Conversations with LVM Capital

Tyler, Jordan, and Craig sit down to discuss market volatility driven by the current geopolitical events in Europe and the expected monetary policy tightening via fed fund rate hikes and balance sheet reduction by the Federal Reserve. The S&P 500 is currently in a 12% correction with the median stock in the index down over 16%. The NASDAQ-100 and Russell 2000 (small caps stocks index) are in larger declines, down 19%, with median stock declines of 23% and 33%, respectively. 

Craig reviews the market reaction to geopolitical events since World War 2 highlighting the 20% correction in 143 days after the attack on Pearl Harbor and the subsequent recovery roughly 9 months later.  With oil prices on investors and consumers’ minds combined with a correlation to the Russian energy supply to Europe, Craig reviews the market reaction in 1990 during Iraq’s Invasion of Kuwait. The S&P 500 fell 17% in less than 3 months and recovered the losses just 6 months after the invasion. 

Jordan looks at the past eight rate hiking cycles and reviews the average return a year leading up to the hike as well as returns one year after the first-rate hike. Historically, stocks perform well before the first-rate hike as the economy is normally improving and employment levels are high. The initial market decline after the first-rate hike is recovered a few months after with average returns around 5% a year after the first hike. 

Tyler, Craig, and Jordan review the early reporters in the fourth quarter earnings season.  As of the week of January 31st, companies are reporting earnings 5% better than expected. Earnings growth is just over 30% with sales growing 17%. Energy and Industrials are the standout sectors as they are coming off a low base during the fourth quarter in 2020. We review the earnings and revenue growth figures for Apple, Microsoft, and Google which surprised to the upside resulting in some positive stock price reactions. That has not been the case for all companies as we examine the average stock price reaction for companies reporting better than expected sales and earnings figures. We also consider items that are impacting the earnings revision index which is showing fewer earnings upgrades from analysts. 

Website: Earnings Season Update (lvmcapital.com) - with charts
Contact: [email protected] 

Jordan and Chuck discuss planning items for the upcoming year. We review updated retirement contribution levels and different planning strategies you can implement to save on taxes. 

Tyler and Jordan review the recent history of rate hikes in anticipation of the Federal Reserve increasing the Fed Funds Rate in 2022. We look at the S&P 500 performance during those periods and how those periods differ compared to the current unemployment, inflation, and economic activity levels. 

Tyler and Jordan are back to talk about the recent market volatility. Some common market headlines are assigning market volatility to supply chains, Coronavirus spikes and variants, and the winding down of monetary stimulus. We look at charts that show volatility measured by the VIX, the percentage of stocks in the NASDAQ that are at new 52-week lows, some Covid business beneficiaries recent struggles and stock price drawdowns, how the best performing stocks of 2020 are in the biggest drawdowns, ARKK ETFs individual components, and you guessed it a little more on crypto. 

Jordan and Wyatt continue the discussion on cryptocurrency. They discuss the different methods of verifying cryptocurrency transactions, proof of work and proof of stake, as well as some of the advantages and disadvantages of each. Proof of work consists of computers racing to be the first to add transactions to the blockchain in exchange for a crypto reward, while proof of stake involves the rewarding of patient investors who commit, or “stake” their cryptocurrency in exchange for a chance to verify a blockchain transaction. We also touch on stable coins, which are pegged to a stable asset and can help minimize volatility while earning interest.

On today's podcast Tyler, Jordan, and Wyatt discuss cryptocurrency and the blockchain. Cryptocurrencies are a digital or virtual currency that are based off a decentralized network that runs on blockchain technology. The blockchain is a distributed ledger or database that stores information. Generally, the information stored are the transactions. We discuss some future applications that may come from the use of blockchain technology such as smart contracts, insurance, and auditing capabilities.   

Tyler and Sahana talk about managing a windfall. A windfall is a large, and sometimes unexpected financial gain. Common windfalls include inheritance, sale of property or business, salary bonus or winning a lottery. Tyler and Sahana discuss things to think about when receiving a windfall such as savings, potential taxes, emergency funds, charitable and family gifting, paying of debts, long-term savings, and splurging a little on your good fortune. Reach out to us ([email protected]) and let us know how you would handle an inheritance. 

Tyler and Jordan discuss employee stock options and restricted stock units. These are types of equity compensation granted by companies to their employees. Rather than giving shares today these shares typically vest over time, incentivizing an employee to stay with the company. This type of compensation has unique tax considerations and can also bring in additional risk to financial planning. Tyler and Jordan discuss some different ways to think about this concentration risk. 

On today’s show Tyler Alvord and Jordan Rummel discuss investing risks. The risks focused on in this episode are around the impacts to a personal portfolio. Tyler and Jordan give ideas on how to address or think about risk.