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Strategic Insights

Volume 9, Edition 2 | January 13 - January 17, 2020

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How are your 409K’s doing?

Doug_Walters Doug Walters | Articles

Read Time: 4:00 min

Financial Needs

Stocks were hitting all-time highs again this week. This is great for investors and also a good time to remind that diversified portfolios are designed to outperform when stocks go down.

Contributed by Doug Walters , Max Berkovich , ,

Financial advisors collectively gasped when the President tweeted last week, asking, “How are your 409K’s doing? 70%, 80%, 90% up? Only 50% up! What are you doing wrong?” No, not because of the typo, but because of the suggestion about portfolio returns. U.S. stocks have been on a tear (including this week) since they bottomed in March of 2009 and were up about 56% from election day 2016 to this tweet. But equities have been among the best performing asset classes over the past decade, and well-diversified portfolios, which include other assets such as fixed income and international stocks will have lagged the S&P 500’s 56% (let alone 70, 80 or 90%). Prudent portfolios will not be up that much.

So why own a diversified portfolio if it is just going to underperform? Because it does not always underperform. History shows a diversified portfolio can outperform in the long run while, importantly, taking on a materially lower level of risk. Blackrock published a nice visual for why this is a messaging challenge for advisors (see below). The lesson is not to get sucked into the trap of comparing your portfolio to the current market darling. Today it is the S&P 500; tomorrow, it might be Emerging Markets High Yield Debt. Investing is a life-long endeavor, so keep your eye on what is important… the long run.


Winning Doesn’t Always Feel Good

In their January Student of the Market publication, Blackrock showed that the S&P 500 is up around 211% since before the Tech Bubble burst. Over that same time, a diversified 60% stock / 40% bond portfolio is up a similar amount (213%), but with far less volatility. A diversified portfolio was superior, but it never felt that way. Why? Because it outperformed when the market fell. Even though it had better performance in these critical times (the Tech Bubble bursting, and the Financial Crisis), it was still down, so it didn’t feel good. When the market rallied, a diversified portfolio lagged the stock market, which also didn’t feel good. Blackrock puts it well, “Diversification wins even when it feels like it’s losing.”

Source: “Student of the Market” Blackrock, 1/2020.

Headlines This Week

Home cooking

  • New home construction climbed to a 13-year high, measured by monthly housing unit starts.
  • Retail sales saw light growth in December, while November sales were revised higher.


  • U.S. and China signed the Phase 1 deal. Now China needs to show they will play by the rules while both countries continue to resolve their dispute.
  • The European Union (EU) is worried that Trump’s administration will impose tariffs on European cars after the administration threatened to increase French wine tariffs up to 100%.

Looking Abroad

  • China’s economy grew 6.1% in 2019, a widely expected figure. While it might seem high, it is the slowest pace in 29 years.
  • China’s industrial production in December beat expectations and showed signs of improvement.
  • A Reuters poll of economists sees a Eurozone slowdown at or near the bottom, most likely fueled by a boost from U.S.-China trade war de-escalation.

Bring back the 20 for ‘20

  • The U.S. Treasury said it will start issuing 20-year bonds in the first half of the year.
  • Treasury Secretary Steven Mnuchin said that the goal is to finance the U.S. deficit at the lowest possible cost. Secretary Mnuchin also said he is exploring the issuance of an ultra-long bond (50-year or 100-year) but decided to go with a conservative approach and bring back the 20-year bond, which was discontinued in 1986.

The Week Ahead

Earnings season rolls on as eight of our portfolio companies report next week: Johnson & Johnson (JNJ), Procter & Gamble (PG), Union Pacific Corp (UNP), Travelers Cos (TRV), M&T Bank Corp (MTB), Skyworks Solutions (SWKS), Intel Corp (INTC), Hexcel Corp. (HXL) and NextEra Energy (NEE).

  • Skyworks and Intel will be highly watched releases as chipmakers had a tremendous 2019, so guidance for the future is essential to keep momentum.
  • Defensive stocks like Procter & Gamble, Johnson & Johnson, and NextEra will have to show strong growth to justify pricey valuations.

The annual World Economic Forum will be held next week in Davos, Switzerland.  The stated theme this year is “Stakeholders for a cohesive and sustainable world.”

  • The yearly meeting of leading business and political figures is meant to tackle the most pressing issues facing the world today.
  • The recent political turmoil between the U.S. and Iran is expected to be discussed.
  • Over 100 billionaires are expected to descend on the ski town at some point next week.

A few central banks meet next week to deliver interest rate decisions, with the largest being the European Central Bank.

  • Not much is expected to happen when the ECB meets on Thursday, with rates expected to remain unchanged.
  • The Bank of Canada and the Bank of Japan also meet next week, with no changes expected from either Central Bank.

Not much activity is happening in the U.S., with the only newsworthy reports coming from the Manufacturing and Services PMI, on Friday.

Finally, the U.S. stock markets and banks will be closed on Monday in observance of Martin Luther King Jr Day.

Stock Highlights from Max

Plaid Out

Another great week for stocks with a mix of solid earnings and mergers and acquisitions news. REIT and Utility holdings were the leaders this week outdueling Technology and Industrial sectors for the top spot. Energy spent another week in the doghouse and continue to sit out the all-time high party.  Speaking of a party…


  • Alphabet Inc. (GOOG, GOOGL) joined the 4-comma fraternity as its market capitalization exceeded $1 Trillion, joining strategy cohorts Apple Inc. (AAPL) and Microsoft Corp. (MSFT). Another holding Facebook Inc. (FB) is 5th and needs to go up about 37% from here to join the exclusive group. The five companies’ combined market capitalization makes up just shy of 17% of the S&P 500’s total value. In M&A news…

Visa logo

  • Visa Inc. (V) agreed to acquire Plaid, a privately-owned network for people to securely connect their financial accounts to apps. Visa will pay $5.3 billion for technology that will enable them to work closely with other fintech firms. This deal will not impact Visa’s plan for dividends and buybacks according to the press release. Also…

Hexcel Logo

  • Hexcel Corp. (HXL) will merge with Woodward Inc. (WWD) in an all-stock merger of aerospace and defense industry suppliers. Hexcel shareholders will receive 0.625 shares of Woodward for each of its shares. The deal valued Hexcel at about $76.23 per share as of the previous week close. The deal is expected to produce $125 Million of synergies annually. Hexcel reports earnings next week, so maybe further details will be unveiled. Speaking of earnings…

JPM logo

  • J.P. Morgan, Chase & Co. (JPM) reported good results, boosted by strong consumer banking and fixed income trading.

Blackrock Logo

  • BlackRock Inc. (BLK) also beat expectations thanks to strong inflows of assets and record revenue from technology services “Aladdin”.

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Founded in 1979, Strategic is a leading investment and wealth management firm managing and advising on client assets of over $1.8 billion.