Mark on the Markets
July 2023

Bull or Bear?  Where Are We Now?

A bull or bear market is defined as a 20% or greater rise or drop in a major market index, usually the S&P 500 Index. But that’s not the only index that technicians follow. And it is important to look at the time frame when the move takes place. 

From its early 2022 peak to its most recent bottom last October, the S&P 500 shed 25% of its value (St. Louis Federal Reserve S&P 500 data). It met the standard definition of a bear market. Just as a 20% peak-to-trough decline defines a bear market, a 20% rise from the most recent low marks the start of a new bull market, at least that is the technical definition. Since the mid-October low, the S&P 500 has advanced 24.4%.

Gaining the upper hand

What’s behind the advance? There has been no shortage of anxieties and confusion that might trip up investors: a possible recession, persistently high inflation, an ongoing Russia/Ukraine war, this year’s banking crisis, and a proliferation of ideologies that defy common sense and natural law. Despite the widespread anticipation of an economic downturn, it has yet to materialize, and employment opportunities continue to expand.  The Federal Reserve is considering raising interest rates further, but the magnitude of these increases has significantly decreased this year.  

This year’s progress in the stock market can be primarily attributed to the slower pace of rate hikes and the growth of the economy. Furthermore, the fascination with artificial intelligence (AI) has significantly boosted the performance of technology stocks.

Living in a post-pandemic world

Forecasting trends is a challenging task for economists and analysts. I, personally, enjoy the technical analysis of market trends. However, despite the use of complex economic models, the post-pandemic world poses unique difficulties. The shutdown and reopening of the economy, combined with an unprecedented $5 trillion in fiscal stimulus, have created economic distortions that are not fully accounted for in these models.

At the onset of the pandemic, the $2 trillion CARES Act and action by the Fed were crucial in preventing the economy from plummeting into an economic black hole. But were any forecasters able to predict elected representatives authorizing another $3 trillion ($3 TRILLION!!!) in stimulus between late December 2020 and March 2021?

How do the experts account for the shuttering and the reopening of the economy, pent-up demand, and the shift away from goods and toward services, travel, and entertainment?

Talk to some retailers, and you will think we are on the cusp of a recession. But the airlines can’t keep up with demand and can’t seem to raise prices fast enough.

It’s a new challenge for market strategists, economists, and investors attempting to determine the daily, weekly, or monthly market trend. Just as no one rings a bell at a market top, no one rings a bell when a bear market ends. Successful long-term investing means adhering to a well-established and disciplined strategy that has consistently proven to be the most profitable path.

For much of the public media, the focus is only on a short-term time frame. It’s the day-to-day emotion that fuels interest in following a story, and often, that narrative is generated by what sells news. But the real money is made by getting the longer-term trends of the stock market correct.

Where are we now?

I, and most market technicians, believe the current secular bull market began in March of 2009. That’s when the major indices bottomed, and the charts show that. There will be pullbacks and declines in secular bull markets, as we saw in 2022, but they are for rebalancing. And now the technical are showing improvement.

Mark on the Charts

The S&P 500 has finally broken the resistance that I have been showing for the past several months. So, we can ask, is this a breakout with markets going higher?  Well, the risk-reward has certainly improved. As a market technician, I follow that which matters most – price! And as I opined earlier in this newsletter, the longer-term trend shows we are in a secular bull market. However, there is still a cacophony of voices saying to tread carefully for the shorter term.

The Value Line Geometric Index, a much broader index of around 1,700 stocks, where each stock is given an equal weight of the index, is beginning to look better, too.

Cybersecurity - Goodbye to Passwords?

For years, security experts have warned about the dangers of our reliance on passwords. We know that the majority of individuals are not following password best practices for every account they create leaving them vulnerable to hackers. But how can we protect ourselves online without passwords?

Google has taken a step in accelerating a “passwordless future” with the introduction of passkeys across the Google suite of products.

What is a passkey?

An alternative to the traditional password, a passkey allows you to sign into an app or site as you would unlock your mobile device, with biometric data or a special PIN. Passkeys are stored locally on your device and are more secure than other options such as one-time text codes.

How does a passkey work?

When you begin to sign in to an account with a passkey, you will enter your username. Then you will be asked to either provide your fingerprint, biometric scan, or PIN. Once that is supplied, you will have access to your account.

You will still be able to access your accounts from multiple devices—you will create a passkey for each device. If you need to sign in from a public location, you can create a one-time passkey from your phone to sign into the device.

Scammers on the Rise - So Beware!

A year ago, Eden and Mark (last name withheld) lost their life savings to a scammer.

“We lost all the money we made in our business. All of the monies we saved together for 38 years we’ve been married, and it was all taken from us,” Eden told California news broadcasters.

It’s heartbreaking and frightening, but what happened? Eden received a pop-up notice on her PC about a virus and was told to call “Microsoft.” When she called the number, she was told that there was a “terrible problem” on her computer.

The man on the phone, who was not associated with Microsoft, told her the problem was connected to identity theft, and that she needed to transfer her money to safe government accounts in Hong Kong.

With the assistance of other scammers, she complied, making five wire transfers to the criminals to the tune of $564,000.

Critiquing situations after they have occurred can be tempting, but scammers have a talent for appearing genuine, trustworthy and convincing. They may make you feel like they genuinely care about your well-being.

Be on guard!

There is no shortage of tricks that scammers will use to deceive the elderly. Some will use deceitful emails and texts that encourage you to redirect to their fraudulent websites. Others may impersonate loved ones, requesting financial assistance.

These fraudulent activities are becoming increasingly sophisticated and diverse. But the results are often the same. People get bilked out of their savings.

According to the latest data, total losses reported to the FBI’s Internet Crime Complaint Center (IC3) increased a whopping 84% in 2022 to $3.1 billion.

This may be just the tip of the iceberg. Some may be unaware of the scam, and others may be too ashamed to report the theft.

Tech and customer support schemes continued to be the most common type of fraud reported, while monetary losses due to investment fraud jumped 300%, largely due to the rising trend of crypto investment scams.

For example, tech and customer support scammers, which primarily originate in South Asia, take advantage of their victims’ unfamiliarity with technology and online banking to quickly take as much money as possible.

Some may be as simple as a call from “tech support” informing you that your computer has a virus.

You don’t. This is a scam. No one will call you to inform you of an infected PC.

They will claim to remove it for a fee, but they will also snoop around for relevant financial information, and you may unwittingly download malware that helps them track your every move.

Or, a pop-up message or blank screen on a computer tells the victim their device is damaged and needs fixing. A phone number to reach ‘tech support’ (actually the scammer) is provided—this is what happened to Eden in the opening story.

Remember this: tech support won’t call you to tell you there are issues with your computer. If you get such a call, hang up. Ignore pop-up numbers. Just turn off your PC and turn it back on.

A small dose of prevention goes a long way!

It’s a difficult reality, but as we age, our cognitive abilities may decline, making ourselves or our loved ones more susceptible to fraudulent activities.

But there are steps we can take to fight back.

1. Designate a trusted contact.  This person has no authority over your accounts but is someone your financial institution may contact to discuss issues if they suspect something is awry.
   
   
2. Be leery of unknown phone numbers.  Signing up for the National Do Not Call Registry will reduce telemarking calls, but this does nothing to stop scammers. If you don’t recognize the number, be leery about who may be on the other line.  
   
   For example, why are you receiving a call from a toll-free number? Let it go to voicemail. Many are robocalls and don’t leave a message.
   
   Did the call come from a recognized firm you conduct business with? It may or may not be legitimate. It’s OK to call the company back using a phone number that you know is legit.


3. Freeze your credit report with the three major credit rating agencies at no cost. 
   This helps prevent accounts from being opened in your name without your knowledge. When the need arises, you may temporarily remove the freeze.
   
   

   Here are the three major credit agencies and a quick and easy way to contact them to freeze your credit report.

   • Equifax: Credit Freeze
   • Experian: Credit Freeze
   • TransUnion: Credit Freeze

   Mark's Timely Tax Tidbits

We’ve hit the midpoint for 2023. As a reminder, the SECURE ACT 2.0, passed at the end of last year, had over 90 changes. Many begin after 2023, however, here are a few important changes for 2023:
• Upping the age for required minimum distributions (RMDs) from 72 to 73.
• 401(k) maximum contribution now $22,500 ($30,000 if you are 50 or older).
• Cap for traditional and Roth IRAs increased to $6,500 ($7,500 for 50 and older.)
• Income ceilings on Roth IRA now $218,000 to $228,000 adjusted gross income (AGI) for couples, $138,000 to $153,000 AGI for singles.
• Deduction phaseouts for traditional IRAs now start at $116,000 to $136,000 AGI for couples, $73,000 to $83,000 AGI for singles. If only one spouse is covered by a retirement plan the phaseout for deduction for the uncovered spouse starts at $218,000 AGI and ends at $228,000.
• The lifetime estate and gift tax exemption for 2023 jumps to $12,920,000.
  
  

TD Ameritrade & Schwab: Account Transition

As you likely know now, Charles Schwab and TD Ameritrade are coming together. It’s something that I’m pleased to see - the best-of-class features of both companies combined.

The merger/conversion is still expected to take place over the Labor Day weekend. Not much will change for you and expect to soon begin receiving account letters providing details about the transition.

We remain your trusted advisor to help and answer any questions you have along the way. 

I hope you’ve found this review to be educational and helpful.

"For I know the plans I have for you," declares the Lord, "plans to prosper you and not to harm you, plans to give you hope and a future." 

Jeremiah 29:11

Financial Cornerstones is a Registered Investment Adviser. This newsletter is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Financial Cornerstones and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Financial Cornerstones unless a client service agreement is in place.

This commentary in this newsletter reflects the personal opinions, viewpoints and analyses of the Financial Cornerstones employees providing such comments and should not be regarded as a description of advisory services provided by Financial Cornerstones or performance returns of any Financial Cornerstones Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Cornerstones manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results