Sellwood’s January 2021 Market Snapshot is available for download.
We are proud to formally announce several recent promotions of people who exemplify Sellwood’s core values of Quality, Independence, and Partnership.
Ryan Fitzgerald, CFA, is Sellwood’s newest Consultant, and Ruthie Zimmerman is our first Director of Investment Operations. Earlier in 2020, Taylor Cuzzort, CFP®, earned a promotion to Associate. All three of these individuals have demonstrated, over several years, the high integrity and work ethic that make client portfolios better, and they are great teammates to work with.
We are also pleased to announce an expansion of Sellwood’s ownership, with one new employee shareholder and a continued transition of equity from Sellwood’s founders to other key investment professionals. At the end of the year, we welcomed Ryan Fitzgerald, CFA, as Sellwood’s newest shareholder. Additionally, current Principals Nick Woodward, CFA, and Ruthie Zimmerman have acquired additional ownership in our company.
This expansion of Sellwood’s ownership to key employee professionals is consistent with our deliberate, long-term plan to keep Sellwood fully independent and stable. We know that clients achieve better investment outcomes when they partner with a stable and independent advisor. Sellwood remains 100% independent and employee-owned, with 100% of our Consultants and 70% of our employees owning a stake in the firm.
Fourth Quarter 2020: Hindsight is 2020: What Now?
An optimistic fourth quarter capped a wild and turbulent year in the capital markets. The stock market, which had rallied since the March lows on the back of unprecedented global fiscal and monetary stimulus, was given another boost in November as news broke on the success of multiple COVID-19 vaccines. The vaccine news largely benefited the stocks that had been laggards in the rally from the bottom, with value, small-cap, and international markets leading the market higher. Small-cap stocks earned enough during the quarter to overtake the S&P 500 for the full year, with the Russell 2000 doubling since March and earning 20% for the full year.
Some signs of excess exuberance have shown up in the markets. Day traders have increasingly used options to gain exposure to certain technology shares, investors’ margin debt is at an all-time high, and fund flows into leveraged and inverse exchange-traded funds are just behind the 2008 peak. Even still, with interest rates at record lows for the foreseeable future, expensive capital markets might just be here to stay as well. Bonds were little changed in the quarter, with a slight uptick in Treasury rates offset by a compression in spreads. The Bloomberg Barclays Aggregate Index was correspondingly up less than 1% for the quarter.
While Wall Street has priced in a recovery, backward-looking economic numbers are still telling a more dismal story. Five million more people are unemployed in the US than were in February, and weekly initial jobless claims have averaged 800,000 in the fourth quarter. A new round of stimulus signed into law just before the New Year should help bridge the gap for some individuals until state governments can effectively administer a vaccine and life can return to some form of normalcy.
from our screens to yours.
We are numbers people. Our 2020 was characterized by:
$6.4 billion assets advised
2 new clients
4 new beards
2,177 Zoom calls
0 airline statuses attained
20 new computer monitors for home offices
3 promotions (congratulations Taylor, Ryan, & Ruthie)
1 new CFP® certification (congratulations Taylor)
2 CFA exams cancelled (sorry Liam)
1 wedding (congratulations Nathan & Calli)
22 new pets (4 dogs, 2 cats, 9 chickens, & 7 geese)
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In the spirit of the Holiday Season, Sellwood has made a financial contribution directly to a family devastated by this summer’s Oregon wildfires. This family suffered a complete loss of their home in the Echo Mountain fire, outside of Lincoln City, Oregon.
We wish you a wonderful holiday season and cannot wait to see you again soon.
Third Quarter 2020: Tech Bubble 2.0?
Investors rode a $20-trillion global stimulus tsunami to fresh highs over the summer before renewed concerns put a pause on the rally in September. July and August were a continuation of the rebound from the market bottom in late March, with risk assets, particularly technology-oriented shares, reflating amid better than expected data. September, meanwhile, saw a partial unwinding of the growth trade amidst investor concerns over a stalled economic relief bill in Congress, renewed coronavirus concerns, and market volatility surrounding the upcoming November election. Even with the market pullback, global markets were up 8% in the quarter and are now up 1% for the year.
The capital markets, which had rallied almost nonstop from the March lows until August, began to show signs of excess exuberance. Initial public offerings raised more money than at any point outside the tech bubble, high-yield debt has been issued at record low yields, and day traders poured money into technology darlings, increasingly through the use of options, that have contributed to wild price swings. Additionally, futures markets appear to be increasingly wary of a slow or contested election process, pricing in the most volatile November election period on record.
The September stock market adjustment had no corresponding rally in the bond market. Yields, which sit at record lows, were little changed in September, possibly due to the Federal Reserve’s reassurance that they do not anticipate raising rates over the next two years. The Federal Reserve also announced a new operating framework in which they will allow inflation to “catch-up” for any past misses. Jerome Powell, using the customary Fedspeak, provided few concrete details on how the FOMC might adjust monetary policy to meet the new framework.
Second Quarter 2020: Federal Intervention Masks Underlying Economic Uncertainty
Rising Covid-19 cases, mass unemployment, and stop-start reopenings have hurled uncertainty at the markets and yet, the S&P is down only 3% for the year-to-date ended June 30th. The second quarter rally, with the S&P rebounding 20%, has notably amplified one familiar market trend of the recent past, growth’s continued dominance over value. Whatever your preferred alphabet soup acronym for Facebook, Apple, Amazon, Netflix, Google, and Microsoft, the tech-heavy giants have been the comfort food for investors in the Coronavirus world, pushing the Russell 1000 Growth up a remarkable 10% for the year. U.S. value stocks, as measured using French and Fama data, are in their longest and second sharpest relative drawdown since 1933. Similarly, any portfolio tilts away from the large American tech giants and towards small-cap or international markets have hurt relative performance for the quarter and year. Broad international markets are down approximately 11% for the year while the Russell 2000 is down 13%.
Easing financial conditions in the second quarter helped risky bonds rally as the market responded to the promise of support from the Federal Reserve and Congress. Investment-grade US companies are currently able to raise debt at all-time low yields and many did just that, as new bond issuance hit record levels during the quarter. Yields on safe U.S. Treasury bonds were largely unchanged or slightly down for the quarter, reflecting expectations for a low-growth, low-inflation world in the immediate term. Interestingly, despite the record stimulus, market expectations for inflation remain well below the Federal Reserve’s stated 2% target.
Like always, what is in store for markets the rest of the year is anybody’s best guess, especially with the U.S. entering into election season and governors left grappling with budget holes and rapidly increasing Covid-19 case counts.