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Shares of Medical Properties Trust plummeted after the real estate investment trust said it is ramping up efforts to recover uncollected rent and outstanding loans from its largest tenant.
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The traditional portfolio of stocks and bonds has been on a tear over the past two months as the S&P 500 nears a record high, but it’s the big gains in fixed income that stand out, according to Bespoke Investment Group.
Fixed-income assets are typically the “insurance” part of the classic 60-40 portfolio, usually holding up during market weakness even if that wasn’t the case in 2022, Bespoke said in a note emailed Thursday. Both stocks and bonds in the U.S. have rallied during the fourth quarter and are up so far in 2023.
“With just two trading days left in the year, the market is on the verge of history,” Bespoke said. “After being written off for dead in the last year, the traditional 60/40 portfolio of 60% stocks and 40% bonds is within a whisker of its best two-month rally since at least 1990.”
Read: ‘The switch was flipped’: ETF flows pick up as stocks, bonds head for 2023 gains
In 2022, bonds failed to provide a cushion in the 60-40 portfolio as the Federal Reserve aggressively raised interest rates to battle surging inflation. Stocks and bonds tanked last year, with the S&P 500
SPX
seeing its ugliest annual performance since 2008, when the global financial crisis was wreaking havoc in markets.
Over the past two months, the classic 60-40 mix has seen a gain of 12.16% based on the total returns of the S&P 500 and Bloomberg Aggregate Bond Index, according to Bespoke. The current rolling two-month performance is stronger than gains seen in the two-month rally after the onset of the Covid-19 pandemic through May 2020, the firm found.
“The only other period that was better for the strategy was the two months ending in April 2009,” the firm said. “Back then, the strategy rallied 12.25%, so if the next two trading days even see marginal gains, the current rally will set the record.”
The Vanguard Total Bond Market ETF
BND
and iShares Core U.S. Aggregate Bond ETF
AGG
have each seen a total return of slightly more than 7% this quarter through Wednesday, according to FactSet data.
That puts the Vanguard Total Bond Market ETF on track for its best quarterly performance on record, while the iShares Core U.S. Aggregate Bond ETF is heading for its biggest total return since 2008, FactSet data show. The iShares Core U.S. Aggregate Bond ETF gained a total 7.4% in the fourth quarter of 2008.
In April 2009, “the bond leg” of the 60-40 portfolio was up just 1.87% on a rolling two-month basis, while in May 2020 it gained 2.25%, the Bespoke note shows.
“During this current period, bonds have rallied an unprecedented 8.87%, which far exceeds any other two-month period since at least 1990,” the firm said. “While they still underperformed stocks in the last two months, they have never acted as a smaller drag on the strategy during a period of strength.”
Bespoke found that the S&P 500, a gauge of U.S. large-cap stocks, is up 14.35% over the last two months on a total-return basis, “which is certainly strong relative to history but not anywhere close to a record.”
The U.S. stock market was trading slightly higher on Thursday afternoon, with the S&P 500 up 0.2% at around 4,791, according to FactSet data, at last check. That’s within striking distance of the index’s closing peak of 4,796.56, reached Jan. 3, 2022, according to Dow Jones Market Data.
As stocks were inching higher Thursday afternoon, shares of both the Vanguard Total Bond Market ETF and iShares Core U.S. Aggregate Bond ETF were trading down modestly, according to FactSet data, at last check.
The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was rising about seven basis points on Thursday afternoon, at around 3.85%, but is down so far this quarter, FactSet data show. Bond yields and prices move in opposite directions.
Bond prices are rallying as many investors anticipate the Fed is done hiking rates — and may begin cutting them sometime next year — as inflation has fallen significantly from its 2022 peak.
As for year-to-date gains, the S&P 500 has surged 26.6% on a total-return basis through Wednesday, while the iShares Core U.S. Aggregate Bond ETF has gained a total 6.1% over the same period, FactSet data show.
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Yields on 3-month
BX:TMUBMUSD03M
and 6-month
BX:TMUBMUSD06M
Treasury bills have been seeing yields north of 5% since March when Silicon Valley Bank’s collapse ignited fears of a broader instability in the U.S. banking sector from rapid-fire Fed rate hikes.
Six months later, the Fed, in its final meeting of the year, opted to keep its policy rate unchanged at 5.25% to 5.5%, a 22-year high, but Powell also finally signaled that enough was likely enough, and that a policy pivot to interest rate cuts was likely next year.
Importantly, the central bank chair also said he doesn’t want to make the mistake of keeping borrowing costs too high for too long. Powell’s comments helped lift the Dow Jones Industrial Average
DJIA
above 37,000 for the first time ever on Wednesday, while the blue-chip index on Friday scored a third record close in a row.
“People were really shocked by Powell’s comments,” said Robert Tipp, chief investment strategist, at PGIM Fixed Income. Rather than dampen rate-cut exuberance building in markets, Powell instead opened the door to rate cuts by midyear, he said.
New York Fed President John Williams on Friday tried to temper speculation about rate cuts, but as Tipp argued, Williams also affirmed the central bank’s new “dot plot” reflecting a path to lower rates.
“Eventually, you end up with a lower fed-funds rate,” Tipp said in an interview. The risk is that cuts come suddenly, and can erase 5% yields on T-bills, money-market funds and other “cash-like” investments in the blink of an eye.
When the Fed cut rates in the past 30 years it has been swift about it, often bringing them down quickly.
Fed rate-cutting cycles since the ’90s trace the sharp pullback also seen in 3-month T-bill rates, as shown below. They fell to about 1% from 6.5% after the early 2000 dot-com stock bust. They also dropped to almost zero from 5% in the teeth of the global financial crisis in 2008, and raced back down to a bottom during the COVID crisis in 2020.
FRED data
“I don’t think we are moving, in any way, back to a zero interest-rate world,” said Tim Horan, chief investment officer fixed income at Chilton Trust. “We are going to still be in a world where real interest rates matter.”
Burt Horan also said the market has reacted to Powell’s pivot signal by “partying on,” pointing to stocks that were back to record territory and benchmark 10-year Treasury yield’s
BX:TMUBMUSD10Y
that has dropped from a 5% peak in October to 3.927% Friday, the lowest yield in about five months.
“The question now, in my mind,” Horan said, is how does the Fed orchestrate a pivot to rate cuts if financial conditions continue to loosen meanwhile.
“When they begin, the are going to continue with rate cuts,” said Horan, a former Fed staffer. With that, he expects the Fed to remain very cautious before pulling the trigger on the first cut of the cycle.
“What we are witnessing,” he said, “is a repositioning for that.”
The most recent data for money-market funds shows a shift, even if temporary, out of “cash-like” assets.
The rush into money-market funds, which continued to attract record levels of assets this year after the failure of Silicon Valley Bank, fell in the past week by about $11.6 billion to roughly $5.9 trillion through Dec. 13, according to the Investment Company Institute.
Investors also pulled about $2.6 billion out of short and intermediate government and Treasury fixed income exchange-traded funds in the past week, according to the latest LSEG Lipper data.
Tipp at PGIM Fixed Income said he expects to see another “ping pong” year in long-term yields, akin to the volatility of 2023, with the 10-year yield likely to hinge on economic data, and what it means for the Fed as it works on the last leg of getting inflation down to its 2% annual target.
“The big driver in bonds is going to be the yield,” Tipp said. “If you are extending duration in bonds, you have a lot more assurance of earning an income stream over people who stay in cash.”
Molly McGown, U.S. rates strategist at TD Securities, said that economic data will continue to be a driving force in signaling if the Fed’s first rate cut of this cycle happens sooner or later.
With that backdrop, she expects next Friday’s reading of the personal-consumption expenditures price index, or PCE, for November to be a focus for markets, especially with Wall Street likely to be more sparsely staffed in the final week before the Christmas holiday.
The PCE is the Fed’s preferred inflation gauge, and it eased to a 3% annual rate in October from 3.4% a month before, but still sits above the Fed’s 2% annual target.
“Our view is that the Fed will hold rates at these levels in first half of 2024, before starting cutting rates in second half and 2025,” said Sid Vaidya, U.S. Wealth Chief Investment Strategist at TD Wealth.
U.S. housing data due on Monday, Tuesday and Wednesday of next week also will be a focus for investors, particularly with 30-year fixed mortgage rate falling below 7% for the first time since August.
The major U.S. stock indexes logged a seventh straight week of gains. The Dow advanced 2.9% for the week, while the S&P 500
SPX
gained 2.5%, ending 1.6% away from its Jan. 3, 2022 record close, according to Dow Jones Market Data.
The Nasdaq Composite Index
COMP
advanced 2.9% for the week and the small-cap Russell 2000 index
RUT
outperformed, gaining 5.6% for the week.
Read: Russell 2000 on pace for best month versus S&P 500 in nearly 3 years
Year Ahead: The VIX says stocks are ‘reliably in a bull market’ heading into 2024. Here’s how to read it.
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The stocks of long-neglected small companies are finally showing signs of life as the market rally broadens. But these tiny companies still remain vastly undervalued. So, they are one of the best buys in the stock market right now.
Small- and medium-cap companies, or smidcaps, have not been this cheap since the Great Financial Crisis 15 years ago. “Smidcaps relative to large caps look very attractive,” says says portfolio manager Aram Green, at the ClearBridge Select Fund LBFIX, which specializes in this space. “Over the long term you will be rewarded.”
Green is worth listening to because he is one of the better fund managers in the smidcap arena. ClearBridge Select beats both its midcap growth category and Morningstar U.S. midcap growth index over the past five- and 10 years, says Morningstar Direct. This is no easy feat, in a mutual fund world where so many funds lag their benchmarks.
The timing for smidcap outperformance seems about right, since these stocks do well coming out of recessions. Technically, we have not recently had a recession. But there was an economic slowdown in the first half of the year, and the U.S. did have an earnings recession earlier this year. So that may count.
To get smidcap exposure, consider the funds of outperforming managers like Green, and if you want to throw in some individual stocks, Green is a great guide on how to find the best names in this space.
I recently caught up with him to see what we can learn about analyzing smidcaps. Below are four tactics that contribute to his fund’s outperformance, with nine company examples to consider.
1. Look for an entrepreneurial mindset: Green’s background gives him an edge in investing. He’s an entrepreneur who co-founded a software company called iCollege in 1997. It was bought out by BlackBoard in 2001. He knows how to understand innovative trends, identify a good idea, secure capital and quickly ramp up a business. This experience gives him a “private market mindset” that helps him pick stocks to this day.
“Founder-run companies regularly outperform.”
Green looks for managers with an entrepreneurial mindset. You can glean this from company calls and filings, but it helps a lot to meet management — something most individual investors cannot do. But Green offers a shortcut, one which I regularly use, as well. Look for companies that are run by founders. This will give you exposure to managers with entrepreneurial spirit.
Here, Green cites the marketing software company HubSpot
HUBS,
a 1.9% fund position as of the end of the third quarter. It was founded by Massachusetts Institute of Technology college buddies Brian Halligan and Dharmesh Shah. They’re on the company’s board, and Shah is chief technology officer.
Academic studies confirm founder-run companies regularly outperform. My guess is this is because many founders never lose the entrepreneurial spirit, no matter how easy it would be to quit and sip Mai Tai’s on a beach after making a bundle.
In the private market, Green cites Databricks, a data management and analytics company with an AI angle. This competitor of Snowflake
SNOW,
is likely to go public in 2024. If you feel like an outsider because you lack access to private market investing, note that Green says he typically buys more exposure to private companies on the initial public offering (IPO), and then in the market. “We like to spend time with them when they are private so we can pounce when they are public,” Green says.
2. Look for organic growth: When companies make acquisitions their stocks often decline, and for good reason. Managers make mistakes in acquisitions because they overestimate “synergies.” Or they get wrapped up in ego-enhancing empire building.
“We favor entrepreneurial management teams that do not make a lot of acquisitions to grow, but use their resources to develop new products to keep extending the runway,” says Green.
Here, he cites ServiceNow
NOW,
which has grown by “extending the runway” with new offerings developed internally. It started off supporting information technology service desks, and has expanded into operations management of servers and security, onboarding employees, data analytics, and software that powers 911 emergency call systems. Green obviously thinks there is a lot more upside to come, given that this is an overweight position, at 4.6% of the portfolio (the fund’s biggest holding).
Green also puts the “Amazon.com of Latin America” MercadoLibre
MELI,
in this category, because it continues to expand geographically and in areas such as logistics and payment systems. “They have really morphed into a fintech company,” Green says. He puts HubSpot and the marketing software company Klaviyo
KVYO,
in this category, too.
3. Look for differentiated business models: Green likes companies with offerings that are special and different. That means they’ll take market share, and face minimal competition. They’ll also enjoy pricing power. “This leads to high margins. You don’t have someone beating you up on price,” he says.
Green cites the decking company Trex
TREX,
which offers composite decking and railing made from recycled materials. This gives it an eco-friendly allure. Compared to wood, composite material lasts longer and requires less maintenance. It costs more up front but less over the long term. Says Green: “The alternative decking market has taken about 20% of the market and that can get to 50%.”
Of course, entrepreneurs notice success, and try to imitate it. That’s a risk here. But Trex has an edge in its understanding of how to make the composite material. It has a strong brand. And it is building relationships with big-box retailers Home Depot and Lowe’s. These qualities may keep competitors at bay.
4. Put some ballast in your portfolio: Green likes to keep the fund’s portfolio balanced by sector, size, and business dynamic. So the portfolio includes the food distributor Performance Food Group
PFGC,
The company is posting mid-single digit sale growth, expanding market share and paying down debt. Energy drinks company Monster
MNST,
also offers ballast. Monster’s popular product line up helps the company to take share and enjoy pricing power, Green says.
It’s admittedly unusual to see a food companies in a portfolio loaded with high-growth tech innovators. But for Green, it’s all part of the game plan. “Rapid growth, disrupting businesses are not going to work year in year out. There are times they fall out of favor, like 2022. So, having that balance is important because it keeps you invested in the equity market.”
In other words, keeping some ballast means you’re less likely to get shaken out by sharp declines in high-growth and high-beta tech innovators when trouble strikes the market.
Michael Brush is a columnist for MarketWatch. At the time of publication, he owned AMZN, TSLA and MELI. Brush has suggested AMZN, TSLA, NOW, MELI, HD and LOW in his stock newsletter, Brush Up on Stocks. Follow him on X @mbrushstocks
More: Nvidia, Disney and Tesla are among 2023’s buzziest stocks. Can they continue to sizzle in 2024?
Also read: Presidential election years like 2024 are usually winners for U.S. stocks
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Estate Administration Tax, commonly known as probate fees, is a mandatory tax imposed by the Ontario provincial government. It is placed on the estate of a deceased individual and is calculated based on the fair market value of the deceased’s estate, including all assets, property and investments on the date of death. It’s important to note that Estate Administration Tax is only triggered and payable when the estate goes through the probate process, which is a legal procedure that happens in two circumstances.
Firstly, it verifies and validates the last will and testament of a deceased individual in Ontario, ensuring authenticity of the will, and appointing an executor to manage the distribution of assets.
Secondly, when an Ontario resident passes away without a will, probate is necessary to establish a legal executor for asset distribution. And it ensures that the process follows legal guidelines while safeguarding the interests of the beneficiaries.
The calculation of Estate Administration Tax in Ontario is relatively straightforward, and can be found on Ontario.ca, if you are looking to play around with the numbers yourself. Like marginal income tax brackets, the tax rate is determined by a tiered system that corresponds to the total value of the estate on the date of death. Here’s a breakdown of the current rates:
Estates Valued Under $50,000
If the estate’s total value is less than $50,000, no Estate Administration Tax is payable.
Estates Valued Over $50,000
Estates valued above $50,000 are subject to a tax rate of $15 per $1,000 or part thereof.
For example, if an estate is valued at $200,000, the calculation would be as follows:
The first $50,000: = $0
The remaining $150,000: ($200,000-$50,000=$150,000) x $15 per $1,000 = $2,250
So, the total estate administration tax for an estate valued at $200,000 would be $2,250.
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Debbie Stanley
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First, it bears mentioning that wills typically provide discretion to the trustees to sell, call in or convert into cash any part of an estate in their absolute discretion. The trustees may also have the ability to postpone a sale if they think it’s best. For example, that could be the case if market conditions made it inadvisable to immediately sell a real estate property, business assets or investments.
An estate trustee typically has the discretion to distribute specific assets to beneficiaries as part of their share of an estate. In other words, if one beneficiary wanted a real estate property, they may elect to receive a smaller share of the rest of the estate, like cash proceeds from bank accounts or from selling other assets. If the real estate value was more than their share of the estate, they may be able to buy the asset from the estate, paying the incremental amount over and above the value of their share.
It sounds like your parents’ estate has already been distributed to you, though, if your own names are now on these properties and accounts. As such, you should have free rein to do as you wish.
In my experience, it’s more common to sell all the assets and distribute the cash that remains (after paying taxes and estate costs) to the beneficiaries. So, your parents’ wishes may not have been so literal as to continue to hold all of their assets jointly.
Real estate could be distributed to multiple beneficiaries directly rather than sold if the property holds sentimental value, such as a family cottage or farm. This would be less likely with estates like your parents’, which includes five properties, at least a few of which are presumably rental properties.
There’s no tax advantage to continuing to hold the properties or the accounts, either. For a couple, tax is payable on the second death.
If you and your siblings want to continue to hold the real estate as investments, Lisa, you could do so jointly. You could own the properties as joint tenants with the right of survivorship, in which case the surviving two siblings would inherit the property upon the first death. This would be uncommon for siblings, though.
You could alternatively own the properties as joint tenants in common, which would give you control of the asset even upon your death. You could then leave your share to your spouse or children, for example. This is usually preferred to leaving your assets to your siblings, but perhaps none of you have spouses or children. Even if you do not now, you might in the future.
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Jason Heath, CFP
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Private-equity funds aimed at wealthy individuals continue to draw in fresh capital as the universe of alternative investments grows beyond its roots serving endowments, pension funds and other institutions, according to industry data.
Registered funds that take investments from individuals and smaller institutions rose by about $125 billion in 2022 from the previous year to total assets under management (AUM) of $425 billion, according to data from private-equity investor and data provider Hamilton Lane Inc. HLNE.
The…
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It’s filing season for a string of major hedge funds, and big tech names like Apple, Microsoft, and Nvidia were among the most-traded equities in the third quarter.
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A researcher at Two Sigma Investments adjusted the hedge fund’s investing models without authorization, the firm has told clients, leading to losses in some funds, big gains in others and fresh regulatory scrutiny.
The researcher, Jian Wu, a senior vice president at New York-based Two Sigma, was trying to boost his compensation, Two Sigma has told clients, without identifying Wu. He made changes over the past year that resulted in a total of $620 million in unexpected gains and losses, according to people close to the matter and investor letters. Two Sigma has placed Wu on administrative leave.
Copyright ©2023 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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Bitcoin surged over 10% on Monday, briefly surpassing $34,500, on continued optimism that an exchange-traded fund investing directly in the cryptocurrency will soon be approved in the U.S.
The largest cryptocurrency
BTCUSD,
by market cap on Monday reached as high as $34,616, the loftiest level since May 2022, according to CoinDesk data, before falling to around $33,021 by Monday evening. Other major cryptocurrencies also rose, with ether up 5.8% over the past 24 hours to $1,763.
The U.S. Securities and Exchange Commission has repeatedly rejected bitcoin ETF applications in the past, citing risks of market manipulation. But crypto-industry participants are expecting that to change soon.
Read more: Bitcoin climbs above $30,000 for first time since August as hopes for ETF approval intensify
A U.S. Appeals court on Monday issued a mandate, putting into effect its ruling in August, which overturned the SEC’s rejection of Grayscale Investments’ application to convert its Bitcoin Trust product
GBTC
into an ETF. The final ruling on Monday confirmed Grayscale’s win in court.
Meanwhile, BlackRock’s proposed bitcoin ETF has been listed on the Depository Trust & Clearing Corporation. While it doesn’t mean that the ETF is guaranteed to be approved, it shows another step closer for BlackRock to bring the fund to the market.
If bitcoin ETFs are approved, the crypto may see “historical price increases,” with a crypto bull market coming, according to Alex Adelman, chief executive and co-founder of Lolli. “Bitcoin ETFs will give institutional and retail investors new ways to gain exposure to bitcoin within established regulations,” Adelman said.
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I recently graduated with my master’s degree and am seeking full-time employment at age 53. I want to know what is the best way to invest some of my earnings when I begin receiving a paycheck. I expect to have an annual salary of between $80,000 and $90,000.
For religious reasons, I cannot invest to earn interest, but business-related ventures such as stocks are acceptable. I am planning to set aside up to $1,000 per month for investment purposes, so that I can build some retirement funds. What are my options?
First-Time Investor
MarketWatch illustration
Congratulations on your master’s degree. You have already made the best investment you can make — one in yourself, your education and your future. It takes patience, guts and stamina to go back to college in your 50s, and you should be very proud. You were one of about 505,000 students in college ages 50 and over, representing less than 4% of the student population.
Given your faith, CDs and high-yield savings accounts are ruled out. A letter writer recently asked me where he should start looking to invest his $50,000 life savings, and I pointed him in the “make interest off your cash” direction, particularly given the recent rise in interest rates. That won’t work for you, but the good news is that you do have many options.
There are investment vehicles for you. In fact, the Accounting and Auditing Organization for Islamic Financial Institutions sets guidelines for investing in accordance with the Sharia religious code, including rules around companies that derive a percentage of their profits from tobacco and alcohol products. And, yes, it also regards interest as unjust and exploitative.
Saturna Capital has mutual funds that follow Islamic principles. The Amana Income Fund AMANX, which focuses on current income and the preservation of capital, has had an average annual five-year return of 8.8% for investor shares, slightly lower than the 9.9% average return for the S&P 500
SPX
over the same period with dividends reinvested. I suggest this as a guidepost rather than a recommendation.
Similarly, the Knights of Columbus assets are managed by Knights of Columbus Asset Advisors in accordance with Catholic moral principles, which are distilled to six main tenets: “protecting human life, promoting human dignity, reducing arms production, pursuing economic justice, protecting the environment [and] encouraging corporate responsibility.”
Related: How do I know if my ESG investments are doing any good?
Of course, investing along religious principles — similar to ESG investment, which takes environmental, social, and corporate-governance factors into account when deciding what to do with your money — is fraught with complications, contradictions and problems with transparency. Regulators are cracking down on vehicles that “greenwash” their ESG credentials.
A major report by the Organization for Economic Cooperation and Development, an intergovernmental organization with 38 member nations, found that ESG ratings vary strongly depending on the provider, as they commonly use different measures, indicators, metrics, data and qualitative judgments to make decisions about funds and companies.
“Moreover, returns have shown mixed results over the past decade, raising questions as to the true extent to which ESG drives performance,” the OECD said. “This lack of comparability of ESG metrics, ratings, and investing approaches makes it difficult for investors to draw the line between managing material ESG risks within their investment mandates.”
You have many funds to choose from. If you’re Catholic, you could look into the Global X S&P 500 Catholic Values ETF
CATH
; the LKCM Aquinas Catholic Equity Fund AQEIX; or Ave Maria, which offers mutual funds for growth AVEGX, value AVEMX and bonds AVEFX AVEFX. You can read more here. Investing based on religious, moral or ethical principles doesn’t guarantee a satisfactory return.
It’s not too late to start investing at 53. With the advice of a financial adviser, your risk profile may need regular adjusting, based on your age and tolerance. But you may work into your 70s and may live into your 80s or 90s, and you will want to find myriad ways to build your wealth throughout your retirement. Cash-hoarding typically gets outdone by inflation.
You may find a job with a 401(k) and an employer match, meaning your employer will contribute an additional sum toward your retirement based on the amount you are contributing every month. You may also consider an IRA. Both account types have “catch-up” contributions for people who are over 50. Annual IRA contribution limits for 2023 are $6,500 for people under 50, but $7,500 for those 50 and older.
You can also use pretax dollars for health savings accounts, which are used to offset the burden of high-deductible healthcare plans. With the latter, you pay a lower premium, but you will be saddled with higher out-of-pocket expenses for medical services should you require them. You can contribute up to $4,150 to an HSA for 2024, up from $3,850 this year.
As for right now? Pay off your credit cards. Don’t let high-interest debt trap you. Warren Buffett said one of the best investments he ever made was buying his Omaha, Neb., home for $31,500 in 1958. It’s worth $1.4 million today. He has said he may have put that money to better use if he had rented instead, but owning your own home will solidify your financial position in retirement.
Investing $1,000 a month may be ambitious. But thinking in the medium to long term — and knowing this is a marathon rather than a sprint, even at 53 — is half the battle. With compounding, or making money off your principal and the increase in value of your initial investment, you could have more than $120,000 in 10 years, and over $600,000 in 30 years.
Bravo on this new chapter. Take it one day, one week and one month at a time, and enjoy your life.
You can email The Moneyist with any financial and ethical questions at qfottrell@marketwatch.com, and follow Quentin Fottrell on X, the platform formerly known as Twitter.
Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.
The Moneyist regrets he cannot reply to questions individually.
Previous columns by Quentin Fottrell:
‘I’m tired of feeling like I am in hell’: My boss tears into me almost daily. He says I’m worthless. What can I do?
I earn $210,000 and I’m 59. My wife and I want to move to Hawaii. Is it too late to get a mortgage?
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The U.S. is approaching “peak 65.” Are you ready for it?
The number of people who turn 65 every day will peak in 2024, and more people will be staring at the possibility of retirement, often without a plan or a roadmap to help them thrive. Given that more people are living longer, that’s a long time to spend bored, lonely or financially insecure.
Here’s a checklist to help you navigate the financial decisions, legal complications and social ramifications of retiring. Since 60% of workers retire earlier than planned, according to the Transamerica Institute and the Transamerica Center for Retirement Studies, you shouldn’t leave these tasks to the last minute. Get started now.
Your will may be decades out of date and your financial accounts may have beneficiaries linked to a previous marriage. Dust off those documents and get them refreshed as soon as possible.
“Before you even start thinking about retirement, there’s some housekeeping that needs to get done,” says Eric Bond, the president of Bond Wealth Management.
On your immediate to-do list, make sure you have a will, power of attorney and healthcare power of attorney in case you become incapacitated and can’t act on your own behalf. You’ll also need a HIPAA waiver as well as a trust, says Catherine Collinson, the chief executive and president of the nonprofit Transamerica Institute and Transamerica Center for Retirement Studies.
“There’s still widespread belief that trusts are only for the affluent, but they’re for everyone,” Collinson says. “It’s amazing how small issues can take on enormous bureaucratic proportions. You want to try to avoid that.”
Nicholas Yeomans, a financial adviser and the president of Yeomans Consulting Group, says to check retirement plans, life insurance and annuity accounts to make sure you have your beneficiaries listed properly. You may have a will, but beware that beneficiaries on such accounts supersede a will, he says. Be sure to name secondary or contingent beneficiaries, as well.
“It’s really basic, but only 23% of preretirees and 19% of retirees have a written plan. Until you put the numbers into a spreadsheet, it’s impossible to come up with realistic expectations for how you’re going to live your life. Otherwise, you’re just winging it,” Collinson says.
“Life is much more complicated and challenging. You need backup plans and contingency plans,” she says. “It’s really important to plan for life’s unforeseen circumstances.”
Bond, meanwhile, cautions that people who retire in their 60s need to realize that longevity has increased and they could be retired for decades.
“Milk and eggs are not getting cheaper. You have to plan for the long haul,” he says.
Working Americans think they need an average of $1.1 million to retire, according to the Schroders 2023 U.S. Retirement Survey. Financial advisers generally recommend that people have 75% to 85% of their preretirement income for each year of their retirement.
Also read: How never to outlive your money
Once you have a budget in place, build up cash reserves to cover six to nine months of basic expenses, such as mortgage, utilities and living expenses, Yeomans says.
“People are either one of two extremes when it comes to emergency funds — too much cash or not enough,” he says.
And in the years leading up to retirement, Brandon Robinson, the president and founder of JBR Associates, recommends that you work on eliminating your “bad” debt, such as credit cards or vehicle payments. Having a mortgage, however, is not necessarily a bad thing, since a house is generally an appreciating asset, he says.
“Most people only retire once,” Collinson says. “Financial advisers have the depth and breadth of experience to help. Many workers have a 401(k), and with that often comes access to financial guidance. Take advantage of that.”
She adds: “In today’s turbulent economy, the many people who may have felt comfortable taking a do-it-yourself approach may need help navigating uncharted territory.”
And make sure you meet with your financial adviser on an annual basis, Robinson adds.
Healthcare is costly, and it can be even more so for retirees. It can cost as much as $5,100 a month for a home health aide, for instance, and an average of about $8,000 a month for a semiprivate room in a nursing home, according to the Genworth Cost of Care Survey. Genworth is a long-term-care insurance company.
By another measure, a 65-year-old retiring in 2023 could spend an average of $157,500 on health and medical expenses throughout his or her retirement, according to Fidelity Investments, which tracks retiree healthcare expenses annually.
Also think about the long-term costs of help with the activities of daily living, such as bathing, toileting and dressing — assistance that is not covered by Medicare.
When asked what their plans are for if and when their heath declined, 46% of retirees said they’d rely on family and friends, and 31% said they don’t have any plans or haven’t thought about it, Collinson says.
“People don’t want to think about needing someone to bathe and dress them. The cost and potential impact of these topics is enormous,” she says.
Collinson says it’s important to learn about long-term care — what’s available and at what price. That can help guide your decisions about long-term care insurance, but options in that market have contracted and costs have risen, putting such services out of reach for many people
Only 14% of retirees are very confident they could afford long-term care if needed, she says.
“Many people are under the impression that Medicare covers more long-term care than it actually does,” Collinson says. “And qualifying for Medicaid is extreme. It means that you’re at dire financial means, if not bankrupt. And Medicaid facilities have long waiting lists.”
Speaking of Medicare, it’s important to learn what the program covers and what it doesn’t.
“There are so many decision criteria about the type, level and cost of care,” Collinson says. “It behooves everyone to understand the Medicare options best for them and review those plans regularly.”
Also, it’s critical to plan for Medicare when you’re 65, even if you’re not planning to retire until 67 or 70.
There’s a seven-month window to enroll in Medicare, which includes the three months before you turn 65, the month of your birthday and the three months after. If you miss that seven-month window and you don’t have health insurance from a large employer, you can face lifetime penalties for late enrollment in Medicare.
The first step is to contact the Social Security Administration — not Medicare itself — to start Medicare. And you’ll enroll only yourself — it’s not a family plan.
If you’re getting Social Security and you enroll in Medicare, your premiums will come directly out of your Social Security check. However, if you’re not getting Social Security yet, you should set up automatic payments for Medicare, because your enrollment can get canceled for nonpayment.
You need to know when and how to manage your Social Security claiming. The Social Security Administration website is a great starting point, but be sure to talk with a financial adviser or visit your 401(k) plan’s financial resource center to get more information.
Read: How much does my Social Security benefit increase when I delay filing?
“Ideally, you want to wait until the full retirement age or age 70, which is the maximum age,” Collinson says.
Full retirement age is 67 for those born in 1960 or later.
“When to take Social Security is a major decision that depends on your health, the health of your spouse, your jobs. Making that decision is a big one. Don’t take it lightly,” Robinson says.
Read: Inflation is already racing past next year’s Social Security COLA
“Consider downsizing or moving, but take your time,” Yeomans says. “People make major purchase mistakes in the first 12 to 18 months of retirement. But take your time. Consider renting before pulling that trigger.”
Aging in place is something about nine out of 10 people want to do, according to a survey from Transamerica Institute and the Transamerica Center for Retirement Studies, but Collinson says people need to prepare their homes for that.
You may need wider doorways that can accommodate a wheelchair, as well as chairlifts, grab bars and shower seats.
“If your dream home in retirement has lots of stairs, know that you may need to move when stairs become unmanageable,” she says.
Once you have the financial and legal aspects taken care of, think about how — and with whom — you want to spend your time in retirement.
“Make sure you’re not retiring from something, but instead retiring to something,” Yeomans says. “Men struggle with this the most. The average man has no close friends in their life who aren’t connected to work. And so much of our health in retirement comes from relationships.”
Now read: In retirement, time is short. Don’t waste it on things you hate.
People often don’t realize what they’ll lose when they quit working: routine, structure, social interactions, mental stimulation and in some cases physical activity, says Robert Laura, founder of the Retirement Coaches Association.
People also often don’t take their personality into account when considering retirement.
“If you’re a Type A personality, you may feel out of sorts with endless time. A lot of people don’t critically question retirement. They think it’s golden. But people often don’t want to retire — they just want to stop doing their primary job,” Laura says.
Joe Casey, managing partner of retirement-coaching company Retirement Wisdom, recommends talking to people who are thriving in retirement and learning how they spend their time and energy.
“People miss the challenge of working. What’s the new challenge that will help you keep growing? Don’t get too hung up on finding a singular new purpose. Try new things. Volunteer. Try several activities and be open to experimenting,” Casey says.
Casey suggests mapping out what a typical day or week will look like in retirement and how you plan to fill those hours. Give yourself some structure by having three things to do every day. That will provide you with a road map of how to spend your time but will also give you flexibility to let the day unfold.
Laura says the newly retired should set 30-, 60- and 90-day goals to create some structure and have small objectives to work toward.
“People suffer from choice paralysis — they have all the time in the world and so many options open to them. People go into retirement with vague ideas and don’t know where to start doing something, so they never do it,” Laura says.
“Retirement is the longest New Year’s resolution. It’s goals you have and never accomplish unless you’re focused. You don’t get extra motivation or energy in retirement, so you need to focus on what you want to accomplish,” Laura says.
A sobering statistic may spur you into action: The average retiree watches as much as 47 hours of television a week, according to AgeWave.
To avoid that, start thinking about and planning for retirement with your partner far ahead of the actual date. Learn each other’s goals and expectations for retirement and compare notes. Some adjustments might be in order.
“What if one wants to sail around the world and the other wants to see the grandkids every month?” Laura says.
Casey also recommends taking retirement for a test drive by taking a week off work. “You can get a good sense of retirement in a week trial,” he says. “It will show you how long a day can be.”
And Collinson says to prioritize physical fitness — but don’t forget about your mental health, too. Stay engaged with other people and avoid isolation.
Loneliness is as deadly as smoking up to 15 cigarettes a day and is associated with a greater risk of cardiovascular disease, dementia, stroke, depression, anxiety and premature death, according to a recent advisory from the U.S. Surgeon General.
The takeaway: Make sure you plan how you’ll carry out your hopes and dreams in retirement to make it all feel worthwhile.
“What was the reason you worked hard for so many years?” Casey says. “It wasn’t to watch 47 hours of TV each week.”
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One lucky person picked the winning $1.73 billion Powerball number in California. It is a life-changing amount of money for the lucky winner or winners — but not necessarily in a good way.
Robert Pagliarini, author of “The Sudden Wealth Solution,” has been guiding lottery winners for decades. And he has seen plenty of people run through their winnings faster than you can say “jackpot!” Or, friends and family (and certainly office lottery pool players) can see their winnings tied up in legal battles for years, as the parties argue over who gets how much. About 70% of lottery winners lose or spend all the money in five years or less, after all.
“Money — especially when you’re talking about this level of money — absolutely upends people’s lives,” Pagliarini, the president of Pacifica Wealth Advisors, told MarketWatch. “You should be excited, but you should also be prepared, for sure.”
These are his five tips for what to do if you win the lottery or get another windfall.
Sign your name on the winning ticket, take a picture of yourself holding the winning ticket — in fact, take a video of yourself holding the signed, winning ticket, for good measure.
“The first step is really all about securing the ticket … because whoever has it is the owner,” says Pagliarini. “There’s no record of you having purchased that ticket with those numbers. So having that ticket is everything.”
Related: Hoping to win Mega Millions? This woman hit a $112 million Mega Millions jackpot.
You have to document that this ticket is yours, which is why Pagliarini says legal experts recommend signing it. “I would absolutely sign it myself,” he adds.
And then put that ticket in a safe place, like a home safe or lockbox.
You may want to sing the good news from the rooftops that your financial troubles are over. Problem is, everyone else’s troubles aren’t — and Pagliarini warns that, for your own personal safety and peace of mind, it’s better not to let the world know you’ve just become a billionaire overnight — if you can help it. Unfortunately, most states make you disclose that you’ve won.
“We’re used to seeing people with the big check on TV, which looks pretty cool — but now everybody in the entire world knows that you’re worth $1 billion. And that’s not really the kind of publicity that you want,” says Pagliarini. “You’re going to be hit up for lots of money requests as people come out of the woodwork. And that adds such a huge amount of stress when you’re in a situation that is already stressful.”
You generally have 180 days to collect the winnings, and you’re going to have to make some big, life-changing decisions during that time. Staying anonymous, if you can, will give you the space to make those decisions with a clear head.
Unfortunately, as noted, most states compel lottery winners to come forward publicly. If you have to reveal yourself and do press interviews, protect your personal information. Some past Powerball winners didn’t answer questions about any meaningful or personal significance associated with the winning numbers that they played, for example, or they refused to share details about their children. One couple simply moved out of their house and refused to speak with the media at all while they settled their affairs.
“My rule is basically, you tell one family member, and then you immediately try to get professional help,” Pagliarini adds. Which leads us to….
Bring in the professional help as soon as you can. An attorney can help you decide the best time to claim your lottery prize, and offer more advice on keeping your ticket safe. They can also help navigate your rights and protect your best interests with regards to how much you need to present yourself publicly. And they can also help you manage your safety.
Meanwhile, a financial adviser can assess your financial situation and help you decide whether it makes sense to take a lump sum of cash, or to collect your winnings over annual payments. A financial adviser can also help you manage your money so that you can check things off your bucket list without overspending.
“You know you’ve won, and then typically you have about 180 days to collect the winnings,” says Pagliarini. “So you’ve got to do some serious planning.” You need all the help you can get.
Pagliarini considers staying anonymous as the first big decision a lottery winner makes. The second most important question, however, is how they collect their winnings. Do you want to take a lump sum, or do you want to take the annuity (aka, a payout over time)?
“This is really the biggest financial decision you’ll ever make in your entire life,” he says. (Granted, it’s one that most of us will never have to make, since the odds of winning the lottery, let alone a jackpot of this size, are infinitesimal.)
He notes that most people take the lump-sum payment, and in some circumstances this can be a better decision. But keep in mind that if you win a $1 billion Powerball jackpot, for example, you are not getting $1 billion.
“They send you about 60-ish percent of whatever the lump sum is,” Pagliarini notes. So for a $1 billion prize, for example, “you would get around $600 million instead of $1 billion,” he said. And after state taxes, depending on where you live, and federal taxes, that jackpot may be closer to $300 million in the end. Whereas, the annuity is given as 30 payments over 29 years, which will come closer to hitting the advertised $1 billion jackpot than lump-sum takers would get. So being patient can pay off in the long run, especially with a bigger prize like this.
As far as taxes are concerned, Pagliarini still leans toward annuity — especially for a smaller jackpot, like if it was $1 million. That’s because you would get a lump-sum payment of about $600,000, which would put you in the highest federal and state income tax bracket (for single filers anyway) that year — versus taking an extra $30,000 a year for 30 years. “That annuity payment is probably not going to catapult you into the highest tax bracket,” he says. But for a $1 billion-plus jackpot like this, you’re going to be in the highest tax bracket whichever payout you choose, he says.
But there’s another reason to consider going the annuity route, Pagliarini says — it can save you from yourself.
“The biggest advantage of the lump-sum payout is that you get most of the money up front, and then you can do whatever you want with it,” he says, such as pay off debt, invest it, buy a house, etc. “But that actually happens to be the biggest disadvantage of the lump sum,” he continues. And that’s because, if you overspend your winnings and run out of cash with your lump sum, then you are out of luck. But the annuity payments are almost like a do-over each year, he says, because you can learn from your mistakes and spend the next annual windfall more wisely. “I’ve advised most people honestly to take the annuity,” he says. “It just allows you to really make mistakes, but have them not be a total derailment.”
If you still can’t make up your mind, he also has a free online quiz to help you decide whether you should take a lump sum or an annuity payment.
So you’ve secured your ticket, tried to keep it quiet, hired some professional help, and decided how you are going to collect your winnings. Then what do you do with all of this cash?
Every financial situation is different, of course, which is where a financial adviser can help you sort out the nuances to make this lottery win a real dream come true for you. But in general, Pagliarini recommends keeping things simple — even considering that this $1 billion jackpot (even whittled down after taxes) would allow you to do basically whatever you wanted to do.
“If I were meeting with you, we would sit down and make some serious decisions, and prioritize what you want to do,” he says, “such as paying off debt, and discussing what is on your wish list. Do you want to buy a new house or a second house, or buy your family houses?” He suggests pricing out your wish list together with your adviser to see whether you could afford to do everything you want.
But you still want money left over to live on. “We want to make sure the money left over is generating enough income so that they could survive on that for as long as they wanted — and particularly in this case, I’m sure generations would be able to survive on this amount of money,” he says. “I would invest in index funds. I wouldn’t get esoteric with limited partnerships and venture capital. Just go for a diversified portfolio, because as soon as you start deviating from ‘simple’ you can really increase your chances of just losing it all.”
He notes that because lottery winnings don’t feel “earned,” the prize may not feel like “real” money — which is one of the reasons so many lottery winners don’t manage their newfound wealth well. Again, about 70% of lottery winners lose or spend all that money in five years or less. “If the money doesn’t feel earned or real, you’re going to make decisions with that money that are probably not going to be in your best interest,” he adds. “You’re giving it away more freely, spending more freely, or freely investing in things a lot riskier than you would have done if you had to sweat and earn that money.”
So keep it simple. “Don’t think just because you have x-millions of dollars now that you really have to get ‘sophisticated,’” he adds.
This is more of an extra, hindsight tip for before you and your co-workers start throwing in a buck apiece for a long-shot bid at a jackpot like this. Pagliarini warns that office pools can get “tricky,” so it’s good to sign a contract setting some ground rules before you all pool together.
“There’s been a lot of litigation around office pools, because maybe somebody forgets to play one week, and that’s the week everyone wins. Or someone thought they played this week, but on this particular week they didn’t,” he says. “So loosey-goosey situations can end up in court to battle it out.”
A much simpler solution to avoid this is to have an office pool contract that spells out who is in this pool, how much they are contributing, and it also determines in advance whether the group will take the lump-sum payment or the annuity payment.
“Because the last thing that you want is to win $1 billion or $100 million dollars, and then to be tied up in court for four years,” says Pagliarini. “That’s no fun.”
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Iconic German sandal maker Birkenstock Holdings Ltd.’s stock fell 10% out of the gate in its trading debut Wednesday, signaling that investors remain cautious about new deals and the casual-footwear market remains competitive.
The company’s initial public offering priced at $46 a share late Tuesday, a bit shy of the midpoint of its expected range. The company
BIRK,
is trading on the New York Stock Exchange under the ticker “BIRK.” Goldman Sachs, JPMorgan and Morgan Stanley were the lead underwriters on the deal.
The deal was expected to prove the latest test for the IPO market, which recently saw three key deals perform strongly on their first day of trade, only to fall back in subsequent sessions.
Chip maker Arm Holdings Ltd.
ARM,
; Klaviyo
KVYO,
a digital marketing company; and Instacart, which trades as Maplebear Inc.
CART,
; all enjoyed strong gains on their first day of trade but pared those in the following sessions. Instacart was quoted at $25.50 on Wednesday, well below its issue price of $30.
Birkenstock clearly has its fans, as its customers are brand loyal, with 70% of existing U.S. consumers, for example, purchasing at least two pairs of its shoes, according to its filing documents.
A survey found 86% of recent purchasers said they wanted to buy again, while 40% said they did not even consider another brand while buying.
But as Kyle Rodda, Senior Market Analyst at Capital.com, said the Birkenstock deal was to be a good measure of broader market sentiment and sentiment toward consumer-sensitive stocks.
“It might tell us, too, whether cashed-up millennials like to buy the stocks of products they commonly find on the bottom shelf of their wardrobes,” he said in emailed comments.
The valuation of around $8.6 billion also looks rich, he said. Based on the company’s latest revenue release, the stock’s price-to-sales ratio is above 6, “which is at the higher end of comparable consumer discretionary companies on Wall Street.
“In a higher interest rate environment, these multiples may be hard to sustain in the short term, especially if consumer spending slows as expected next year as interest rate hikes bite households,” Rodda said.
David Trainer, Chief Executive of independent equity research company New Constructs, said ahead of the deal that the valuation was far too high, noting that it was higher than peers such as Skechers USA Inc.
SKX,
Crocs Inc.
CROX,
and Steve Madden Ltd.
SHOO,
“Even more shockingly, the only footwear companies with a larger market cap are Nike Inc.
NKE,
and Deckers Outdoor
DECK,
” he said, referring to the maker of Uggs.
“While Birkenstock is profitable, we think it is fair to say that the $8.7 billion valuation mark is too high, especially for a company that was valued at just $4.3 billion in early 2021. Not a whole lot has changed since then,” Trainer said in a report.
For more, see: Birkenstock is going public: 5 things to know about the iconic German sandal maker’s IPO designs
Trainer estimated that Birkenstock would need to generate more than $3.8 billion in annual revenue to justify its valuation, which is more than three times the $1.24 billion chalked up for all of 2022, according to its filing documents with the Securities and Exchange Commission.
“We don’t doubt that Birkenstock has strong brand equity and produces stylish sandals, but there is really no reason for this company to be public,” said Trainer. “We don’t think investors should expect to make any money by buying this IPO.”
The Renaissance IPO exchange-traded fund
IPO
has gained 29% in the year to date, while the S&P 500
SPX
has gained 13%.
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Emerging-market stocks are coming off a tough quarter after facing down a triple threat of rising Treasury yields, a stronger U.S. dollar, and a lackluster recovery in China’s economy and markets.
But amid the pain, some see opportunity for a lasting rebound.
The iShares MSCI Emerging Markets ETF
EEM,
which tracks the widely followed MSCI Emerging Markets Index, fell 4.1% during the quarter ended in September, outpacing a 3.7% decline for the S&P 500
SPX,
the deeply liquid U.S. benchmark. Both benchmarks endured their worst performance in a year.
It is just the latest chapter in what has been a decade of persistent underperformance during both good times and bad. The EM ETF fell 22.4% amid the global equity-market rout in 2022, compared with a 19.4% drop for the S&P 500, FactSet data show.
But while the selloff in Chinese stocks has dominated headlines this year, some corners of the emerging markets universe have held up surprisingly well. Greek and Mexican stocks have even outperformed U.S. stocks in dollar terms, while other major markets like Brazil and India are trailing by only a modest margin.
This hasn’t gone unnoticed by Wall Street, where some are advising clients to consider expanding their exposure to markets once deemed too risky for many U.S. investors saving for retirement.
In a research note shared with MarketWatch, a team of equity strategists at Goldman Sachs Group
GS,
pointed out that emerging-market stocks excluding China had outperformed developed-market stocks excluding the U.S. so far this year.
Meanwhile, dissatisfaction with lofty valuations in the U.S., well as the prospect of another recession potentially looming around the corner have helped to embolden portfolio managers to seek out better returns elsewhere.
| Country ETF | Ticker | Performance YTD (USD) |
| Brazil | EWZ | +9.2% |
| India | INDA | +7% |
| South Korea | EWY | +4% |
| Colombia | GXG | +2.5% |
| Chile | ECH | -7.6% |
| Mexico | EWW | +13% |
| China | MCHI | -7.6% |
| Indonesia | EIDO | -2% |
| Saudi Arabia | KSA | +0.3% |
| Greece | GREK | +22% |
| MSCI Emerging Markets | EEM | +0.8% |
| U.S. (S&P 500 index) | SPX | +13% |
Over the past 10 years, rock-bottom interest rates helped U.S. stocks best practically all comers. During the 10 years through Monday’s close, the S&P 500 has risen 161.8% excluding dividends, while the MSCI ACWI Index
ACWI,
a broad index of developed- and emerging-market stocks, gained nearly 74%, according to Dow Jones Market Data.
Emerging markets performed pretty poorly by comparison, with the MSCI EM Index down 9.6%.
But just because EM stocks have lagged their developed-world peers for a decade doesn’t mean they are doomed to repeat this dismal performance forever. Some pointed to the torrid gains for Japanese stocks in 2023 as an example of how a market that trailed the U.S. for decades can see its prospects suddenly brighten.
Japan’s Nikkei 225
NIY00,
has risen more than 21% since the start of the year in U.S. dollar terms, according to FactSet.
To that end, a chorus of investment bank equity strategists along with big-name investors like GMO’s Jeremy Grantham have said a similar dynamic could play out in emerging markets.
Equity strategists like Bank of America’s Michael Hartnett and Barclays Emmanuel Cau have urged clients to look beyond the U.S. for returns. According to a research report from Cau and his team, emerging markets offer “better tactical risk-reward.” Hartnett told clients that U.S. stocks appear extremely overvalued compared with the rest of the world, and that it is time to diversify away from the U.S.
“From the perspective of relative performance, the U.S. market has been really strong the past 10 years. It wasn’t like that the prior 20 years, and at some point, a reversion will happen,” said Dina Ting, head of global index portfolio management at Franklin Templeton, during an interview with MarketWatch.
“That is helping to make the case for international markets.”
With the possible exception of India, emerging-market stocks generally enjoy much lower valuations compared with their counterparts in the U.S.
That is according to a table of valuations and projected returns shared by analysts at Goldman. Many local equity markets enjoy forward price-to-earnings ratios below 10. By comparison, the S&P 500, considered the U.S. benchmark, presently enjoys a forward price-to-earnings ratio of 18.11, according to FactSet.
| Country | NTM P/E | 12-month return forecast (USD) |
| Brazil | 7.5 | +35% |
| Mainland China | 9.4 | +23% |
| Mexico | 10.7 | +27% |
| India | 20 | +8% |
| Colombia | 4.6 | +55% |
| Egypt | 6.7 | 0% |
| South Korea | 11.1 | 36% |
| Indonesia | 13.8 | +20% |
| Chile | 8 | +37% |
| Saudi Arabia | 14.9 | +13% |
| Total EM | 11.3 | +27% |
Developing economies have more rosy growth prospects, according to the International Monetary Fund, which released its latest batch of projections on Tuesday.
As a group, the IMF expects developing economies to grow by 4% in 2024, compared with 1.4% for a group of advanced economies that includes the U.S.
As Ting and other portfolio managers have pointed out, financials, producers of consumer goods and other industries are accounting for a growing share of emerging-market equity benchmarks. After so many years of being so heavily weighted toward China, and the commodity space, more diversity is seen as a welcome development.
Although few, if any, emerging-market economies enjoy the trifecta of rule of law, deeply liquid capital markets, and institutional independence that investors take for granted in the U.S., progress has been made. Ting cited India as a great example of a country that’s recently made major strides toward becoming more friendly toward international investors.
At the same time, paralysis in the U.S. Congress has raised concerns about potential political instability diminishing the attractiveness of the U.S. As House speakers are deposed and budget battles rage, some on Wall Street expect Moody’s Investors Service could join Fitch Ratings and S&P Global Ratings in stripping the U.S. of its AAA credit rating, as the agency has threatened to do.
Central banks in Mexico, Brazil and India have also had far less trouble tamping down inflation compared with the Federal Reserve, which also bodes well for future equity returns.
“In India and other emerging markets, certainly Brazil and others, their central banks have been much further ahead than the U.S. in fighting inflation,” said Ashish Chugh, a portfolio manager of long-only and long-short global emerging market equity strategies at Loomis, Sayles & Co.
“The U.S. government handed out free money during COVID-19, but these emerging-market countries didn’t do that. They gave out food and other stuff, but they didn’t send checks in the mail. Because of that, you didn’t have as big of an inflation problem.”
While emerging markets have matured in many ways, the sheer number of disparate economies and governments can make risk management difficult. The emerging-market space as defined by MSCI consists of two dozen countries.
Chinese stocks are still the most heavily represented in popular EM equity indexes like the MSCI Emerging Markets index, which is roughly 30% weighted toward the world’s second-largest economy.
Many investors in the West are already familiar with the risks of investing in China, including those emanating from China’s authoritarian system to the fallout from burgeoning geopolitical tensions with the U.S. But the potential pitfalls of investing in India or Brazil may not be quite as well understood.
That is why Zak Smerczak, an analyst and portfolio manager specializing in global equities at Comgest, would advise newcomers interested in the sector to start by investing in only the most established companies, even if their valuations don’t look quite as attractive.
“Being selective is the key,” he said during an interview with MarketWatch. “Making a broad investment in emerging markets right now seems risky to us, but there are pockets of opportunities and in specific companies.”
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Some say it’s the fear of stagflation.
Some say it’s chaos on Capitol Hill.
Some say it’s turmoil in the Middle East.
But we all know the real reason the stock market is so crummy, right?
It’s October! Of course stocks are down!
It is a bizarre, inexplicable, and yet undeniable, fact that, throughout history, Wall Street has produced almost all of its gains during the winter months of the year — from Nov. 1 to April 30. It is an even more bizarre, inexplicable and yet undeniable fact that the rest of the world’s stock markets have done the same thing.
The so-called summer months, meaning the half of the year from May 1 to Halloween, have generally given you bupkis or worse.
Around the world, over the course of centuries of recorded financial history, stock-market returns have averaged four full percentage points higher from November to April than from May to October, report researchers Ben Jacobsen at Tilburg University and Cherry Yi Zhang at Nottingham University’s Business School in China. This so-called Halloween Effect seems “remarkably robust,” they concluded, after studying the financial returns of 114 different countries going back as far as they could find reliable monthly data — starting with the stock market in 1693 London.
Even more extreme: In the 65 countries for which they had extensive data both about the stock market and about short-term interest rates, it’s fair to say you would have been better off selling your stocks on May 1, putting the money in the bank, then taking it out again at the end of October and buying back your stocks (ignoring fees and taxes, of course).
“In none of the 65 countries for which we have total returns and short-term interest rates available — with the exception of Mauritius — can we reject a Sell in May effect based on our new test. Only for Mauritius do we find evidence of significantly positive excess returns during summer.”
Italics mine. Mauritius?
The Dow Jones Industrial Average
DJIA
is now lower than it was at the end of April. So is the Russell 2000
RUT
index of small-cap U.S. stocks. The benchmark international stock index, the MSCI EAFE, is down about 6%. Japan’s Nikkei
NIY00,
is slightly up, as the yen has tanked.
The S&P 500
SPX
is hanging on to a small gain, but that is only because of the early summer gains of a few tech titans. The average S&P stock is down about 2.5% since the end of April — while an investment in no-risk Treasury bills is up more than 2%.
Meanwhile, let the record show that, over the same period, according to the record keepers at MSCI, the stock market in Mauritius is up 12%.
Booyah!
Every time I write about this Halloween or “sell in May” effect, I make the same two points, and I make no apologies for repeating them here, because they are unavoidable.
The first is that, every spring, after looking at this data, I am tempted to sell all my stocks at the end of April, and every year I don’t, because I think it’s absolutely ridiculous. (And someone on Wall Street who is much smarter than me usually persuades me not to.) And most years I end up kicking myself for not doing it.
The second is to recall the old economists’ joke: “I don’t care if it works in practice! Does it work in theory?” Selling in May — or, sure, the Halloween Effect — has absolutely no reason that anyone can find for working in theory. But apparently, it works in practice — which is pretty much where we are now.
Does this mean stocks are going to rally? It’s anyone’s guess. It would be crazy if it were that simple. But, then, the whole Halloween Effect is crazy.
If history is any guide, now is the time to buy stocks, not sell them, because the next six months are likely to be the time when they make you money. And if history isn’t any guide, well, aren’t we all sunk anyway?
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While stocks get clobbered by rising bond yields, financial experts say everyday investors can roll with the punches by increasing their exposure to longer-term Treasurys and other fixed income — so long as they understand what they are doing.
Yield — and more of it — has been a great-sounding idea for more people ever since the Federal Reserve started increasing its benchmark interest rate in March 2022.
High-yield savings accounts, certificates of deposit and money market-mutual funds have all become alluring ways to reap rewards for parking cash. It’s easy to find these products with rates in the 4% and 5% range.
Treasury bills, which come due within a year, have also been a yield-producing place to put cash. Yields on T-bills
BX:TMUBMUSD06M
of varying length are over 5%, up from roughly 4.5% around the start of the year.
“High-yield savings accounts, certificates of deposit and money market-mutual funds have all become alluring ways to reap rewards for parking cash. ”
Yet yields have been inducing anxiety lately. For well over a month, the speedy ascent of yields for longer-term Treasury debt and a bond market sell-off have been knocking the stock market for a loop.
Still, some financial experts say there’s nothing wrong with buying longer-term Treasurys for the person who wants to keep putting their cash to work. Of course, they need to understand the risks and rewards for bonds when interest rates rise and fall.
“Moving from cash to fixed income is the right move right now,” said wealth adviser Marisa Bradbury, managing director of the Florida offices for Sigma Investment Counselors. “You can definitely lock in some decent rates we haven’t seen in a long time.”
“Before, fixed income was so much a principal protection piece of the portfolio. Now you can actually earn a decent income on it too,” she said.
“The upside to what’s happened is for savers,” said Matt Sommer, head of specialist consulting group at Janus Henderson Investors. “There’s never really been such an attractive opportunity for fixed income investments as there is now.”
To be sure, there was a time when Treasury yields where far above their current mark. In the early to mid-1980s, the yields on the 10-year Treasury note and 30-year Treasury bond exceeded 10%. Of course, Sommer and other financial planners are focused on the present and the future because that’s what financial planning is all about. Here’s what they are thinking:
When clients building their nest egg want to go all in on T-bills, Sommer is instead advising they use a “barbell” approach that adds a mix of longer-term Treasurys and fixed income too.
“This is exactly the time investors shouldn’t hibernate on the short end of the [yield] curve,” said Richard Steinberg, chief market strategist and a principal at The Colony Group, a wealth advisory firm. He’s also advising clients to extend their duration on their Treasury and fixed income investments.
Yields climbed again Friday morning after the stronger than expected September jobs report. The yield on the two-year Treasury note
BX:TMUBMUSD02Y
rose to almost 5.1%, up from 5.023% Thursday afternoon and up from 4.26% a year ago.
The yield on the ten-year Treasury note
BX:TMUBMUSD10Y
climbed to 4.86%, up from 4.715% Thursday afternoon, and up from 3.82% a year ago. The yield on the 30-year bond
BX:TMUBMUSD30Y
reached 5.01%, up from 4.88% on Thursday and up from 3.78% a year ago – heading Friday morning for the highest level since August 2007.
Bond yield and price always move in different directions. When interest rates rise, bond prices decrease and bond yields increase. When rates fall, prices increase and yields decrease. That’s where the note of caution comes in.
Brace for losses if the Fed keeps increasing interest rates, said David Sekera, chief U.S. market strategist at Morningstar, the investment research firm.
For now, it may be a good time for bond portfolios to beef up the long side. “Part of what we are seeing in the stock market is a reallocation out of stocks and into fixed income,” he said.
Related: Why rising Treasury yields are upsetting financial markets
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Two things investors can be sure about: Nothing lasts forever and the stock market always overreacts. The spiking of yields on long-term U.S. Treasury securities has been breathtaking, and it has led to remarkable declines for some sectors and possible bargains for contrarian investors who can commit for the long term.
First we will show how the sectors of the S&P 500
have performed. Then we will look at price-to-earnings valuations for the sectors and compare them to long-term averages. Then we will screen the entire index for companies trading below their long-term forward P/E valuation averages and narrow the list to companies most favored by analysts.
Here are total returns, with dividends reinvested, for the 11 sectors of the S&P 500, with broad indexes below. The sectors are sorted by ascending total returns this year through Monday.
| Sector or index | 2023 return | 2022 return | Return since end of 2021 | 1 week return | 1 month return |
| Utilities | -18.4% | 1.6% | -17.2% | -11.1% | -9.6% |
| Real Estate | -7.1% | -26.1% | -31.4% | -3.0% | -8.8% |
| Consumer Staples | -5.4% | -0.6% | -6.0% | -2.2% | -4.4% |
| Healthcare | -4.2% | -2.0% | -6.1% | -1.7% | -3.3% |
| Financials | -2.5% | -10.5% | -12.7% | -2.5% | -4.7% |
| Materials | 1.3% | -12.3% | -11.2% | -1.9% | -7.0% |
| Industrials | 3.5% | -5.5% | -2.1% | -1.8% | -7.3% |
| Energy | 4.0% | 65.7% | 72.4% | -1.9% | -1.4% |
| Consumer Discretionary | 27.0% | -37.0% | -20.0% | -0.6% | -5.2% |
| Information Technology | 36.5% | -28.2% | -2.0% | 0.8% | -5.9% |
| Communication Services | 42.5% | -39.9% | -14.3% | 1.1% | -1.3% |
|
S&P 500 |
13.1% | -18.1% | -7.4% | -1.1% | -4.9% |
|
DJ Industrial Average |
2.5% | -6.9% | -4.5% | -1.7% | -4.0% |
|
Nasdaq Composite Index COMP |
28.0% | -32.5% | -13.7% | 0.3% | -5.1% |
|
Nasdaq-100 Index |
36.5% | -32.4% | -7.7% | 0.5% | -4.2% |
| Source: FactSet | |||||
Returns for 2022 are also included, along with those since the end of 2021. Last year’s weakest sector, communications services, has been this year’s strongest performer. This sector includes Alphabet Inc.
GOOGL
and Meta Platforms Inc.
META,
which have returned 52% and 155% this year, respectively, but are still down since the end of 2021. To the right are returns for the past week and month through Monday.
On Monday, the S&P 500 Utilities sector had its worst one-day performance since 2020, with a 4.7% decline. Investors were reacting to the jump in long-term interest rates.
Here is a link to the U.S. Treasury Department’s summary of the daily yield curve across maturities for Treasury securities.
The yield on 10-year U.S. Treasury notes
jumped 10 basis points in only one day to 4.69% on Monday. A month earlier the 10-year yield was only 4.27%. Also on Monday, the yield on 20-year Treasury bonds
rose to 5.00% from 4.92% on Friday. It was up from 4.56% a month earlier.
Market Extra: Bond investors feel the heat as popular fixed-income ETF suffers lowest close since 2007
The Treasury yield curve is still inverted, with 3-month T-bills
yielding 5.62% on Monday, but that was up only slightly from a month earlier. An inverted yield curve has traditionally signaled that bond investors expect a recession within a year and a lowering of interest rates by the Federal Reserve. Demand for bonds pushes their prices down. But the reverse has happened over recent days, with the selling of longer-term Treasury securities pushing yields up rapidly.
Another way to illustrate the phenomenon is to look at how the Federal Reserve has shifted the U.S. money supply. Odeon Capital analyst Dick Bove wrote in a note to clients on Friday that “the Federal Reserve has not deviated from its policy to defeat inflation by tightening monetary policy,” as it has shrunk its balance sheet (mostly Treasury securities) to $8.1 trillion from $9 trillion in March 2022. He added: “The M2 money supply was $21.8 trillion in March 2022; today it is $20.8 trillion. You cannot get tighter than these numbers indicate.”
Then on Tuesday, Bove illustrated the Fed’s tightening and the movement of the 10-year yield with two charts:
Bove said he believes the bond market has gotten it wrong, with the inverted yield curve reflecting expectations of rate cuts next year. If he is correct, investors can expect longer-term yields to keep shooting up and a normalization of the yield curve.
This has set up a brutal environment for utility stocks, which are typically desired by investors who are seeking dividend income. In a market in which you can receive a yield of 5.5% with little risk over the short term, and in which you can lock in a long-term yield of about 5%, why take a risk in the stock market? And if you believe that the core inflation rate of 3.7% makes a 5% yield seem paltry, keep in mind that not all investors think the same way. Many worry less about the inflation rate because large components of official inflation calculations, such as home prices and car prices, don’t affect everyone every year.
We cannot know when this current selloff of longer-term bonds will end, or how much of an effect it will have on the stock market. But sharp declines in the stock market can set up attractive price points for investors looking to go in for the long haul.
A combination of rising earnings estimates and price declines could shed light on potential buying opportunities, based on forward price-to-earnings ratios.
Let’s look at the sectors again, in the same order, this time to show their forward P/E ratios, based on weighted rolling 12-month consensus estimates for earnings per share among analysts polled by FactSet:
There is a limit to how many columns we can show in the table. The S&P 500’s forward P/E ratio is now 17.94, compared with 16.79 at the end of 2022 and 21.53 at the end of 2021. The benchmark index’s P/E is above its 10- and 15-year average levels but below the five-year average.
If we compare the current sector P/E numbers to 5-, 10- and 15-year averages, we can see that the current levels are below all three averages for four sectors: utilities, real estate, financials and communications services. The first three face obvious difficulties as they adjust to the rising-rate environment, while the real-estate sector reels from continuing low usage rates for office buildings, from the change in behavior brought about by the COVID-19 pandemic.
Your own opinions, along with the pricing for some sectors, might drive some investment choices.
A broader screen of the S&P 500 might point to companies for you to research further.
We narrowed the S&P 500 as follows:
Here are the 20 companies that passed the screen, for which analysts’ price targets imply the highest upside potential over the next 12 months.
There is too much data for one table, so first we will show the P/E information:
| Company | Ticker | Current P/E to 5-year average | Current P/E to 10-year average | Current P/E to 15-year average |
| SolarEdge Technologies Inc. | SEDG | 89% | N/A | N/A |
| AES Corp. | AES | 66% | 75% | 90% |
| Insulet Corp. | PODD | 18% | N/A | N/A |
| United Airlines Holdings Inc. | UAL | 42% | 50% | N/A |
| Alaska Air Group Inc. | ALK | 51% | 57% | N/A |
| Tapestry Inc. | TPR | 39% | 49% | 70% |
| Albemarle Corp. | ALB | 39% | 50% | 73% |
| Delta Air Lines Inc. | DAL | 60% | 63% | 21% |
| Alexandria Real Estate Equities Inc. | ARE | 59% | 68% | N/A |
| Las Vegas Sands Corp. | LVS | 96% | 78% | 53% |
| Paycom Software Inc. | PAYC | 61% | N/A | N/A |
| PayPal Holdings Inc. | PYPL | 33% | N/A | N/A |
| SBA Communications Corp. Class A | SBAC | 27% | N/A | N/A |
| Advanced Micro Devices Inc. | AMD | 58% | 39% | N/A |
| LKQ Corp. | LKQ | 92% | 44% | 78% |
| Charles Schwab Corp. | SCHW | 75% | 54% | 73% |
| PulteGroup Inc. | PHM | 94% | 47% | N/A |
| Lamb Weston Holdings Inc. | LW | 71% | N/A | N/A |
| News Corp Class A | NWSA | 93% | 73% | N/A |
| CVS Health Corp. | CVS | 75% | 61% | 67% |
| Source: FactSet | ||||
Click on the tickers for more about each company or index.
News Corp
NWSA
is on the list. The company owns Dow Jones, which in turn owns MarketWatch.
Here’s the list again, with ratings and consensus price-target information:
| Company | Ticker | Share “buy” ratings | Oct. 2 price | Consensus price target | Implied 12-month upside potential |
| SolarEdge Technologies Inc. | SEDG | 74% | $122.56 | $268.77 | 119% |
| AES Corp. | AES | 79% | $14.16 | $25.60 | 81% |
| Insulet Corp. | PODD | 68% | $165.04 | $279.00 | 69% |
| United Airlines Holdings Inc. | UAL | 71% | $41.62 | $69.52 | 67% |
| Alaska Air Group Inc. | ALK | 87% | $36.83 | $61.31 | 66% |
| Tapestry Inc. | TPR | 75% | $28.58 | $46.21 | 62% |
| Albemarle Corp. | ALB | 81% | $162.41 | $259.95 | 60% |
| Delta Air Lines Inc. | DAL | 95% | $36.45 | $58.11 | 59% |
| Alexandria Real Estate Equities Inc. | ARE | 100% | $98.18 | $149.45 | 52% |
| Las Vegas Sands Corp. | LVS | 72% | $45.70 | $68.15 | 49% |
| Paycom Software Inc. | PAYC | 77% | $260.04 | $384.89 | 48% |
| PayPal Holdings Inc. | PYPL | 69% | $58.56 | $86.38 | 48% |
| SBA Communications Corp. Class A | SBAC | 68% | $198.24 | $276.69 | 40% |
| Advanced Micro Devices Inc. | AMD | 74% | $103.27 | $143.07 | 39% |
| LKQ Corp. | LKQ | 82% | $49.13 | $67.13 | 37% |
| Charles Schwab Corp. | SCHW | 77% | $53.55 | $72.67 | 36% |
| PulteGroup Inc. | PHM | 81% | $73.22 | $98.60 | 35% |
| Lamb Weston Holdings Inc. | LW | 100% | $92.23 | $123.50 | 34% |
| News Corp Class A | NWSA | 78% | $20.00 | $26.42 | 32% |
| CVS Health Corp. | CVS | 77% | $69.69 | $90.88 | 30% |
| Source: FactSet | |||||
A year may actually be a short period for a long-term investor, but 12-month price targets are the norm for analysts working for brokerage companies.
Don’t miss: This fund shows that industry expertise can help you make a lot of money in the stock market
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