RHP Market Talk

A Market Pause and Moments of Gratitude

November 23, 2020 Royal Harbor Partners Episode 3
RHP Market Talk
A Market Pause and Moments of Gratitude
Show Notes Transcript Chapter Markers

In Episode 3 of RHP Market Talk,  Glenn Royal and Natalie Picha breakdown some surprising market conditions before the pause on Wall Street next week for Thanksgiving. You will also hear from the entire Royal Harbor Partners Wealth Management team as they offer a moment of gratitude and thankfulness in a year of uncertainty.

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Natalie Picha:

I'm Natalie Picha and welcome to Royal Harbor Partners Market Talk. Before we jump into this week's market commentary, our team wanted to take a moment to focus on gratitude. This next week for Thanksgiving, our nation, and the markets will pause to give thanks. And we believe it's worthwhile to consider the benefits of gratitude in our stewardship of money. So today we have our team, here, altogether , with our thoughts on gratitude in this very strange and uncertain year, that is 2020.

Michele Jones:

Hello everyone. I'm Michelle Jones, partner with Royal Harbor Partners. Many of you know me from our wealth management discussions. I wanted to share how grateful I am for being prepared this year. No one could have predicted the change that was needed for Royal Harbor Partners and our clients. But, when we set up our firm , we wanted to be ready for anything. Our technology gave us the ability to work from home. Our communications never stopped with our clients. We had no idea we'd be working through a year like this, and I'm a planner. And I think it's to work right for our team and our clients. On a personal note, 2020 has been an unprecedented year. What I've learned is to be appreciative of all little things and not to take anything for granted. I'm very grateful for my family, especially the extra time this year with my husband, Mike and my boys , Caleb and Blake, and grateful for my partners and team here. And the families we work with at Royal Harbor Partners.

Sarah Whitfield:

Hello everyone, I'm Sarah Whitfield, operations manager for RHP. I'm always behind the phone or the PC so you may not have met me in person before. It's my job to assist clients with distributions, account updates and paperwork, and log-ins online. And this year I'm really grateful for Royal Harbor Partners and especially for the Open House that happened on February 27th before all of the COVID shutdowns and work at home. It was such a nice event and a great opportunity to see and meet our clients and their families. If we planned for any other day this year, we likely would have had to cancel. And so there's nothing more that I'm happy to do.

Glenn Royal:

Well, Sarah , I want to share what I'm happy with here with Royal Harbors. And the biggest thing is I'm just happy to be here. And that's something that I've learned to adopt as a philosophy in life and like most things when you just show up and you're happy to be here, it tends to work out. I'm thankful about the conversations that we've had this year. This has been anything but a trying year. We've had a lot of conversations with clients that are very deep and personal level, and I'm thankful for that trust and confidence that they continue to instill in us. And the ability to show up here every day and work with my peers at Royal Harbor. Natalie, how about you?

Natalie Picha:

Well, thank you guys for sharing. I am, I'm so grateful and in some ways, strangely for the year that's 2020 , it's really made me stop and think about what's important. And many of, you know, I turned 50 this year and I kind of joke that well, that just means I only have 50 left. But I'm keenly aware of the value of a year. And every relationship whether they're close or far, they're all a blessing. I'm certainly grateful for our team and what we've been able to accomplish this year and for the 135 families that put their trust in us that we serve. That relationship has been just strengthened by what are the trials of 2020. So yeah, that's, that's just a few of the things that I'm grateful for this year.

Glenn Royal:

Let's take a moment here while we've all enjoyed our sharing of the things we're grateful for. And , but one of the things I think that clients are grateful for as well as what we do for them in the markets and their personal financial affairs. So let's talk a little bit about where are we as we go towards the end of the year of 2020.

Natalie Picha:

Yeah, I know you and I have spoken briefly about what the end of the year typically looks like in a regular trading year, right? But this is different. We've talked a little bit about market fatigue and what that might look like. Next week, of course, being the week of Thanksgiving, we expect trading will probably be light. We hope, right. We would love for Thanksgiving week to be quiet and calm, you know, a restful week of Thanksgiving. But what do you see beyond that going into December, we got just a few more weeks left of this year.

Glenn Royal:

Well, of course the biggest thing is the resurgence of the COVID, you know , it's upon us, you're seeing it everywhere. You're seeing different government agencies around the country start to take measures to slow it down. And that's caused a little bit of concern in the market. We're starting to wonder, does that took us into another little double dip if you will. You're seeing it in Europe, you're seeing it abroad. But what I find very interesting against this backdrop is that we had the announcement of that vaccine and several companies have announced a vaccine. So we know the future what's different about this environment is normally we're a little bit more uncertain about the short run and more certain about the long run this time it's flipped because of this uncertainty around the virus, we feel really good about 2021's growth prospects on the basis of a vaccine. We're very excited North of three and a half percent GDP growth, very strong, but we have to have that vaccine. So the question is, how do we get between now and the widely availability of that vaccine? I have noticed one other little thing that gives me a little encouragement. There's also the discussions going on between treasury secretary Mnuchin and the federal reserve Powell on different main street lending programs, et cetera, and treasury wanting to pull that back. Normally that would be somewhat upsetting to the market if you're taking away support systems. But what we've seen is the market's handling it pretty well. It's hanging in here. There's not a lot of downside pressure on that. And another little tell-tale that gives me optimism that we may not need that 3 trillion of stimulus, maybe it's 500 billion or if any at all, is because Carnival Cruise Lines, a n industry most impacted by COVID. You know, the cruise industry has been issuing debt and equity offerings to stay afloat. And up t o this point, this week, they've been using their ships as collateral for the bond holders. This was the first week they issued $11 billion in debt with no collateral. So investors are now warming up to the recovery story where they're willing to do these types of investments without that collateral requirement. So that's a signal to me that we are setting up for a good 2021 against t his short-term uncertainty. Probably the best thing is that, you know, the market just k ind o f wants to go the sideline, ride this out and see, you know, the vaccine availability. And then off we go.

Natalie Picha:

Wow. Very interesting. Good points. Yeah. The Carnival Cruise Line, that's, that's quite an observation there. So what have you seen in these past weeks? It's one of the most surprising changes in the markets. And I know volatility is a big conversation, right? We've seen that VIX come way down. What do you think has been unusual?

Glenn Royal:

The election, the legal threats around the presidential election has not created one wrinkle in the stock market and to me, the market is saying we have full expectations that the normal democratic process will follow through. And you'll see President Elect Biden in the White House on January 20 taking the oath of office. The markets fully pricing that in that would be the wild card , if there is some type of success through the legal systems to overturn that. And that's the short term , the greatest risk of the market will have I think there'd be a severe reaction to that. And uncertainty that it creates.

Natalie Picha:

The uncertainty, right. Of course the uncertainty that it's going to create,

Glenn Royal:

But the fact that we're hanging in here and is a very positive, again, that ties in with like the Carnival story, et cetera.

Natalie Picha:

So of course, around here, we do planning, right. And we, when we plan for our families and we think about the future, we don't think about, we talk about short term , but what we plan for are really mid to longterm . Right? All those long-term ranges. And so 2020 has been a little bit odd in that we have really, you see, the focus has been on 2020, not, but, but let's talk about 2021. Let's talk about 22, 23, a little bit. We're going to get through this, the expectation of the vaccine and maybe get back onto , more steady footing when it comes to growth. We've seen that, that rotation you talked about in the last our last discussion more into value broadening out of the markets. What do you think in 2022 , 23, what have we got maybe a little bit further out 24 months, 36 months even.

Glenn Royal:

So I think the biggest challenges our investors are going to face going forward in the next few years will be returns from U.S., Large cap stocks, the biggest S and P 500 , Forward expectations for those returns are about half of what we've seen in the last, since 2008, running each about six and a half percent expected returns. So I think the biggest change you're going to see, and that area is a movement more towards international, and it could see as much as 35% of your portfolio and international names. That's where we seal see the growth opportunities, the best case or emerging markets export expecting returns are 9%. So develop international is more in the seven, eight range. So I would think that would be the biggest change where we've been U.S. centric for the last 10 years. You start to see that move more towards abroad. The other changes there you're going to see is more in fixed income because we're in a zero rate world with the fed on hold for three years, how do we get income in this market? And I think that's going to have to come from more equity type investments, preferred stocks, dividend stocks, those sorts of things that provide that income that the bonds used to produce. So you may now have to see the portfolios were traditional balanced 60, 40. They need to go to that 70, 30 makeup in order to do that. So we're in the midst right now of potentially looking at a reallocation between stocks and bonds and our models to shift a little bit of that waiting over to equities. And then the other thing we do in the , in the portfolios, we run a balanced approach. I call it a barbell, you know, the two ends of the way I've got one half of that equity exposure in dividend paying stocks that are paying us, that bond like income. Then I got the other half. And , and that toe in that grub that high-tech, or that we still have to have her to drive performance through the portfolio, right . So we'll probably still keep with those changes, but you'll start to see me massage to those themes that the margin is different opportunities arise.

Natalie Picha:

Awesome. Thank you lot to think about. Lot to think about. So as we close out today, I just want to remind everybody, around here, one of our core values is we value people over money. We say it often , it just seems to roll off the tongue around here. Money is just a tool that we use to really help our families reach their full potential. Our team is grateful that we can be here for your families during this strange and uncertain times. And , we just want to thank you for putting your trust in us. So thank you for listening today. And I encourage you to visit our website at www.royalharborpartners .com for additional resources, or to send us an email, hope you and your family have a wonderful and blessed Thanksgiving.

Glenn Royal:

Happy Thanksgiving.

Disclosure:

Royal Harbor Partners is a registered investment advisor and the opinions expressed by Royal Harbor Partners on this show are their own all statements and opinions expressed are based upon information considered reliable. Although it should not be relied upon as such any statements or opinions are subject to change without notice information presented is for educational purposes only, and does not intend to make an offer or solicitation for the sale or purchase of any specific securities investment or investment strategies. Investments involve risk. And unless otherwise stated are not guaranteed. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for any individual listeners are encouraged to seek advice from a qualified tax legal or investment advisor to determine whether any information presented may be suitable for their specific situation. Past performance is not indicative of future performance.

Introduction
Thoughts of Gratitude
The End of 2020
Closing
Disclosure Statement