WrapManager's Wealth Management Blog
When life changes, we can help you thoughtfully respond.

Doug Hutchinson

CFA®, Director of Research and Trading

Recent Posts

Market Turbulence Amid Coronavirus Concerns

Posted by Doug Hutchinson | CFA®, Director of Research and Trading

February 25, 2020

Global equity markets have experienced a pullback following heightened fears of the spread of coronavirus (COVID-19). This has left some investors wondering what actions they need to take (if any) with their portfolios.

History has shown that equity markets typically rebound quickly in the event of a viral epidemic driven sell-off.  The pullbacks have historically been short-lived and have typically been followed by a continued upward trend. 1

 

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market perspective stock market performance Economic Indicators Market Volatility

Yield Curve Inversion and Recession Threats

August 15, 2019
Concerns over an inverted yield curve combined with the threat of higher tariffs around the globe have created some equity market volatility over the past few weeks.  The ups and downs of equity market volatility can certainly be unnerving for investors, but volatility in and of itself is not necessarily a bad thing nor is it necessarily a signal of an upcoming recession. In fact, since 1980 the S&P 500 has suffered an average intra-year decline of 13.9% while the market has had positive returns in 29 of those 39 years.1   [+] Read More

End of Year Market Volatility

December 18, 2018
 The recent pullback in global stock markets has caused some concern that the bull market in equities is winding down. There is even some concern that this pullback is among the initial signs of an upcoming recession.  To gain some better historical perspective on the recent movement in the stock market, let’s take a look at historical intra-year market declines versus calendar year returns.1     [+] Read More

Mid-Term Election Year Volatility

October 26, 2018
Historically, equity markets have been very volatile in mid-term election years. Since 1962, the S&P 500 has had an average intra-year pullback of 19% in mid-term election years.1  In fact, equity market returns have historically been very tepid before Election Day in early November.  In mid-term election years since 1950, the market has returned an average of just 0.96% in the first 10 months of the year, but markets have typically rebounded in the final 2 months of the year, returning an average of 4.24% across November and December. 2 The recent market pullback has wiped out 2018 gains and the S&P 500 is now roughly flat for the year. Again, historically the first 10 months of a mid-term election year are typically flat only to see a relief rally in the final 2 months of the year once the results of the election are known with certainty. Will history repeat itself in 2018? While it is nearly impossible to forecast stock market returns over a specific time frame (particularly for a brief 2-month window), there are reasons to be optimistic going forward: Corporate earnings remain strong3: 81% of the 140 companies in the S&P 500 that have reported third quarter earnings (as of October 23, 2018) posted earnings per share that beat Wall Street expectations, with only 10.7% of companies reporting earnings below expectations.  Over the last 25 years, an average of 64% of companies reported earnings that beat Wall Street estimates with 21% of companies missing expectations.4 [+] Read More

Investing When the Market is at an All-Time High

September 18, 2018
Should You Be Concerned About the Height of the Market? US equity markets have been trading at or near all-time highs recently as the S&P 500 and Nasdaq Composite both reached new highs multiple times in August.1 This news has led some skeptics to believe that a US stock market at a record high level could be a cause for concern. Does reaching an all-time high mean that the market is more likely to decline in the near future? After all, reaching an all-time high means we could be at the peak of the market and we could now be poised for a sell-off. Before we get too caught up in the hype though, let’s take a look back at what market highs have shown historically. Looking at the month-by-month returns of the S&P 500 (including dividends) from 1900 through July 2018, 276 of all months in this time period ended at all-time highs as compared to the monthly close of all previous months.2 Interestingly enough, of these 275 months ending at all-time highs prior to July 2018, 258 of them, or 93.8%, were followed by at least one new month-end all-time high at some point in the next year. 98.2% of all-time highs were followed by at least one new all-time high within the next 5 years and 99.3% of all-time highs were followed by at least one new all-time high within the next 10 years. [+] Read More

How Should You Handle Roth IRA, HSA, and 401k Savings? – Doug’s Quiz Corner

September 14, 2018
Saving for Retirement and Potential Health Care Costs Your friend Jody has recently started a new job and she has several options for saving for her retirement and future health care costs. Jody’s new employer offers a 401(k) with a match of up to 3% of her salary. They also offer a Health Savings Account (HSA) option. Jody lives in a state that does not tax withdrawals from HSAs for qualified medical expenses and contributions to HSAs may be deducted from taxable income for state income tax purposes. In addition, Jody also has a Roth IRA which she is using to save for her retirement. Jody is in very good health and would prefer to have a health plan that limited her upfront health care costs while allowing her to save for future expenses. She is comfortable with a high deductible plan. She is financially secure and doesn’t plan on touching the money in her Roth IRA until retirement. Assume Jody meets the eligibility requirements to participate in her employers 401(k) program, enroll in a Health Saving Account, and simultaneously has enough to contribute to a Roth IRA. [+] Read More

Should You Invest Your Entire Investment Portfolio in a Single Management Strategy?

September 4, 2018
We’ve all heard the term “don’t put all your eggs in one basket”. Of course, this concept can be easily applied to investing. Many sophisticated investors understand that investing in only one stock, or only one asset class, or only one anything is risky. However, the question of whether or not you should invest in just one money manager is rarely directly addressed. A key objective of diversified investing is to build a portfolio that is spread across multiple asset classes in an effort to lower the overall volatility of the portfolio. If you invest your entire portfolio in one single stock it’s clear that your entire portfolio will be tied to the fortunes, and therefore risk of that one company. Adding additional investments to the portfolio can lower the overall volatility and risk of the portfolio, especially if you are adding additional holdings with low correlations to one another. In other words, if your portfolio zigs, you want to add something that zags to get the most effective diversification benefit. To take this further, if your portfolio is made up entirely of one large cap telecom stock, adding a second and third large cap telecom stock may give you little in the way diversification benefit if each of these companies have similar factors that drive their returns. Ideally, a portfolio will be well diversified among different sectors. That way, if one sector is performing poorly, this poor performance may be offset by other sectors with stronger performance. Likewise, geographical diversification is important to help mitigate the impact of a poorly performing market. [+] Read More

Should Investors Stress Over an Inverted Yield Curve?

August 21, 2018
Despite Apple topping $1 trillion in market value, the unemployment rate continuing to climb down, and a multitude of other positive market indicators, the Treasury yield curve has begun worrying some market analysts. That said, we don’t feel that investors should worry too much about an inverted yield curve. Here’s why… The Treasury Yield Curve as an Indicator of Recession The Treasury yield curve is typically upward sloping where long-term yields are higher than short-term yields. The longer the time to maturity, the higher the risk to the bondholder since the longer-term bonds have a longer time horizon and are therefore exposed to more potential changes in interest rates than short-term bonds. This forces investors in long term bonds to seek higher yields in exchange for accepting the added risk of a longer maturity bond. What is the Treasury yield curve? The U.S. Treasury Yield Curve compares the yields of short-term Treasury bills (those with terms of less than a year) with long-term Treasure notes and bonds (notes have terms of two, three, five, and 10 years while bonds have terms of 20 or 30 years). Yields always move in the opposite direction of Treasury bond prices because low demand drives the price below the face value while high demand drives the price above face value. The yield curve becomes inverted when short-term yields are higher than long-term yields. An inverted yield curve does not happen very often, but it has preceded every recession in the U.S. for the last 50 years.1 What Causes an Inverted Yield Curve? [+] Read More

Evaluating the Most Efficient Way to Save for a College Education – Doug’s Quiz Corner

August 17, 2018
What Are the Advantages of Using a Roth IRA vs. traditional IRA vs. a 529 Plan When Saving for College Costs? Consider this Scenario: Your friends Dan and Ashley have a son who will start college in 7 years. They would like to save some money for his college fund, but they are unsure about the best way to do so. Right now they have $10,000 in cash set aside for this purpose. Over the next few years, they’d like to continue saving more money for his college education. To make the most of what they’ve already saved, they’re considering putting the $10,000 into a 529 plan, into a traditional IRA ($5,000 into Dan’s and $5,000 into Ashley’s), into a Roth IRA ($5,000 into Dan’s and $5,000 into Ashley’s) or doing some combination of these options. Assume that Dan and Ashley will receive a full state tax deduction on a $10,000 contribution into a 529 plan. Also assume that they meet eligibility requirements to contribute $5,000 each into their traditional IRAs and/or Roth IRAs. [+] Read More

Is it Better to Save for Retirement or Pay Off Student Loans? – Doug’s Quiz Corner

July 20, 2018
Determining Priorities When Saving for Retirement and Paying Off Student Debt Consider this Scenario: Your friend Stanley has recently completed college and has just started a new job. Stanley has $40,000 in student loans to pay off at an interest rate of 7%. Stanley’s starting salary at his new job is $50,000 per year. Additionally, his employer offers a 401(k) match of 2% of salary. Stanley understands the importance of saving for retirement and would like to save as much as possible toward his future. Stanley also understands that he is $40,000 in debt and he would like to pay off his student loans as quickly as possible. He isn’t certain how he should prioritize his budget though, and he’s heard a lot of conflicting advice. When he asks you, what would you recommend: Should he focus on paying off his student debt before investing for his retirement? Or should he save as much as he can toward retirement before paying off his student loan debt? What is the probably the best way to prioritize investing versus paying off student loan debt? [+] Read More