The new Gimme Some Truth is now live! This week, we discuss the relationship between politics and the markets. Even amidst the chaos in Washington, why are the markets still going strong? Listen to our new episode on SoundCloud and iTunes to find out! Don’t forget to subscribe.
Gimme Some Truth Ep. 12 Transcript[00:00:00] Welcome to Gimme Some Truth I’m Kevin Castro your podcast producer and your co-hosts are Clint Walkner and Nate Condon the co owners and financial advisors at Walkner Condon financial advisors in Madison Wisconsin. This is a podcast series dedicated to eliminate some of the darkness around fees.
[00:00:17] Conflicts of interest and the motivation behind recommendations in the financial planning industry. Here are your hosts.
[00:00:37] (Intro music).
[00:00:52] Welcome back to gimme some truth where Kevin just got back from vacation and he’s a little spicy this morning. So you know what was kind of he’ll interject a little bit into it but we’re going to talk a bit about politics and the stock market and Nate how come with all kinds of dysfunction that’s been going on in health care vote that didn’t pass. How come the stock market seems to just do nothing but go up right now.
[00:01:19] Yeah that’s a question we get a lot from our clients in the last hour. I don’t even know how many weeks months since all of the October election actually and in all honesty and full disclosure. It’s taken Clintonite by a little bit of surprise that the market has more or less gone straight up since the election. But I think this is one of those times in history where the stock market Wall Street companies involved in it are kind of going the direction that they go and are not running parallel to what’s happening in Washington as opposed to other times in history where you see those to kind of take the lead from one another. This definitely feels like a time where were the indices that make up the the market are kind of you know dancing to their own drummer.
[00:02:11] Yeah let’s just take a step back and consider what the actual S&P 500 is. I mean it’s essentially the 500 largest companies in market capitalization. So basically said in layman’s terms it’s the five largest U.S. companies. So there’s a lot of multinational companies that comprise this index. And basically when we invest in the stock market we’re investing in a company because we feel that there are going to be a going concern. They’re going to keep going and keep existing and their earnings are going to keep going on a good path. So we think that tomorrow is better than today or at least tomorrow is going to be equally as good today because we would never buy something that we thought was just dying out. You know like right now you’re hard pressed to have a compelling argument to go buy a bunch of Sears stock. You know you could you could.
[00:03:01] I don’t know if that’s a good idea. Call it a contrary and they may have to change their strategy slightly. Are you major market capitalization. What are we to say. Kevin what was the last time you shopped to this series. I’m going to go with. Never never. You’ve never set foot in a series. I can’t say I have. Wow. Maybe you missed it out there maybe I should go over to Sears. Just check it out. Where can I find one. So one of the west side is they actually send somebody out like that.
[00:03:32] I mean it is a fake.
[00:03:35] You’re right. I had a pair of my let’s see it repair my snowblower but they came to my house. Actually I haven’t stepped foot in a Sears.
[00:03:42] I think it’s been almost 10 years. And we say kind of tongue in cheek but it’s the evolution that is the the retail sector. I mean that’s a great example to look at. So you know just what future earnings of companies. Not every company that was kind of on the top of the heap at one point is remains in the top of the heap. I mean for a long time was you know the apple of today was was what it was back in the 80s and 90s. That’s right. And you look at Wal-Mart versus Amazon too.
[00:04:12] Right and there’s been a huge sea change in how that all works.
[00:04:17] So you know one thing that you can do as an investor is you can go out and try to pick the winners and losers on it or you can just simply buy the S&P 500 knowing that 10 years from now the S&P 500 is going to look significantly different than it does today and you’re relying on the fact that the companies that re-enter that index and move up in there are going to continue to have good earnings which you know isn’t necessarily a bad way to invest. You just try to you know use an index and just put some money there and diversify. And you know that’s just a way you don’t have to pick the winners and losers.
[00:04:50] And I think that’s part of the reason why you’re seeing the markets perform the way they have this year. You know what that group of companies together and just to briefly talk about the Dow the Dow is only 30 companies and that’s something that a lot of people are not aware of and that’s part of the reason why we look at the S&P 500 more than the Dow because you know with a smaller sample size of only 30 companies Now granted they’re 30 you know very large companies and come from different areas of the market. It’s still just 30 companies. And so when we look at the Dow we take that a little bit of a grain of salt. And the Nasdaq tends to be a little bit more growth based companies have been more tech based companies that’s more or less the three biggest indexes that we look at but those are the companies that make up those indices right now are focused on their earnings. They’re focused on how the consumer’s feeling. They’re focused on what the Fed is doing relative to interest rates and they’re really kind of putting you know Washington’s chaos right now on the backburner.
[00:05:54] Yeah. I mean it is a situation where we’re probably not going to see a ton of legislation out of Washington if we do see some I don’t know how impactful it will be because it’s going to be highly unlikely that they’re gonna be able to get to 60 votes in the Senate. So as we’ve kind of addressed before in previous podcasts it is a situation where that hurdle to overcome really hamstrings the Republicans and be able being able to get meaningful legislation done. So tax reform in order to get to 60 votes is going to be very very difficult. So you know I think it’s probably more or less the less likely than not that we are going to see the status quo going forward if we do see some reform. It’s going to have to be an economically balanced reform so we may actually see some tax increases and so I wrote in legislation for some populations I think one of the proposals that was floated out there was increasing taxes on people that are in over $5 million. And the reason why they’re doing that is that they need to make this bill revenue neutral if they want to get under 60 votes. So as a result of that you know they’re going to have to actually compromise if they want to get this done. So it’s going to be they’re compromising with Democrats or it’s going to be Republicans going in and being able to compromise with themselves and move away from perhaps a tax increase pledge that they’ve made in the past.
[00:07:19] Yet if the if the three main areas of of the kind of legislative or agenda driven items are as they’ve stated obvious things can change but it seems to be health care tax law changes and possibly building a border wall. You know the one that Wall Street is going to care the most about in our opinion would be tax changes. Health care would have an impact but I don’t know that it would have as big of impact as the possible tax law. So if they do move health care to the backburner and they bring tax law changes to the forefront you could see the markets react a little bit more to positive or negative news based on how they see it coming out of the news cycle. But even that alone is going a little too I mean to be neutral change and so I don’t think that you know Wall Street looks at that as a scary proposition by any means.
[00:08:15] Yeah I mean I think they have big a little bit into the cake that they do expect some sort of tax reform to happen so if it doesn’t come to fruition or if it comes much later than they want or if the package is significantly smaller than kind of first and has failed you could see the markets react negatively to that.
[00:08:30] But at this point you know I don’t think we’re going to see a ton of drivers to drive that stock market either lower or higher with any sort of policy coming out of Washington before now and the end of the year. I think that if anything changes the stock market and makes it go lower it’ll be because something unforeseen has happened. I mean Kim Jong un is a great example of that. That you know things are escalating over there geopolitically. And so if we see something like that occur or a terrorist attack or something like that something totally unforeseen here then you could perhaps see the market react negatively negatively to that.
[00:09:08] Yeah I think there’s a there’s a much higher chance that that a big shock to the market is a result of you know some sort of military slash terrorist development and not a domestic policy change or you know laws being passed and so we’re just at a time right now where Wall Street is in the companies that make up Wall Street and traders that make up Wall Street and the investors are all kind of looking at economic data and very objective information and they’re shying away from more of the subjective news cycle data to make their decisions.
[00:09:45] You know there’s always a lot of news every single day I mean this has been an unprecedented administration with the amount of things that seem to go on DAY TO DAY.
[00:09:53] Everything is being played out very publicly in the administration. So you know I think it makes people feel uneasy in many cases. Whether you’re Republican or Democrat I think know we see a lot of change we see a lot of things that weren’t necessarily transparent before so you know I think that makes people feel uneasy but they shouldn’t necessarily feel uneasy about their investments in that way.
[00:10:15] Yeah I think that’s a great point. The uneasy feeling and that’s what people were hearing this lot from clients when they come in is I’m feeling uneasy. My family is feeling uneasy. My you know friends and relatives and neighbors are all feeling uneasy. So why does the stock market continue to go up. And it’s what we’ve touched on before. Stock market is going up because the indicators were a couple of leading indicators that the market looks at for the most part are positive right now.
[00:10:40] That’s right. And the Fed has been very accommodative you know with their low interest rate policy as well. So you know that is one thing that we are watching over the next couple of years is as the Fed starts to shrink its balance sheet as interest rates start to go up. Does that have a negative economic impact from the U.S. perspective. So you know it does color the way that we manage money and it is things that we talk about and think about. You know we’ll probably address on future podcasts but you know the Fed is very important this whole cycle and they’ve been you know very very loose in their monetary policy over the past five six years so you know they took some unprecedented steps to 2008 and we’ll see where things shake out. Going forward with them. But you know that’s one thing that Nate and I will watch closely is how quickly do they raise interest rates and how quickly do they shrink their balance sheet.
[00:11:31] Yeah the triggers for us and even for people like Casualty watch market and are interested about where the market goes. The triggers are going to be as clear in order to move it through the Fed. It would be you know unemployment starts to slide the wrong direction. If the housing market starts to pull back a little bit if we see these indicators start to move the other direction that’s going to be much more of a trigger for the market to go through some ugliness as opposed to I hate to say anything that comes out of Washington D.C. but I don’t know that there’s a lot more that can come out that hasn’t come out in the first six months that would possibly shake the market.
[00:12:11] Yeah. I mean I’d have to be some pretty big deviation from the policy they had discussed in the past.
[00:12:17] I mean perhaps the focus on the border wall or more importantly the border adjustment tax there’d be a lot of uncertainty around that. So maybe a really outside the box tax policy that you know companies would be looking at that is a real uncertain sort of tax situation for them that might cause them to react negatively. But I think we’ve kind of moved past those ideas and gone into more of a traditional sort of tax cut situation where you know they’re talking about cutting the corporate tax rate and others in some individual rates but nothing that’s a significant reform or overhaul of the tax code at this point.
[00:12:58] I mean the takeaway really is you know at least for the first six months of this year and our prediction is it will be for the next six months as we finish our 2017 is you know the direction of people’s investments is really going to be driven by the investment section of the newspaper not you know the first section of the newspaper which focuses on you know domestic and world politic issues. There are times in history where those two things play off of each other. It really feels like there’s a disconnect there right now. And Wall Street’s really kind of go in the direction it wants to go.
[00:13:35] You saying you’re a big newspaper reader. Do you still get it over other newspaper once in a while. It’s the it’s not just how I get the news it’s the fact that it’s you know it kind of makes you slow down a little bit. Tangibility. So Kevin when you take your Sunday morning thing when you took your flight did you get a magazine did you read an iPad your phone get it. So you drove to South Carolina. I did. Oh yeah. That’s right.
[00:14:04] Flights are expensive from small airports small airport. I got to pay 600 bucks and I could just.
[00:14:10] That’s true. He’s flying in the sea for a raise. That’s what this is right now. I think that that’s exactly what this is. It could get it not me. The expert view it’s going to be yeah here we go.
[00:14:19] Hear your words.
[00:14:25] And that wraps up this community. So thank you for dropping in and spending some time with us.
[00:14:32] If you have any desire to weigh in on some of our future topics please send us an e-mail. Paul tell us tell us what you’d like to hear getting your feedback and so we appreciate you spending the time with us your money. Get. Masses. In.
[00:15:17] Advisory services are offered through Walkner condon financial advisors LLC or registered investment advisor in the states of Wisconsin and Texas. Clint Walkner and Nate Condon are investment advisor representatives of Walkner Condon, Kevin Castro is an office manager and marketing communications specialist for Walkner Condon financial advisors. He’s not registered and his participation in this podcast is limited to unregister activities and will not be providing any advice to the investor related nor should any comments he makes be construed as giving investment advice. Insurance products and services are offered through WC Insurance Services LLC Walkner Condon financial advisors LLC and WC insurance services LLC are affiliated companies. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice you should always consult an attorney or tax professional regarding your specific legal or tax situation. Walkner Condon financial advisers LLC is not engaged in the practice of law. Whenever you invest you are at risk of loss of principle as the market does fluctuate. Past performance is not indicative of future results. Purchases are subject to suitability. This requires a review of an investor’s objective risk tolerance and time horizons. Investing always involves risk and possible loss of capital. Long term care estate planning insurance products and tax advice are not offered through Walkner Condon financial advisors LLC Walkner Condon works on a best efforts basis and does not promise or guarantee any results. Past performance does not represent future results. Please see Walkner Condon Dotcom for additional disclosures.