocks are at attractive valuations

The U.S. economy has been offering more stability than many foreign locations because the U.S. is not dependent on Russian oil. Money has poured into U.S. stocks, creating higher values here and lower values abroad. This is creating a valuation opportunity in international stocks.

The Wall Street Journal does a nice job of summarizing this opportunity. “U.S. stocks are nearly 1.8 times as expensive as the other 22 developed markets in aggregate, when comparing prices with corporate earnings over the last five years.”

However, per the same article – and importantly — “U.S. stocks’ sustained stretch of outperformance is a historical outlier. Since 1975, U.S. stocks typically outperform international markets for just under eight years before their advantage dissipates ….“

Behavioral scientists would say that we all have a recency bias; we give more weight to what has happened recently vs. over the longer-term. We have found that some investors are hesitant to invest internationally because it seems like the U.S. has been doing better.

On the average, that has been true since 2014. However, from 2003 to 2009, international stocks did quite a bit better.* We see this kind of “see saw” between international and U.S. stocks as we go back further.

As we monitor markets on clients’ behalf, we review what we think of as the universe of possibilities. The U.S. FED’s interest rate decisions also impact our outlook for international stocks. We believe it is likely that we’ll update portfolios, as suitable, with increased international positions over the coming months.

How we monitor the markets on clients’ behalf

Our Investment Committee, which brings more than 100 years of combined experience, meets every month to look in depth at trends and new information. As you might expect, we also monitor markets daily.

Clients’ LWP portal provides real-time investment results against broad indices. It also includes our recent work together, allowing clients to check strategies regarding cash flow planning, tax reduction, estate reduction/legacy, and insurance/risk management.

Our goal is not to consistently beat any one index. There are many, many indices and we strongly believe in broad diversification as a risk management tool. Our goal is to add value through incremental returns, risk management, tax savings, investing per clients’ values and/or confidence in their financial security and choices.


* Yahoo.com. S&P 500 vs. EFA (I shares MSCI EAFE ETF)

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The foregoing content reflects the opinions of Laurel Wealth Planning LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful or that markets will act or react as they have in the past. 

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