What Makes This Bull Market Different?

We’re running with the bulls again. It may be hard to believe given recent worries about the debt ceiling, Federal Reserve policy, lingering inflation, the overarching possibility of recession and more.

But despite it all, if you include reinvested dividends, the S&P 500 was up more than 20% from its October 2022 low as of Friday, June 2.

It would be easy to assume that this rising tide has lifted all ships, but that’s not so. The “concentrated markets” trend that we highlighted in our quarterly webinar is still in play. Let’s review what’s going on under the surface and some key takeaways for long-term investors.

The Magnificent Seven

You may have heard about the Magnificent Seven in recent weeks. It’s not a reference to the classic Western film (though we’ll touch on that in a moment) but instead to the seven stocks that have been behind a large percentage of the stock markets’ gains this year.

The Magnificent Seven are not all in the tech sector, but those that aren’t are nonetheless tech-adjacent (their business is driven in large part by advances in hardware, software and data crunching). And recently, the rise of artificial intelligence has created a tailwind.

Collectively these stocks (Apple, Alphabet, Tesla, Amazon, Microsoft, Meta and Nvidia) have returned 50.3% since the market bottomed on Oct. 12, 2022, and they’ve returned 70.9% year to date through June 6. They are all included in the S&P 500 and account for a large portion of the index’s 21.1% and 12.4% returns over those respective periods.

By contrast, the S&P SmallCap 600, which includes none of the seven, has returned just 3.6% this year and 10.6% since the market’s October 2022 nadir.

This is a remarkable run of outperformance from a very narrow slice of the overall stock market. Our investment team does not have perfect hindsight, but our core portfolios have benefited from exposure to these stocks this year.

How Does the Story End?

The analyst who coined the phrase “the Magnificent Seven” tapped into a deeper narrative of changing fortunes (intentionally or not). In the 1960 film of the same name, four of the seven gunslingers hired to defend the village against bandits didn’t make it out alive. The three survivors regarded themselves as no better off for their troubles. Life may not imitate art in this case, but there are parallels.

As wealth managers, we know the cyclical nature of the stock market well—what’s in favor today could be on the losing end of economic, technological or geopolitical trends tomorrow. And we don’t have to look too far back to find a time when these seven stocks collectively underperformed the broader market by a large margin. Between December 2021 and the end of 2022, they fell 46.4% compared to the S&P 500’s 18.5% decline over the same period.

The takeaway? Point in time and point of view both have a lot to do with stock market narratives.

Unlike the gunslingers, who took on great risk at high personal cost, our guiding investment principle is to manage risk to match your goals. We do this by diversifying across asset classes and market segments, keeping costs low, and taking a long-term approach to building wealth.

Estate Planning Fundamentals

Your financial plan is only as strong as its weakest link. For many, that weak link is an estate plan. A recent survey found that 67% of Americans have no estate plan at all. Among the 33% that do have one, it’s unfortunately common to let those documents languish for a decade or more after the plan’s creation. These documents should not be left on a shelf—they should be updated regularly. We recommend reviewing them every five years as well as when Congress or the courts substantially change the laws governing these plans.

But before you create or revise a plan, you need a team of experts in your corner to make sure that every possible factor is considered and conveyed to the professionals who are working on your behalf. And you need a team who will follow through.

That’s what we’re here for. We coordinate, communicate and clarify the estate planning process for you, paying attention to every detail: What matters most to you; where accounts are located; who the beneficiaries are; what properties or valuables need to be accounted for; whether your legal documents are well organized and in one place; how assets will flow from your estate to your heirs. We’ll even provide a framework for tracking your digital accounts, credit card accounts and airline miles.

Using this information, we’ll make sure you have a well-drafted estate plan that clearly determines who’s in charge and who gets what (plus how they will get it), which can help eliminate or at least manage family drama. Your plan will also cover how to minimize taxes and costs. It sounds straightforward, but crafting a plan that delivers on all of the above takes work and is well worth the effort.

With that, here are three estate planning action items we undertake with clients when we’re helping them refresh or create a new plan:

Update foundational documents. This includes a will or trust, durable power of attorney, health care documents and beneficiary designations. A will allows you to outline how your assets should be distributed upon your death, including designating your partner or children as a beneficiary. Trusts can help minimize estate taxes and eliminate the probate process. Creating these foundational documents gives you a head start in accomplishing the key goals of estate planning.

Make sure your marital status is current. Have you divorced and/or remarried? Was your right to marry affirmed by the Supreme Court’s 2015 Obergefell v. Hodges decision? The answers to these questions have major bearing on your estate plan. Understanding how the federal government or your state of residence qualifies the legal status of your relationship is crucial—it can affect your spousal rights and entitlements regarding inheritance, health care decisions and more. Anyone who entered into domestic partnerships or civil unions before 2015 should take this step, as should anyone who has not updated their estate documents following divorce or a new marriage.

Take advantage of estate-tax benefits. The legal right to marry carries significant estate-tax benefits. Married couples can utilize the unlimited marital deduction, which allows assets to pass from one spouse to another without incurring federal estate tax. This can help preserve wealth and provide financial security for the surviving spouse.

If you don’t have one, we can put you in contact with an experienced estate planning attorney who is knowledgeable about the laws and regulations specific to your jurisdiction. They can guide you through the process to ensure your wishes are properly documented and legally enforceable. And if you already have an attorney you trust, we are available to serve as your advocates and help quarterback the process so that you are well organized and can spend your precious time efficiently.

The depth of knowledge we acquire through this process means that when it’s time to execute your estate, you’ll have a partner who can guide you every step of the way. If you have any questions about your existing estate plan or if you want to get started on creating one, please contact your wealth advisor today. We will be happy to help you.

Adviser Market Update

Here are some of the other things our research team is watching and why they matter:

• June began with a quiet week on the economic and market front. The debt-ceiling drama went out with a whimper instead of a catastrophe as President Biden signed the bipartisan Fiscal Responsibility Act of 2023 into law on Saturday, removing a significant concern for markets worldwide. News of the successful negotiations drove stocks higher, crossing one major unknown off investors’ minds.
• The job market remains hot heading into summer. The economy added 339,000 jobs in May, nearly double the amount expected. The Dow Jones Industrial Average posted its best day of the year upon the jobs read’s release last Friday. While the strong numbers may pressure the Federal Reserve to raise interest rates again at next week’s meeting in its battle to cool the economy, we’d note that annual wage growth is slowing, reducing at least some inflationary pressure.
• Volatility as measured by the Cboe Volatility Index (aka the VIX or the “fear gauge”) is at a two-year low, historically indicative of upward market trends. Recent trading days have seen strong performance from the financial sector and small-cap stocks as apprehension diminishes around these economically sensitive stocks—another good example of why it pays to diversify and not merely chase the performance of hot stocks.