Market Update
Earnings Drive Rebound
It was a very busy week of earnings reports, but none more important than those from the Big Tech names. After two days of sharp losses on revived regional banking fears and otherwise lackluster earnings results, stocks rallied powerfully on a succession of positive earnings surprises from several mega-cap companies.
Also aiding the sentiment was last week’s first quarter Gross Domestic Product (GDP) report. Though the report showed muted economic growth that fell short of expectations, investors were encouraged by strong consumer spending.
Slowing Growth
In a sign that higher rates are slowing economic growth, first-quarter GDP slowed to a 1.1% annualized growth rate as healthy consumer spending helped offset a decline in business investment and a slowdown in nonresidential investment.
Economists had expected first-quarter GDP growth to come in at 2%. The business inventory investment slowdown reduced the headline GDP number by 2.26%.1
The initial estimate of GDP also reported some disappointing inflation news as the quarter-over-quarter Personal Consumption Expenditures Price Index, the Fed’s preferred inflation measure, rose 4.2%, which was higher than the 3.7% forecast.2
Recessions and Bond Performance
In 2022, the statement was made that the 60/40 portfolio is dead as bonds did not act as a ballast to stocks like they normally do. However, it is GTS Financial's view that bonds will prove their worth in 2023-2024 as a recession looms. On average since 1972, Short-, Intermediate-, and Long-term investment grade bonds returned 6.4%+ during recessions, beating Money Markets (3.9%), High Yield (0.3%), and U.S. stocks (-2.1%). Below is an illustration of bonds and historical recessionary environments.
Schwab Updates
TD Ameritrade's transition to Schwab continues to move forward. The target date for client accounts moving from TD Ameritrade to Schwab remains Labor Day weekend.
In case you missed it in our newsletter last month, here's a link to Schwab's website providing more information on the TD Ameritrade and Schwab merger: Welcome - Client Learning Center | Charles Schwab
Schwab and GTS Financial
In light of recent bank failures, some people may be wondering about the security of their investable assets. As a fiduciary, it is our legal obligation to do due diligence on the companies we choose to work with, including our custodians.
Some GTS Financial-managed investment accounts are currently held at Schwab, and all TD Ameritrade accounts will be transitioning there this year. All accounts have insurance provided by either the FDIC or the Securities Investor Protection Corporation (SIPC).
While most people are familiar with FDIC insurance (especially given its popularity in headlines recently), you may be less familiar with the SIPC program. The Securities Investor Protection Corporation (SIPC) is a non-profit corporation that was created by Congress to protect investors when a brokerage firm fails. SIPC insurance covers up to $500,000 in cash and securities for each customer at a failed brokerage firm. This includes up to $250,000 in cash. Even in the highly unlikely event that Schwab fails as a financial institution, the most likely scenario would be that all investments securities, such as mutual funds, exchange-traded funds, stocks and bonds would transfer to a new custodian in their entirety.
SIPC insurance does not cover all losses. For example, it does not cover losses caused by fraud or market losses. Of course, insurance does not apply to losses due to the investments going down. There are no guarantees when investing and risks include loss of principal.
If your brokerage firm fails, SIPC will work to get your money back. This may involve selling the firm's assets or recovering money from the firm's insurance. If SIPC is unable to recover all of your losses, you may be able to file a lawsuit against the firm.
In addition to the insurance from the FDIC and SIPC, Schwab also has an insurance policy through Lloyd’s of London and a credit line from the Federal Home Loan Bank System to act as another backup for our clients.
Schwab's CEO recently gave an interview on their financial stability as well, which is worth a watch: https://www.aboutschwab.com/walt-bettinger-on-financial-stability
In general, GTS Financial does not recommend individual stocks for clients’ portfolios, so exposure to an individual bank’s failure is limited to a situation where stock in that bank is part of a mutual fund or an exchange-traded fund held for a client.
At this time, we continue to feel comfortable with Schwab as a custodian for our client's investment accounts. There are risks with any financial institution. However, we believe that Schwab's standing as one of the nation's largest likely put it in a position of being 'too big to fail' and that the US government would potentially step in to help remedy any worst-case scenarios.
Managing Your Cash - Optimizing your bank deposits in light of recent bank failures.
When Silicon Valley Bank (SVB) failed in March, it grabbed a lot of news headlines and social media attention. Now, as the crisis at that bank (and a few others) fades into the background, many people are understandably still left wondering: Is my money safe where it is?
Transparency and useful information are two things everyone wants from their financial relationships. In this quick read, we'll explain a bit of what happened at SVB (as it relates to what caused the bank to fail) plus what GTS Financial clients need to know regarding the insurance that applies to their investment accounts.
What happened at SVB?
The short story of what got SVB in trouble is related to the capital markets. SVB had a large holding in US government bonds ($117 billion at the end of 2022). Historically, a 10-year US bond has been one of the safest investments in the world. However, some of SVB’s bonds were purchased when interest rates were low a few years ago. As the Federal Reserve raised interest rates to fight inflation, the bonds SVB was holding became less valuable. Unique to SVB was the fact that its clients had made deposits at the bank that were well in excess of the amount that would be insured against loss if the bank failed. When SVB’s clients were made aware of the risk that the paper loss in bonds posed to the bank, many tried to withdraw their money fearing a loss on their uninsured deposits. As with any classic bank run, SVB didn’t have the liquidity to meet the withdrawal demands of its clients so the bank failed and was seized by federal authorities.
The question immediately became: Will this happen to other banks?
Federal Response
Normally, bank deposits are guaranteed for up to $250,000 per depositor and per insured bank according to Federal Deposit Insurance Corporation (FDIC) guidelines. However, the US government stepped in and guaranteed the deposits of SVB in full. It did this to try to avoid other bank runs and to support the tech companies and their employees that kept cash on deposit at SVB.
More to come?
It would not surprise us to see more regional bank failures in the near future as rising rates continue to put pressure on banks. Additionally, upcoming issues in the commercial real estate sector may impact banks who invest their deposits in those assets.
However, the bottom line for our clients is GTS Financial always recommends clients be aware of the FDIC insurance limits and ensure they stay below those.
While it is concerning to see banks failing, from an investment standpoint, the long-term trend of the market perseveres as seen in the chart below.
As always, if you have any questions around your finances, don't hesitate to reach out.
Mindset - Practicing Gratitude
Gratitude is one of our three guiding values at GTS Financial. We incorporate it into our meetings, our company, and our lives. We love when clients share how they are inspired to express gratitude through little reminders like this one:
Practicing gratitude can be so beneficial in all areas of life, especially in times of stress and uncertainty. Gratitude invites positive emotions that can have physical benefits through the immune or endocrine systems. Research shows that when we think about what we appreciate, the parasympathetic or calming part of the nervous system is triggered. This can have protective benefits for the body—including decreasing levels of the stress hormone cortisol and increasing oxytocin, the bonding hormone involved in relationships that make us feel good.
These are a few quick tips to get started today and practice gratitude in your own life:
- Write thank you notes
- Use your GTS Financial Gratitude Journal to write down one thing you're grateful for each day
- Follow-up with family and friends
- Give back to your family, friends, and community
- Pay kindnesses forward
Tip adapted from Mindful.org
My AI Travel Agent
Both of our advisors, Grant and Tyler, are tech enthusiasts to say the least! When the opportunity to try out the latest Chat GPT4 and Google's competing AI (named Bard) came about - they were quick to sign up and take it out for a test drive.
In case you are unfamiliar with what ChatGPT is, in short, you can type questions to or have a conversation with a computer that's been programed with a lot of information. The program then responds instantly and often with astonishingly good results.
AI is already starting to make an impact on the world around us. Teachers are already worried about students leveraging AI to write papers. In a recent study, AI's response to medical questions were selected 79% of the time over a real life doctor as the AI was more "empathetic" and "higher quality." And lawmakers are introducing legislation to prevent AI from autonomously launching nuclear weapons (yikes!).
Read on for a quick anecdotal story on how Tyler used AI as a travel agent to plan an upcoming trip and why you may be talking with AI programs in the not-so-distant future.
What Tyler told ChatGPT
"You’re a travel agent. Plan an itinerary for 6 days flying into Portland, OR and out of Seattle, WA. We love all things outdoors like hiking and beaches. We’re a family of 4, ages 43, 40, 9 and 6."
How AI planned Tyler's trip
Day 1: Portland Arrival and City Tour
• Arrive at Portland International Airport and check into your hotel.
• Take a city tour to get familiar with the city, visiting landmarks such as the Portland Art Museum, the International Rose Test Garden, and the Pittock Mansion.
• Have dinner at a local restaurant and get some rest for the next day's activities.
Day 2: Columbia River Gorge and Multnomah Falls
• Head to the Columbia River Gorge, just east of Portland, for some hiking and sightseeing.
• Stop at the Vista House at Crown Point for panoramic views of the gorge and the Columbia River.
• Hike to the top of Multnomah Falls, the tallest waterfall in Oregon, and enjoy the views.
• Return to Portland for dinner and relaxation.
Day 3: Oregon Coast and Cannon Beach
• Drive west to the Oregon Coast, stopping in the town of Tillamook for a visit to the Tillamook Cheese Factory.
• Continue on to Cannon Beach, known for its beautiful beaches and Haystack Rock, a large rock formation in the ocean.
• Enjoy a day of beachcombing, hiking, and relaxing on the beach.
• Return to Portland in the evening.
Day 4: Mount Rainier National Park
• Depart Portland and drive north to Mount Rainier National Park, about 2.5 hours away.
• Hike one of the many trails in the park, such as the Skyline Trail or the Nisqually Vista Trail, to see the stunning scenery and wildflowers.
• Have a picnic lunch in the park and spend the day exploring the natural beauty of the area.
• Return to Seattle in the evening and check into your hotel.
Day 5: Olympic National Park and Seattle City Tour
• Drive west to Olympic National Park, about 2.5 hours from Seattle.
• Hike one of the many trails in the park, such as the Hoh Rainforest Trail or the Hurricane Ridge Trail, to see the temperate rainforest and mountain scenery.
• Have a picnic lunch in the park and spend the day exploring the natural beauty of the area.
• Return to Seattle in the evening and take a city tour of Seattle, visiting landmarks such as the Space Needle, Pike Place Market, and the Chihuly Garden and Glass.
• Enjoy dinner at a local seafood restaurant and explore the city on your own.
Day 6: Departure
• Check out of your hotel and head to the airport for your early morning flight home.
As this example illustrates, AI has the potential to provide this degree of detail across a limitless number of topics. Both Tyler and Grant believe this technological development will become ubiquitous and transform our lives - much like the internet did. It will replace some jobs and work alongside others.
Curious to try out Chat GPT for yourself? Click HERE to take it for a spin.
How Stacey Got Her Teenage Son to Clean His Room
Make Your Bed, by Admiral William H. McRaven, is one of the most popular motivational books on the market. In this short book, McRaven outlines 10 lessons he learned while training as a Navy Seal that applies to everyday life. He also has an outstanding speech on the subject.
Stacey Stelter, one of our founders, credits this speech and book with transforming her teenage son. She said,
“When he was in high school, we noticed our oldest son started to make his bed and tidy his room every day before school. After several days of this behavior we asked him what prompted this newfound routine. He had us watch the speech by Admiral McRaven and said, “This!” He is now a junior in college and hasn’t wavered in his morning routine. He has inspired his younger brother to jump onboard too (most days 😉).”
If the concepts spoken about by Admiral McRaven can get a teenage boy to make his bed, just imagine the possible impact it could have in your life! Click below to watch.
If you share with us one takeaway that stuck with you from this speech, we'll enter you in a drawing for an Amazon gift card!
Email us at hello@gtsfinancial.com with your answer for a chance to win!