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December Market Update Thumbnail

December Market Update

Investing Insights

The market doesn’t take any time off for the holidays. This month, we’re exploring growing household wealth, rising taxes, trade ranges, and more concepts that may impact your finances. Read on to understand what these mean for you.

Wealth — and Taxes — Grow

US Households' Balance Sheet

The American household has never been wealthier – in many ways. Let’s take a look at the numbers. Notice these new records are not just a bit higher – the records are set by trillions of dollars. Meanwhile, for those concerned this is fueled by debt like the last collapse in ’08-’09, let’s take a closer look.

US Private Sector Leverage

What is fascinating in all this breathless press reporting on any of the financial channels is this: debt, leverage, and costs are at levels seen all the way back into the ’70s. The good news is it is the same for both consumers and the government.

Interest Payments on Federal Debt, % of GDP

One thing is for sure – taxes on those building wealth are rising. Note below as the revenues to the government are tracked. There will not be a day in the future whereby the use of tech and tech CAPEX will be lower than today.

Federal Revenues

Check the spike upward in individual tax revenues (red) and corporate (purple) even as payroll taxes are level while employment is rocketing ahead.  Remember, the latest JOLTs data show over 11 million job openings.  As of November, there were fewer than 7 million unemployed individuals — bring on the robots and automation!

Tech Drives Record Profit Surges

This data is straight out of filing returns with the snapshots below showing the NIPA profits are well ahead of S&P reported earnings. 

Corporate Profits % of GDP

In the second image above, note: the data streams compare corporate profits as calculated in the GDP accounts (red line) and trailing 12-month earnings per share (profits from continuing operations) as calculated by Bloomberg (blue line). Not surprisingly, both tend to track each other over time. But since the red line is a quarterly number, it tends to lead the blue line.

Given that – it supports previous noted – reported corporate profits are set to be very impressive for the foreseeable future as a margin expansion wave unfolds. Why? Tech.

The Power of Patience

Recall what trade ranges do: they churn you to death and chew up every ounce of patience. They dance monsters across the stage of your mind and convince you to expect bad news. This is the issue that makes trade ranges so effective – as long as one can have patience and stand still – looking beyond the haze and chop and over the horizon ahead. 

They work to force short-term traders, with short-term visions, to hand their holdings over to long-term investors who understand how the reward system works in the wealth-building process.

Clearly, the strongest remains the tech areas of the market. The big five (FAAMG) now make up a full 35% of the S&P 500’s movements and they are only set to get larger. 

Your Market Takeaways

This turbulence is expected to continue over the coming months. However, like always, it’s important to understand that 50 years from now, the craziest highs (and the craziest lows) will all be tiny blips on an even larger market scale we can’t even comprehend today.

If you’re wondering how to react to recent changes in the market, schedule time with one of our experts to discuss.

The information contained in this material is intended to provide general information about Anew Advisors and its services. It is not intended to offer investment or tax advice. Investment advice will only be given after a client engages our services by executing the appropriate investment services agreement. Please consult a tax professional for tax advice. Information regarding investment products and services are provided solely to read about our investment philosophy and our strategies. You should not rely on any information provided on our website in making investment decisions.

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