2019 MARKET REVIEW

The stock market reached all-time highs in 2019, with all major asset classes positive for the year. U.S. stocks continued to outperform international. The broad-based S&P 500 index was up 31.5%.

Bonds also had a very good year, up 8.72%, but most of that growth was through September.

Yes, gains in 2019 were big, but remember the almost 20% market drop at the end of 2018? The stock market finished 2019 up about 10% from the previous peak in September 2018. Much of the gain in 2019 was making up ground from the sell-off at the end of 2018.

MOST COMMONLY ASKED QUESTION LAST QUARTER

What will the market do in 2020?

The first quarter of a new year and a new decade brings questions about what the market has in store. We know the market will go up and the market will go down, sometimes on the same day. There will be short term volatility regarding the election, impeachment, trade wars, and potential military actions.

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There will always be short-term bumps and noise on the road of long-term investing.

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While this could cause some bumps in the road ahead, unemployment remains low, inflation remains under control, and wages are making modest increases. All of these bode well for stock prices.

2019 is a prime example of successful investing for investors that tuned out the noise of politics and warnings of the imminent end of the longest bull market in history. Ironically, a year ago everyone was talking about the possible looming recession. The concern now is that no one is talking about it. After more than a decade of economic growth, we will continue to keep our eye on underlying fundamentals and corporate earnings.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

www.plattwm.com

NEW BENCHMARKS ON QUARTERLY REPORTS

Effective with the enclosed statement for Q4 2019, we have enhanced our reporting with a blended benchmark to more accurately reflect the makeup of the underlying portfolio and to measure the portfolio’s performance. The previous benchmark used the S&P 500 for stocks and the Barclays Aggregate Bond Index for bonds. The new benchmark includes proxies for additional asset classes of mid cap, small cap, and international stocks, and for short term bonds.

Stock Benchmark

If your asset allocation target is 50% stocks and 50% bonds, your benchmark will be made up of:

30% S&P 500
6% Russell Mid Cap
5% Russell 2000
9% MSCI EAFE
35% Barclays Aggregate Bond
15% Barclays U.S. Government/Credit

What this means for your portfolio

There will typically be a small difference between the benchmark and our performance since we report our performance net of fees. The indexes do not have fees since investments cannot be made directly in an index.
If you wish to discuss the new benchmark, your portfolio allocation, or any other concerns, please call us. As always, we appreciate your trust and confidence.

Warmest regards,
Platt Wealth Management

INFLATION

The Consumer Price Index increased 5% through May of 2021 for the previous 12 months. This upsurge so startled investors that the Fed issued a statement stating the increase was “transitory.”

The Fed feels the increase in inflation will be short-lived. Last year the economy was at a standstill, forcing corporations to drop prices on their goods and services. With restrictions easing and “pent-up-demand,” supply is now outpaced by demand, resulting in higher costs. While the increase in inflation is expected to be transitory, the Fed has stated that they will allow inflation to run above 2% to make up for previous periods of low inflation.

ECONOMIC REOPENING

Some of the hardest-hit sectors during the pandemic were restaurants and domestic travel. In Q2 2020, seated diners dropped 100%, and travel declined 96%. Also, the unemployment rate in April of 2020 was 14.8%, the highest level since the Great Depression. With restrictions easing and the deployment of vaccines in full effect, the U.S economy is responding.

Restaurants and travel have exceeded, or are approaching, their pre-pandemic levels. Unemployment is at 5.9%, lower than the 50-year average of 6.3% and substantially lower.

than the levels experienced in Q2 of 2020. Labor demand is at the highest levels since 2000. Consumer confidence and small business owners’ confidence are on the rise, too. Graph by JP Morgan

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

www.plattwm.com

The FOMC had previously stated that rate hikes would not materialize until 2024. A recent survey of its members now suggests that rate hikes could occur as early as 2023. As the economy recovers, we should also watch for the Fed to taper their purchasing

INVESTMENT THEMES

We believe the economic environment does not warrant an increase in fixed income maturities and durations. The additional yield on longer-term fixed income securities is not worth the risk at present. We continue to allocate fixed income portfolios to high-quality short and intermediate-term bond funds and individual issues.

For the past 10-years, growth stocks have outperformed their value counterparts. A reversal in this trend occurred in the 1st quarter of 2021, as value outperformed growth. In the second quarter of 2021, growth again was the leader with the Russell 1000 Growth posting returns of 11.93% compared to the Russell 1000 Value with returns of 5.21%. Relative valuation between the two asset classes suggests that value stocks are “cheaper” compared with growth. We continue to balance these two asset classes within our portfolios to offer you further diversification.

YOUR PORTFOLIO AND YOUR GOALS

Your goals, dreams, and aspirations are our priorities. We look forward to meeting with you to discuss any changes to your financial situation. We are here to serve as your partner throughout your financial journey.

Warmest regards,
Platt Wealth Management

SECOND-HALF PROGNOSIS

What will be the shape of the economic recovery?

Will it be an initial such as U, V, or W? Or might it be a symbol such as the Nike swoosh or a square root or a reverse square root? Multiple factors will be determinative:

Unemployment – how high can it get and for how long?

• Consumer spending – when do the pocketbooks re-open?
• Corporate profits – dependent on consumer spending.
• State & local budgets – revenues to decline, but by how much and for how long?

THE BEARS

Lockdowns are re-implemented due to increased virus cases, stifling any chance for economic growth. Second waves occur in areas that re-opened too soon and in areas were social distancing was not practiced and the need for masks was not deemed essential. Schools, both primary and secondary, will be forced to close after attempting to open in late summer and early fall, as do most colleges and universities.

Small businesses are not able to re-open and permanently close. Stocks may or may not test their March lows, but they may decrease by 20% to 25% from their mid-year rebound.

THE MODERATES

We adapt to this “new normal.” The new normal is multiple and ever-changing new normals. Restrictions necessitated by the virus constrains economic growth. However, an accommodative Fed and government stimulus packages allow for some growth. The government extends unemployment benefits set to expire at the end of July.

The markets remain choppy as different sectors and companies respond and while most are hurt, some temporarily and some permanently, others adapt and benefit by the then current “new normal.” A vaccine appears on the horizon, if not yet developed. New therapy treatments improve the outlook for many who suffer from the virus.

THE BULLS

Herd immunity against COVID-19 slows the spread. A vaccine is discovered and
becomes available by the end of the year or the first half of 2021. Unemployment
numbers fall and consumer spending improves and corporate profits rebound. The
new normal becomes a memory and the old normal returns.

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We believe the moderates win out, but hope for the bulls’ scenario to come to fruition,
while allowing for the possibility that the bears are right.

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The Fed maintains interest rates at or near zero, allowing companies to borrow at
attractive rates to weather the economic storm. The unprecedented purchase of fixed income securities by the Fed backstops a panic in the credit markets.

We are here for you.

If you wish to discuss your portfolio or any other financial matters, please contact us. We can also discuss tax and planning opportunities like Roth conversions and refinancing debt that may be attractive now.

We can schedule a phone call or a virtual meeting via GoToMeeting that many of you have already discovered how easy it is to use. Knowing that you are still
on track to reach your goals can give you peace of mind.

Warmest regards,
Platt Wealth Management

THE MARKET

The 3rd quarter continued a remarkable turnaround for the stock market. The S&P 500 and Nasdaq Composite indexes reached record highs in Q3, up 8.5% and 11%, respectively. The Nasdaq has now risen 45% over the past six months, its largest two-quarter gain since 2000. The Dow Jones Industrial Average trailed the other indexes but was still up a respectable 7.6% in Q3.

Year-to-date the S&P 500 is up 4.1%, and the Dow is down 2.4%. This year’s darlings, the FANGs (Facebook, Apple, Netflix, and Google), have driven the Nasdaq up 24%. Yet days after reaching its all-time high, the Nasdaq fell into correction territory dropping more than 10% in only three days.

This just meant large value did not lose as much as large growth. The Russell 1000 Value Index was down 2.6% while the Russell 1000 Growth Index fell 4.8%. For 2020 that same Growth Index was up 23% and the Value Index fell 13%. However, this chart “ Value vs. Growth Relative Valuations” suggests that Value is cheap and Growth is expensive. Graph: J.P. Morgan

THE FED

The Federal Open Market Committee (FOMC) approved a change in how it sets interest rates assuring a prolonged period of low rates. The Fed will now allow inflation to run above 2% to adjust for previous periods of low inflation. The current fed funds target rate is 0.00%-0.25% and anticipated to be maintained for the rest of the year and throughout 2021.

Our Contact Information

3838 Camino del Rio North
Suite 365
San Diego, CA 92108
619.255.9554

info@plattwm.com

www.plattwm.com

Consumer spending has increased, albeit from the dreadful levels of March. One bright spot is the housing market as mortgage rates are at or near all-time lows. Home sales rose 10.5% year-to-year in August, with new home sales rising at a blistering pace 43% year-to-year. Yet, the services and manufacturing PMIs suggest a slowing recovery for most other sectors of the economy.

YOUR PORTFOLIO AND YOUR GOALS

We look forward to meeting with you and taking the time to make sure you’re on-track to achieve your goals. We also want to know if anything has changed recently that could impact your financial future. It’s always a good idea to revisit your asset allocation to make sure you are invested in a portfolio that is right for you. The right asset allocation enables you to stay the course when challenging market environments occur. Let’s also review any short-term cash needs to help maintain the discipline needed for long-term investment success.

Warmest regards,
Platt Wealth Management