2nd Quarter 2023

As we draw closer to the actual conversion over Labor Day weekend, a plethora of activity is occurring. Besides the weekly webinars, activity bringing TD Ameritrade (TDA) accounts and information to the Schwab platform is accelerating.

To give you a flavor of the type of timeline we’re experiencing:

June 21 – Staff who use TDA must be credentialed onto the Schwab platform. Accounts from TD Ameritrade with their new Schwab numbers are beginning to populate the new Schwab platform. They are “inactive” until Labor Day weekend.

June 28 – The letter mentioned in our email to clients on June 21 goes out discussing the transition.

July 11, 12 – All-day training on the Schwab system (five of us are attending in person).

July 18 – Mapping the TD Ameritrade account number to the Schwab account number occurs along with any authorized activity (e.g. transfers to your bank).

July 20 – Client support webcast for your Schwab portal. Link will be on the TDA portal.

August 3 – Another opportunity for you, the client, to attend a webcast about your new Schwab portal.

August 18 – Last day new accounts can be opened at TD Ameritrade.

August 25 – Last day transfers can be made through TD Ameritrade.

September 1 – All activity is frozen until opening of business on September 5. TD Ameritrade platform is no longer available.

September 2 – All securities in each account transfer to the new Schwab account.

September 5 – Open for business as Schwab advisors.

In each of the steps above (these are just the highlights), Financial Connections will work to verify information as much as possible.

For clients with checkbooks from TD Ameritrade, the checks will continue to be honored. However, Schwab will be sending you new checks to replace the TDA ones.

As you can imagine, this conversion is three years in the making. Financial Connections is doing as much as possible within the area we have control, to make this transition as smooth as possible.

The axiom of how price is impacted by demand and supply is: if demand exceeds supply, the price will go up. This is a long-term trend in the stock market. Consider the following.

1996 – Peak of companies on the stock exchanges – 8,090*

2019 – stocks on exchanges total 4,266*

What’s going on? As with just about everything, there are a number of variables.

• Mergers and acquisitions – According to a study by Ali Sanati at American University, M & A activity was a major reason for companies to disappear from the exchanges.
• Regulatory requirements – such requirements of Sarbanes-Oxley Act 2002 which tightened auditing and transparency encouraged many companies to stay private.
• Venture Capitalists – another major contributor to invest in companies with  funds that keeps companies private for longer.

According to Francesc Martinez Bailac of IE Insights, a review of data from S&P of companies with revenue over $100 million, only 2,600 were publicly traded while 17,000 were private companies. This is a global phenomenon, not just in the U.S.

Sanati said, “A decline in public firms can limit the ability of households to benefit from profits and growth opportunities provided by successful businesses. With fewer publicly traded companies, people have fewer options to diversify their retirement savings portfolios and achieve their long-term financial goals.”

*American University, Professor Ali Sanati, “What Fewer Public Companies Means for You,” June 1, 2023

During the first half of this year, technology, specifically companies who might benefit from the new flavor of the month – AI (Artificial Intelligence), produced outsized returns. According to Morningstar US Market Index, below are what is now called “The Magnificent Seven Responsible for Almost Three-Quarters of Market Gains.”

According to S&P Global, the S&P 500 was up for the first half almost 16%. However, if you weighted each company in the S&P 500 equally instead of by market cap (S&P 500 is market weight – the total value of the company is the number of shares times the share price), you would find a different story.

According to Morningstar, the S&P 500 Equal Weighted Index returned 7% for the same period. Each company is weighted 0.2%. If you look at the above index weighting compared to equal weighting you can see the out-sized impact the Magnificent Seven had on the returns for the first half 2023.

Morningstar’s David Sekera, forecasts a slowing economy through the end of next year. His other predications over the short-term include:

• • • Tech (growth) stocks are too expensive
  • • Better opportunity with value stocks and medium and small companies.

Who knows whether he is right or wrong. See the article: WRONG AGAIN

Forecasting inflation, interest rates, economic growth, etc. is supposed to be the expertise offered by economists – many with advanced degrees. To be sure, a pandemic and war impacts that ability but even so, do they get it right?

Brokerage firms, many TV stations dedicated to finance and surveys talk about what the near and long-term future holds for the economy and stock market. Unfortunately, it rarely comes to fruition. According to researchers at Washington University, St. Louis, MO, surveys from corporate chief financial officers and the Conference Board, when compared to actual results, were not accurate.

There was an experiment done by the Wall Street Journal years ago where “expert” stock pickers identified stocks that would do well. Their predictions were compared to throwing a dart at stocks. The outcome – over three to six months, the darts did as well if not better than the experts.

According to the FT View (Financial Times), in an article on May 14, 2023, they quoted the economist Ezra Solomon. He was a Burmese American economist 1920-2002. Quote from the Oxford Essential Quotations.  “The only function of economic forecasting is to make astrology look respectable,”

The UK and European economic predictions were off as well. According to the Economics Observatory, the Bank of England predicted inflation for 2022 of 3.4% – at the end of the year it was 9.2% Similar incorrect predictions came from the European Central Bank. So, it is not unique to the U.S.

What to do

The reality is we live in a complex world with a multitude of variables whether you are discussing the economy or the stock market. It is not surprising predications aren’t accurate.

Frequently, clients will ask us our opinion on the economy or the short-term future of the stock market. It’s not that we don’t have opinions, but they are no better or worse than the experts. We always disclaim that it is just a guess because we don’t have a crystal ball.

We invest in what we call all-weather portfolios that expose us to the global financial markets in stocks, bonds, and our defensive funds without overly concentrating our holdings. We don’t know what is good this moment and what will change in a few months.  Our goal is to lose less when the market goes down and participate when the market rises. When the years are aggregated, our experience is a smoother ride for our gains.