iM Global Partner’s Market Slides

a. We believe inflation has peaked and over the near-term will trend lower towards the Fed’s long-term goal. The economy is relatively healthy for the time being and a soft landing is our best-case scenario.

b. We believe 10-year Treasury yields are range bound over the next 12 to 15 months, low 3s to low 4s.

c. Notably, a rotation out of large cap growth tech stocks and into a broader range of sectors and styles occurred in the most recent third quarter. The areas that have lagged and have lower valuations, small-cap companies, value stocks, and international markets, all benefited from the broadening of the market.

NDR Digest

a.  Global Asset Allocation Current:

     i.   70% stocks (Overweight compared to 55% benchmark)
     ii.  10% cash (Underweight compared to 10% benchmark)
     iii.  20% bonds (Underweight compared to 35% benchmark)

b.  Let the easing cycle begin – the Fed made a significant move by cutting Fed funds rate range by 50 basis points to 4.75% - 5.00%, marking the first reduction since the 2020 pandemic. The 50-basis point cut brought the real fed funds rate back to 2.5%, slightly above its last hike.

c.  Real GDP grew at a 3.0% annualized rate in Q2, matching estimates, with upward revisions to inventories and government spending offset by declines in capex and net exports. Nonfarm payrolls grew by 254k, well above the 150k consensus.

d.  Watch for continued choppiness and potential correction with cyclical bull remaining intact. However, risks such as overvaluation, complacency, and narrowing market breadth – especially in U.S. tech stocks – could threaten the trend.

Schwab Market Perspective

a.  The resilience of the U.S. economy suggests that the Fed – which began cutting interest rates in September – doesn’t need to move quickly to head off a potential recession. While the Fed is still expected to continue cutting rates, it may do so at a slower pace. Maybe the Fed did pull off a “soft landing” (a slowdown without a recession).

b. The Fed sees itself in “risk management” mode. That is, policy is geared toward maintaining a healthy economy – preventing a sharp rise in unemployment while keeping inflation low. With inflation down sharply from its peak and economic growth near 3%, the current environment is positive. The Fed’s goal is to maintain it, so major moves are less likely in the future.

c. A comeback for the “average stock.” So far in the 2nd half of the year, the equal-weighted S&P 500 has outperformed both the market-capitalization-weighted S&P and the Magnificent 7 group of stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). That is a marked shift from the first half of the year, during which the mega-cap stocks dominated and constituted a good chunk of the overall market’s gains.

Our Conclusions

- The 3.0% economic growth, as described by NDR’s second bullet aptly describes the weak fuel (build-up in inventory/government spending) and declines in capex and net exports (what we want to have fueling the economy).

- The Fed’s big 50 basis point cut surprised us as the economy while meek was still growing. Yields on the longer end of the yield curve did not move in junction with the Fed cut. That implies that the bond market either believes growth is coming back or that inflation is not yet tamed. Guess which camp we are in.

-  We had advocated a tilt away from everyone’s portfolio darlings (Tech, Large Cap Growth, S&P 500) and in the most recent quarter, as noted by iM Global Partners’ last bullet above, the market is starting to broaden out into other segments, improving market breadth along the way. Time will tell if this is the beginning of the baton handoff or just another head fake.

If you have questions about your portfolio, please contact us anytime. 

This Is Life | Celebrating the Life of Tin Nguyen

By: Hung P. Nguyen, CFP®

My dad, Tin Xuan Nguyen, passed away this last August at the age of 91. He is survived by my mom (wife of 65 years), my 9 older siblings (3 brothers/6 sisters) myself and his 11 grandchildren.

He is the hardest working man I’ve ever met. Would wake up before dawn to get his martial arts practice in (He was a 3rd degree black belt in Tae-Kwon-Do), go to work, and would spend his evening both tending to the garden, fixing something or working on a project. Dusk to dawn, everyday even on weekends. Vacations, nah.

Much of my youth was spent being his helping hand on these projects. He would say, I want you to learn how to do this so that when you’ve got your own place you know what to do but you’ve got to use your brain to make a living. Glad I listened.

I will miss the times we spent watching sports (Lakers and Vikings), sharing a drink and a meal. There’s a lyric from a 70s band called Bread that goes “You thought me how to love, what it’s of, what it’s of. You never said too much but still you showed the way. And I knew from watching you” fit him perfectly. I always thought of him when I heard that and now, I can’t stop hurting when I do.

Below is a link of my sister My Hanh’s eulogy. She’s #9 and was his favorite…until I came along, of course. I know that every kid thinks that their dad is a hero, here’s her version as to why ours was to us.

Sending love to you and all your loved ones. Hug them tight!

VIEW EULOGY HERE

Education to Empower You | Concentrated Stock Position – in 401k or Held Elsewhere

Net Unrealized Appreciation (NUA) provides a valuable tax strategy for individuals holding highly appreciated employer stock in their retirement accounts. Upon distribution of company stock from a qualified plan, NUA allows the gains on that stock to be taxed at the more favorable long-term capital gains rate rather than ordinary income rates, potentially resulting in significant tax savings.
 
For families looking to pass on wealth while minimizing tax exposure, gifting appreciated shares to children or other family members in lower tax brackets can be highly effective. When shares are gifted, the recipient assumes the cost basis of the original owner. If the recipient is in a lower capital gains tax bracket, they can sell the shares and pay less (or possibly no) capital gains tax on the appreciation. This strategy is especially beneficial when timed with tax-efficient gifting limits, currently allowing up to $18,000 per individual per year (as of 2024) without triggering gift tax reporting.
 
Donor-Advised Funds (DAFs) offer another tax-efficient way to manage appreciated assets. By donating appreciated stock directly to a DAF, the donor avoids paying capital gains taxes while still receiving a charitable deduction for the full market value of the shares, provided the donor has held them for more than one year. DAFs also allow the donor to direct future charitable donations from the fund over time, providing flexibility in their philanthropic efforts.
 
Each of these strategies—NUA, gifting shares to family members in lower tax brackets, and using DAFs—can help maximize tax efficiency while meeting broader financial and legacy planning goals. If you have any questions about these strategies and how you might use them, please contact us anytime.