Welcome to another episode of “Ethel’s Diamond Post.” We just concluded the first quarter of 2024. With the Easter holiday hitting early this year, this is a short week due to the market being closed for Good Friday. Plus, we have celebrated the month of March for Women’s History Month. This is an essential celebration for me as an African-American woman who owns 100% of a Registered Investment Advisory firm. I think about how many women have paid the price for me to be one of the few minority-own investment firms in the country. Wow! I honor women’s contributions to our history, culture, and society. We celebrate and pay tribute to all women, past and present, for their trailblazing efforts and results.
First and foremost, the summer driving months (from Memorial Day to Labor Day), when people typically take vacations and travel more, lead to increased gasoline consumption, which is upon us. This weekend, we anticipate more people hitting the road to celebrate the first major summer holiday. While gasoline prices have remained relatively stable, it’s worth noting that inflation surpassing the Federal Reserve’s benchmark could cause prices to fluctuate in response to driving patterns. This information is crucial for you to stay informed and prepared.
The steady growth of the financial markets has characterized this year as a stellar performance thus far. Last week’s modest inflation data and another week of robust earnings provided investors a further incentive to diversify their portfolios. At VZD CAPITAL MANAGEMENT, LLC, we play a crucial role in this process. We strategically combine growth, undervalued, and dividend-paying companies that have thrived and excelled in the current market conditions. Our strategic investment approach, meticulously designed to provide a secure and profitable investment experience, is a testament to our commitment to your financial success. Our goal is to instill unwavering confidence in our investors.
Dividend-paying companies get plenty of attention. However, for some reason, the reinvestments of dividends garner less attention. Why? The fact is that dividend reinvestments work exceptionally well when stocks in question are allocated to payout over time. Instead of taking the dividends as cash, you reinvest them into the company by purchasing additional shares. The compounding effect offers considerable benefits for investors looking to supplement their income by choosing to have dividends paid out to them. Many retirees are prime candidates for the extra income to help supplement their income. A younger investor would benefit from the compounding effect by having the dividends reinvested to increase their wealth by purchasing additional company shares.
In April, the S&P 500 dropped 4.1 percent amid recent economic data indicating the Feds still have work to do in their battle against inflation. Although the U.S. economic growth slowed sharply in the first quarter, fueling fears the economy could slip into stagflation, the S&P 500 remains up 6.0 percent year-to-date through April while investors remain hopeful the Feds can issue multiple interest rate cuts before the end of 2024. Positive inflation data could help the S&P 500 regain its mojo in May, a month historically one of the weakest of the year for the stock market. Rest assured, we closely monitor these developments to keep you informed and prepared.
The primary catalysts influencing stock prices in the past two years are widely expected to remain at investors’ attention in May: interest rates and U.S. inflation. These factors could significantly shape the market landscape, and investors must stay informed about their potential implications. The Federal Open Market Committee (FOMC) opted to maintain interest rates at 23-year highs at their most recent meeting that concluded on May 1. The FOMC has guided for three rate cuts before the end of the year, but the bond market is pricing in a 56.5 percent chance the Feds will issue no more than one cut in 2024.
The Consumer Price Index (CPI), one key measure of inflation, gained 3.5 percent year-over-year in March. That was down from peak inflation levels of 9.1 percent in June 2022 but still well above the Federal Reserve’s 2 percent long-term target. The U.S. personal savings rate dropped to just 3.2 percent in March, down from 5.2 percent a year ago. We see this trend as a potential sign that inflation and elevated interest rates make it harder for consumers to save. The expected inflation rate and the surprisingly weak GDP pace provoked fear in the market. They invoked uncertainty that the extended period of elevated interest rates would hinder the U.S. economy in the coming months. Consumer spending continued to hold up well, with an annualized increase for the quarter of 2.5 percent, though that was shy of expectations near 3 percent.
Many investors believe the Feds is reaching a critical point in its battle against inflation. The next few months are widely expected to determine whether the Feds can navigate a so-called soft landing for the U.S. economy without tipping it into a recession. The inflation data are not cooperating right now. While investors hope improved inflation data will rekindle the stock market rally, there are also reasons for investors to be cautious in May and beyond. VZD has balanced the portfolios and remains vigilant in protecting our client’s assets by monitoring the market and the holdings and looking for new opportunities as we move forward.
A famous Wall Street adage, “sell in May and go away,” reflects that the six-month period from May through October has historically been a relatively weak stretch for the market. This saying suggests that investors should sell their stocks in May and not repurchase them until November, as the market tends to underperform during this period. In fact, since 1990, the S&P 500 has averaged only about a 2 percent annual gain from May through October compared to a 7 percent yearly gain from November through April. High interest rates hurt discounted cash flow valuations, bruising high-growth stocks. Value stocks have historically outperformed growth stocks when interest rates are high, but that trend has reversed in the past year.
We will take a proactive and defensive approach to investing for our valued clients. This means we will reduce our exposure to more volatile growth stocks and increase our short-term fixed-income and cash holdings. This strategy is designed to protect your investments during periods of market volatility. We will keep a portion of the portfolio in cash equivalents that clients expect to utilize for expenditures in the next two years. Over a trillion dollars are currently sitting on the sidelines, waiting to get back into the market, but that is not the answer. We can earn 5 percent or higher in high-yield investments, and those interest rates won’t change much until the Feds finally pull the trigger on their first rate cut. Yet, we continue to look for opportunities in the market and consider taking advantage of the stock market’s recent pullback, where many quality stocks went on sale. The overall trend of the market is to the upside, and the declines in recent weeks are part of a broader market correction, which is very common in bull markets. This proactive approach ensures that you are prepared and in control of your investment portfolio.
To our valued clients, we appreciate the opportunity to serve your investment needs. Please feel free to reach out if you experience any material changes in your financial circumstances or wish to discuss specific matters. To our readers and supporters, your active participation in your financial well-being is not just meaningful but paramount. We encourage you to contact us for a complimentary review of your investment accounts or any other financial matters. As fee-based, discretionary investment advisors, we are committed to your success and do not sell commission-based investment products.
Professional financial advice can be your most valuable asset in these dynamic markets, giving you the confidence and reassurance you need to make informed investment decisions. Early investing and multigenerational wealth creation are not just strategies but legacies that can secure your family’s financial future. Your active participation is crucial to this process, and we value your input and involvement.
Suppose you desire to discuss educating your children and grandchildren on the advantages of investing early and how the compounding effect can consistently assist with their wealth creation. In that case, we offer hourly consulting, coaching, classes, workshops, and seminars. We would be honored to receive your referrals to help others create, sustain, and preserve wealth building – one client at a time.
Please be advised that we are mailing the annual compliance correspondence to ensure you are up to date with our current policies and procedures. We ask that you return your acknowledgment form promptly so we can schedule quarterly and annual reviews. If you have any questions or concerns, please do not hesitate to contact us at (816) 726-7066.
Here’s wishing everyone a safe and relaxing Memorial Day weekend. Remember, we celebrate this Federal holiday to honor all of the U.S. soldiers who have died to serve this country, including my father.
With Gratitude,
Ethel, Nikisha, and Nathan
Ethel, Nikisha, and Nathan
