2nd Quarter 2018 Market Update

For those of you who were unable to join us for our Quarterly Market Update at Selby Gardens on April 18th, we had a wide-ranging presentation from members of Allegiant’s Wealth Advisor and Investment teams. 

We had the chance to discuss important financial planning insights from Allegiant’s Wealth Advisor Director, Carl Watkins, CFP®, CDFATM, AIF®. Carl’s presentation examined the recent changes that came along with the 2017 Tax Cuts and Jobs Act (TCJA). The first discussion concerned the increase of the Unified Gift and Estate Tax Exemption from $5.6 million to $11.2 million per individual. A greater percentage of a client’s estate will now be sheltered from exposure to the top estate and gift tax rates of 40%. The law is set to expire in 2025, which is also known as the sunset provision. Future personal planning should account for the possibility of a subsequent reversion of this exemption back to a lower number, potentially increasing tax liability at that time. 

Carl then reviewed standard deductions and charitable gifting strategies. The standard deduction nearly doubled for both individuals and married couples. These new limits could decrease or eliminate the need to itemize expenses. Carl also discussed qualified charitable distributions (QCDs) and how this strategy could reduce or eliminate the income tax liability associated with required minimum distributions (RMDs) and benefit the client with a charitable contribution, all while applying the increased standard deduction. 

Carl’s presentation concluded with an analysis of annual gifting and college funding strategies. It is possible to accelerate gifting to a 529 college savings plan up to five years in advance using the annual gift exclusion limit while still avoiding any gift tax liability. So anyone wishing to front-load a 529 college savings plan still has the opportunity to do so. 

Overall, the TJCA provides new opportunities and strategies for clients when planning for their financial future. 

Following the conclusion of the financial planning presentation, we transitioned to the investment portion of the evening. Portfolio Manager Luke Nicholas, CFA, provided a brief recap of financial markets thus far in 2018. Luke spoke about the incredible lack of market volatility during 2017 in contrast with the above-average volatility so far in 2018. This February the S&P 500 Index ended a streak of 15 straight months of positive monthly returns, which was the longest streak in the history of the index! The stock market last year was abnormally smooth and the increased volatility this year is a return to a much more normal environment. 

In addition, there are some factors that have amplified the instability in markets so far this year. The first is concern surrounding the future path of monetary policy. The Federal Reserve has already begun raising interest rates and has made it clear that they think further rate increases are warranted, given the strength of the economy. Markets are beginning to weigh whether further rate increases may be an obstacle to growth. In addition, perhaps the largest contributor to volatility this year has been politics. With the potential for a trade war as the highlight, politics have dominated daily moves in financial markets and increased uncertainty. While these factors can have a significant impact on markets in the short-term, over longer time periods it is really the strength of the underling economy that drives investment returns.

Chief Investment Officer Ben Jones, CFP, AIF, started his part of the presentation by unveiling the new Allegiant Economic Dashboard, a quick one-page snapshot of the six most influential charts in our Monthly Economic Book. Ben ran through all six economic factors, and currently none are signaling that a recession is imminent. This Dashboard will be emailed out each month for those wanting a quick read of the state of the economy. 

Ben then revisited the Allegiant Investment Team’s economic outlook for 2018 – outlining our Base, Bull and Bear cases for the year. The base case of higher corporate earnings, slightly higher inflation and a solid employment market has largely played out thus far. However, Ben also reiterated that the potential ill effects of a trade war are a real concern for us. While we believe the odds of a trade war remain low, the effects of a trade war are serious and therefore we are carefully watching trade negotiations and will adjust portfolios if necessary. However, if political uncertainty subsides it could still be a solid year for markets, but that is not a given at this point.