Q3 2023 – Market Update

By Contessa Archuleta on November 7, 2023

The Markets – Kyle Burns:

Recently I attended a presentation, and they brought up a quote from one of my sons’ favorite movies, Spider-Man: Into the Spider-Verse. In the scene, the character Miles Morales is questioning whether he is ready for the responsibility of being the next Spiderman. Miles asks Peter Parker, “When will I know I’m ready?” To which Peter Parker responds, “You won’t. It’s a leap of faith.” While the presentation I was attending was focused on leadership, I find the quote to be one that fits perfectly within investment theory and the markets.

Investing in anything takes a leap of faith. There are a range of unknowns that we are all faced with anytime we make an investment. We purchase a stock and hope that they outperform earnings expectations. Many justify a real estate purchase around a neighborhood that is improving. We can analyze all our decisions for hours, days, or weeks and find that there are plenty of reasons to not take that leap of faith. With the rise in interest rates, hesitation to make that next investment decision has become even harder.

Investors are being rewarded with looking at opportunities in the short term. The 1-year U.S. Treasury Note was paying 5.47% at the end of the third quarter. A yield over five percent makes it easy for us as investors to wait out the markets. We feel good avoiding the volatility of the stock market and missing the decline in bonds as rates continue to rise. We feel good because our money is productive in short-term assets that are paying a decent yield. The markets are known to humble us and that good feeling could change quickly if rates were to pull back and our short-term earnings go from 5.5% back down to rates around 2.5%.

The best way for investors to prepare for taking the leap of faith revolves around your own investment and financial plan. It is important to have an investment plan in place that keeps you invested in the markets through both the ups and downs. We are constantly looking to remove luck from the situation. There are plenty of occasions where we hear of an investor that moves out of cash and jumps back into the market just before prices go up. These investors may tell you that it is better to be lucky than good, but we know that having a long-term plan in place removes the need for luck. We don’t know what exactly the markets will do over the next six months or even a year. However, by setting up both long- and short-term investment plans, we can remove much of the need to know.

There are mixed signals being given when looking at stock and bond market data today. An inverted bond yield curve can be seen at the end of the third quarter where the 1-year U.S. Treasury Note was paying 5.47% and the 10-year U.S. Treasury Note was paying only 4.57%. This inverted yield curve typically signals an upcoming recession; an indication that we should be bearish on the stock market. The stock market disagrees. Through the first three quarters of the year the S&P 500 was up 13% and the tech heavy Nasdaq 100 was up 35%. Both are off from higher levels earlier in the year but are still strong performers. While there have been reasons to be worrisome about the stock market; the market continues to gain on positive economic news and hopes of avoiding a lasting recession.

Unemployment remains low and more talk has picked up around a soft landing if we experience a recession in the next 12 months. Developed international market valuations continue to look attractive according to the numbers but returns continue to lag those in the U.S. Developed international company stocks returned 6.9% through the first three quarters of the year. Emerging market stocks have failed to keep pace, returning only 0.9% over the same period. There have been some highlights in emerging markets with positive returns in India and Mexico. The positive outcomes in those markets were brought down by the decline in the Chinese markets of -8.0%.

Some success of the Federal Reserve’s inflation fighting efforts can be seen in the price of commodities. The broad commodity index is up only 1.3% this year. Gold, after being up close to 10% earlier this year, has cooled off with the strong U.S. dollar and finished the third quarter up only 1.3%. Crude oil prices went through an opposite movement, starting the year down as much as 15% only to recover to being up 10.9% at the end of the third quarter.

There are many trends that we continue to follow in the markets today. The team is always happy to review and discuss how they may be impactful to your personal investment decisions.

Trust Administration: Passing on Assets – Keren James:

As the Great Wealth Transfer continues, more people find themselves administering trusts for the first time when a family member or friend passes away. Though there are individuals and family members who are made aware of the responsibility that will come to them, many trustees do not become aware until the grantor has passed. Beloved family and friends of the deceased then find themselves wading through documents and assets and the complexities of trust language and tax returns in the midst of their grief.

In our work with clients and trusts over the years, we can attest to the fact that the process of administering a trust will never be identical for any two (trusts). That said, there are common steps and responsibilities to trust administration, and we find it is helpful for each trustee to have a sense of these functions prior to the death of the grantor.

To that end, we are providing here a list of the basic steps of trust administration, with the most important step being to retain the services of an estate attorney and financial advisor.

Review all estate planning documents thoroughly.
Provide notice to all heirs and beneficiaries according to the timeline and requirements of the state in which the trust is sited.
Retain the services of an estate attorney and financial advisor.
Obtain Title to the trust assets.
Inventory the trust assets.
Obtain a new tax identification number for the trust, and establish a bank account or taxable account in the name of the trust from which trust expenses can be paid.
File tax returns and pay taxes.
Keep detailed records for trust accounting.
Distribute trust assets.
Close all trust accounts once taxes paid and trust fully distributed.

As mentioned, all trusts are administered differently, and it is our hope that this list will offer a starting point for those who find themselves acting as a fiduciary on behalf of themselves, their families, or others. If you have questions about where to start, or how to find an estate attorney where a trust is sited, please feel free to reach out to our team. We are happy to assist.

Approaching End of Year – Contessa Archuleta:

As we approach the end of the year, you may see an increase in account activity as we take advantage of tax-loss harvesting opportunities, which allows us to sell positions that are down to offset the capital gains realized from selling positions at a gain. This will limit your capital gains taxes and preserve the value of your portfolio while rebalancing your asset allocation according to your individual strategy.

Earlier this year, we contacted clients who will need to take a Required Minimum Distribution (RMD) from their qualified retirement account no later than December 31^st. An RMD is an amount of money that must be withdrawn from certain types of retirement accounts at a prescribed age. RMD rules continue to evolve, and The Rikoon Group makes every effort to stay current regarding changes to RMD rules and provide you with the most up-to-date information. If you do not intend to use your RMD for living expenses, you may be able to reduce your taxable income by making a Qualified Charitable Distribution (QCD) to an eligible charity. If you haven’t already done so, please contact us as soon as possible if you would like to make a QCD from your retirement account.

Have you finished your annual gifting? In 2023, you can give up to $17,000 to family or friends without having to file a gift tax return with the IRS. For married couples, the limit is $17,000 each, or $34,000 combined. If you exceed the annual exclusion, you will need to notify the IRS on your tax return but may not have to owe taxes unless you have exceeded the lifetime gift tax exclusion, which currently is $12.92 million.

Staff Updates:

Rob: It has been a great summer and beginning to the autumn season. The big news is that my daughter Robyn is pregnant and due sometime in February. She and her fiancé plan to get married sometime in the (near) future. Hannah has just completed her final year of residency in naturopathic medicine at a women’s health clinic in Portland, Oregon. She will be visiting her mother in the Hudson Valley, New York, and then here in Santa Fe in before leaving for Mexico on an extended trip before taking up her career which will expand to include geriatrics. In late August, my studio associates and I installed a large “dancing Shiva“ piece in a new part of the Oshara village sculpture park. The association there has dedicated a 1 acre site on the corner of Richards Avenue and Saddleback Mesa for the work I have in process. Many thanks to everyone who has helped in the creation and installation of these steel sculptures.

Kyle: In August, I was lucky to travel with my family to Italy. We made stops in Rome, Pompeii, Venice, and Florence during our time there. The boys were overwhelmed by all the history that the country has to offer and they voted Venice as their favorite place that we visited. My wife, Tabitha, celebrated our fifteenth wedding anniversary while in Rome and manage to sneak out for a few nice evenings without the kids. Upon our return it has been non-stop. The boys started eighth grade, while both Tabitha and I had some catching up to do at work. At the end of September, I graduated from the Hightower Center for Leadership. The HighTower Center for Leadership is an a comprehensive executive leadership program that offers simulation-based training to foster and refine leadership and teamwork skills. Now on to the next season.

Jeff: It was a very hot and dry summer and so I am glad that the fall weather has arrived. All our trees, plants and flowers really struggled this summer. One of the small benefits of the heat and dryness was that the weeds and stickers on my property didn’t grow nearly as much as usual. So I didn’t have to devote as much time removing the weeds and hauling them off to the dump. I played music at Zozobra for my fifth consecutive year. This is a wacky local festival where a giant puppet like figure, Zozobra (Old Man Gloom) is burned and then symbolically all of our troubles, worries and cares go up in flames with him as well. About 60,000 people attended the festival this year. Next year will be the 100^th year anniversary and so I imagine that it will be even bigger and grander than ever. Our granddaughter, Ariah, turned two and a half, and she is a non-stop talker. If she is not talking, then she is singing. When she is put to bed at night, she sings and sings. Then when she is told that it’s time to go to sleep and to stop singing, she just whispers and sings softer until she finally drifts off to sleep.

Contessa: My family and I finished out the summer by conquering our goal to climb Mt. Antero. It was a challenge but am excited to share that all four of us made it to the top of the peak. The kids are well into the first half of the school year with Samuel in 5^th grade at Atalaya and Ayden moving on to middle school at Santa Fe School for the Arts & Sciences. Samuel is getting used to being in school without his sister and Ayden is enjoying making friends. On a professional note, I recently completed a program at the Santa Fe Community Foundation designed for nonprofit board members. This six-session course helped build my skills around participating on boards, and I am eager to bring back the knowledge I gain to the boards I serve.

Keren: Fall is my favorite season. There is immense beauty to be found in change and transition, and I have experienced a great deal of both this year with friends, clients, and family. My son transferred to The Masters Program in August, and we are both thrilled at the opportunity he has to take dual credit courses through Santa Fe Community College and to be exposed to such a wide array of subjects and coursework. My parents moved to an independent living community in September, and our family is moving through the transition together. Finally, one of my dearest clients, and someone I considered a friend, passed at the beautiful age of 99. His life and work, both what he did before and in his retirement, inspired and uplifted me. We shared a love of opera and the spice and heat of great New Mexican food. His sharp mind and interest in life and concern for our future as a society and the state of the planet and nation we are leaving to our children and grandchildren weighed daily on his mind. He tracked his investments to the end, and was stronger and quicker than I often feel at forty plus years his junior. It was an honor to know him and serve him, as it is with all of our clients, and I will raise a glass to him on Friday nights as we used to do.

Gayle: Trick or Treat, smell my feet or give me something good to eat! This old limerick still makes my granddaughters giggle. Yes, it is the season for Halloween costumes, fall foliage, disconnecting our hoses, cozy sweaters and of course pumpkin flavors. A bit too much of that! And the world is full of flavors; not all are to our liking. Years ago I advised a client to shut off his TV, and enjoy the outdoors. It’s true, we need to stay informed, however, keep in mind that bad news sells. So let our team sort through the media confusion so you can enjoy the outdoors, your families, and keep your positive vibes going. And while your fondest memory of autumn may not be “smelling feet”, enjoy your favorite ones and be the reason the lights flicker when you walk into a room. Stay well.

Anthony: Summer we are sad to see you go, but we welcome the cooler fall temperatures. School is well underway for our daughter Amaya. She surprised us by choosing to run for student council and was elected 3^rd grade representative. It was fun to help her make banners to hang around the school and write a speech as to why she would be the best choice. She continues to take classes at Aspen Ballet and they will have their annual performance of the Nutcracker at the Lensic. For those of you able to attend she will be a Candy Cane this year. I recently attended a business conference in Chicago. It was my first time visiting, and although it was a short trip, I enjoyed my time and the experience. My wife and I kicked off the fall season by participating in multiple Santa Fe Wine and Chile events. We also recently attended a viewing party at Gruet Albuquerque to watch the opening ceremonies of Balloon Fiesta. Next came the magic of the solar eclipse which I hope most of you were able to witness. We then had our Annual trip to Moriarty to visit McCall’s Pumpkin Patch. Next thing we know, it will be the holiday season. I hope everyone is doing well.

Bonita: Brisk nights, golden leaves, sweater weather, and pumpkin pie, please! I really enjoy the transition into the Brrr months, fall activities, and the smell of a wood burning fireplace. My boyfriend and I ended our camping season with one last camp-out for the International Balloon Fiesta and Solar Eclipse. When my family and I were not doing yard work or home improvements we went apple picking at the Costanza Apple Orchard in Belen, spent some Saturdays at the Santa Fe and Albuquerque farmers markets, and picked pumpkins at the Rancho de las Golondrinas Harvest Festival. I am grateful to have spent some time in Chicago early in September for the Hightower Pinnacle Conference focused around new operating systems, operational enhancements, personal and professional development, and networking. I returned from the conference feeling motivated and inspired to be part of such a great team with great clients!

Jordan: I joined The Rikoon Group in September and I’m genuinely enjoying our team and clients. Before starting here, I worked with multiple financial institutions and received my MBA from New Mexico Highlands University. I was born and raised in Santa Fe, but spent nearly the last 10 years in Albuquerque, and decided to move back just last year. Shortly after moving back, my wife Angela and I got married and spent a couple weeks in Maui for our honeymoon. Over the summer, I traveled to Boston, which became one of my new favorite cities. I enjoyed learning about American history and visiting historic monuments. Recently, I discovered the joy of gardening after planting various herbs and vegetables. I’m anxious to expand the size of my garden and continue to grow more vegetables in the spring. Until then, I’m looking forward to meeting our clients and can’t wait to assist them in reaching their financial goals.

Disclosures:

The Rikoon Group is comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. The Rikoon Group and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. The Rikoon Group and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.

Hightower Advisors, LLC is an SEC registered investment adviser. Securities are offered through Hightower Securities, LLC member FINRA and SIPC. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material is not intended or written to provide and should not be relied upon or used as a substitute for tax or legal advice. Information contained herein does not consider an individual’s or entity’s specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Clients are urged to consult their tax or legal advisor for related questions.