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Month: August 2022

Bull over?

Bulls back in town? (Is it over yet?)

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

Is the bear market over?

Let’s discuss.

Good news first: inflation might be cooling off. Maybe.

The latest inflation data suggests we could be moving past the peak in some areas.

  • Gas prices are down1
  • Freight prices are down2
  • Overall measures of inflation are off their highs3

Great, right?

The data is certainly pointing in the right direction, but it’s too soon to celebrate.

Why? Well, it’s just not enough data yet to call it a sustained trend.

We’re also seeing signs that persistent inflation has led consumers to shift their spending.

That could make inflation improvements uneven AND result in some winners and losers across different sectors.4

Winners could be travel and auto companies benefiting from pent-up demand.

Losers could be homebuilders and luxury brands hit by higher interest rates and shifts in shopping trends.

Have you changed any of your habits because of inflation?

Are the bulls back in town?

Markets rallied for weeks on optimism about data and possibly FOMO – fear of missing out on the action.5

Can we trust a summer rally? Is the bear market over?

Probably not. There are a lot of hurdles ahead, including the Federal Reserve’s interest rate hikes and earnings results from companies affected by those consumer spending changes, and election season.

One big question still remains: can the Fed bring down inflation without a “hard landing” that tips the country into recession?

Opinions are mixed, unsurprisingly. Some analysts think there’s a narrow path to success.6

Others think the risk of a recession is very high and that investors are underestimating how far the Fed will go to lower inflation.

Be prepared for more bumps ahead.

In other news, what’s in the Inflation Reduction Act for you?

Before we dive into the guts of the new legislation, we have one caveat:

While new deals always garner big headlines, it’s very possible that court challenges, post-election shakeups, or future negotiations could change a lot of the details inside.

That said, here are a few things to keep an eye on:

The Act mainly addresses two big areas: green energy and Medicare.

On the green side, the bill includes a slew of incentives to boost adoption of things like solar panels and electric vehicles.

However, many of the incentives may not be immediately available, as many of the specifics need to be figured out. Want a full rundown of the tax credits and rebates? Here you go.

On the Medicare side, the bill includes some interesting prospects for retirees:7

  • Starting in 2023, insulin costs for Medicare enrollees will be capped and vaccine cost-sharing will be eliminated.
  • Medicare prescription drug plans could see benefit changes in 2024 and 2025 designed to lower costs.
  • Medicare managers could have the power to negotiate (some) drug prices starting in 2026. That could mean cost savings for retirees as well as potentially lower premiums.
  • If you purchase insurance through an Affordable Care Act marketplace, you could qualify for an expanded premium tax credit through 2025 to help lower monthly costs.8

As always, we’ll have to wait for the legislation to mature before we can fully understand its total impact.

Overall, there’s a lot going on as we head into the fall and election season. Let’s not be surprised at more volatility or even a bigger selloff ahead.

1 – https://www.foxbusiness.com/economy/gas-prices-dip-below-4-gallon-heres-why-still-could-bad-news-biden

2 – https://www.thetrucker.com/trucking-news/the-nation/trucking-freight-costs-us-wholesale-inflation-see-declines-for-first-time-in-2-years

3 – https://www.nbcnews.com/business/economy/july-inflation-numbers-consumer-prices-rose-85-year-year-summer-inflat-rcna42393

4 – https://www.investors.com/news/consumer-spending-us-economy-sputters-winners-losers/

5 – https://www.marketwatch.com/story/why-blackrock-says-the-stock-markets-big-summer-rally-isnt-worth-chasing-11660579176

6 – https://www.cnbc.com/2022/08/15/goldman-sees-a-feasible-but-difficult-path-for-the-fed-to-defeat-inflation-without-a-recession.html

7 – https://www.morningstar.com/articles/1109390/the-inflation-reduction-acts-impact-on-retirees

8 – https://www.kiplinger.com/taxes/605057/inflation-reduction-act-premium-tax-credit

Dow and S&P

Questions You Were Afraid to Ask #2

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

We recently started a new series of posts called “Questions You Were Afraid to Ask.”  Each month, we will look at a common question that many investors have but feel uncomfortable asking.  Because, after all, when it comes to your finances, there’s no such thing as a bad question!

In our first post, we looked at the difference between the Dow, S&P 500, and NASDAQ indices.  This month, let’s discuss a related question:

Questions You Were Afraid to Ask #2:
Why is the price of the Dow so much higher than the S&P 500?

Before we get started, do me a favor.  Pick up your phone or go to your computer.  Open your internet browser and search for “S&P 500.”  The first result will show the current price of the index.  Make a note of the number. 

Next, search for “Dow Jones.” 

Notice how much higher it is?  As in, tens of thousands of dollars higher. 

As you know from our last post, the Dow tracks the performance of 30 of the most prominent companies listed on stock exchanges in America.  (Think Apple, Coca Cola, and Walmart, among others.)  The S&P 500, meanwhile, measures 500 of the largest companies listed on American stock exchanges. 

This is why many investors often wonder why the Dow’s total price is so much higher than the S&P, even though the latter contains hundreds more companies.  The answer has to do with how these two indices are calculated. (Brace yourself, because we’re about to do some math.)

The Dow, for example, is calculated by taking the 30 stocks in the average, adding up their prices, and then dividing the total by the “Dow Divisor.”  Early in the Dow’s history, this divisor was simply the number of companies within the average.  Today, the divisor is adjusted regularly to factor in changes to the list of companies, stock splits, and other events that could have an impact on the overall average. 

As of this writing, the Dow Divisor is 0.15172752595384.1  In effect, calculating the Dow’s value essentially means multiplying the sum of each company’s price by roughly 6.5.  (Because the divisor is less than one means it technically functions as a multiplier.)  Every $1 change in price to a particular stock within the Dow equates to a movement of 6.59 points on the Dow.  (1 divided by 0.15172752595384.)  We know that probably seems counterintuitive, but hey, that’s math! 

This multiplication effect is partly why the Dow’s value is so much higher than the S&P 500’s.  You see, even though the S&P contains hundreds more companies, its overall price is lower because of how it’s weighted.  Now, take another deep breath before we plunge into the wild world of weighted vs. unweighted indices…and yes, do a little more math.    

In an unweighted index, every company has the same impact on the overall index, no matter its price or how many shares are available.  The price of the index is determined by simply adding up every company’s stock price, then dividing by the total number of companies in the index.  For example, imagine an unweighted index containing only three companies.  If Company A went up 15%, Company B went up 10%, and Company C went up 5%, the index itself would be up 10%.  (15+10+5=30, and 30 divided by 3 equals 10.) 

With us so far?

Most indices don’t work like this, however.  That’s because not all companies are equal.  Some are worth much more than others or have a much higher volume of shares available to buy or sell.  For that reason, a simple mean average is a pretty unnuanced way of looking at the overall index.  For this reason, most indices are weighted.  This means the average is calculated by putting more importance – or weight – on some numbers than others.  It’s a more accurate way of looking at data. 

The S&P is a capitalization-weighted index.  (The Dow, by contrast, is a much simpler price-weighted index.)  That means each company is weighted according to its market capitalization – the company’s share price multiplied by the number of shares available to buy or sell.  As you know, some companies are simply bigger than others.  Typically, this means they have more outstanding shares, which means a higher market capitalization and more weight within the S&P 500.  The result?  The price movement of these companies has a much bigger impact on the S&P than that of smaller companies. 

For these reasons, the divisor that the S&P 500 uses is much higher than for the Dow.  In fact, it’s currently higher than 8,000.2 And the equation the S&P uses is much more complex.  (I’ll spare you the algebra.)  This is all done to keep the value of the index down to a more manageable level, and to prevent the price movement of a few companies from having an even bigger impact on the overall index than they already do.  Hence, as of this writing, the Dow is currently over 35,000, while the S&P is around 4,675. 

Whew!  That was a lot of information to cover in one post, wasn’t it?  This has also been a much more technical post than we usually try to write.  But we hope it gave you a glimpse into the numbers you see reported every day in the news.  That way, when the media says, “The Dow finished at X today,” or, “The S&P 500 opened at Y”, you’ll have a better understanding of what that actually means.  Because, after all, that’s a big part of what life is all about, isn’t it?  Increasing our understanding of how the world works – and why. 

Next month, we’ll cover a simpler – but broader – topic: The difference between stocks, bonds, funds, and other types of investments.  Have a great month!      

Scammer

Scammers Want Your Money (help inside)

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

Scams got a big boost during the pandemic and we’ve been hearing about more folks (even very tech-savvy ones) getting caught up.

We wanted to reach out with some tips so you and your loved ones can stay safe.

We’d also like to ask for your help: Please forward this email to anyone you know who could use a refresher on the latest scams.

You might think your friends, family, and elders would be too smart to get caught, but the wider we spread awareness of the latest info, the better. Saving even one person would be worth it.

The goal of scams is to steal your money, steal your accounts, or steal your identity.

Here’s what you need to know:

Phishing emails and texts mimic legitimate communications to trick you into giving up account logins, credit card or bank details, or other sensitive data so scammers can use or sell them.

What do they look like? Scammers send you an email or text message asking you to verify your account or payment info, track a package, or unfreeze your account. Inside is a link to a (very convincing) fake website that steals your info.

Scammers might also send you a file attachment or document link to get you to click and install malware on your computer or phone.

Here’s how to avoid getting scammed:

  • Remember that legitimate institutions will never ask for sensitive information (like usernames, passwords, SSN, or bank details) by email or SMS.
  • Be suspicious if a message contains odd phrasing, grammatical mistakes, or typos.
  • Check the “from” information carefully to make sure messages are from a legitimate domain name or number that is actually associated with the company (e.g. bankemail@yourbank.com and not bankemail@bank23abc.com). Not sure? Call the company’s public phone number and check.
  • Don’t click on links or open attachments unless you fully recognize and trust the sender and are expecting the message. You can hover over a link to view the URL and make sure it’s sending you to a legitimate site.

Here’s a phishing email in action. Can you identify the red flags? (Answers in the P.S.)

How many did you see? Did you catch the fake number at the bottom? Sneaky!

Spoofing calls are another scam that’s on the rise. Scammers “spoof” the info on your caller ID to make it look like they’re calling from a legitimate organization.

What do they look like? Scammers may claim to be from your bank, the IRS, the Social Security Administration, or other organizations to trick you into sending money or giving up sensitive information.

They may claim you owe money or threaten you with the police if you don’t take action right away.

In other cases, they will impersonate a financial institution, claim your account is locked, and attempt to gain your account credentials to “unlock” it.

They might even call about an unexpected refund or windfall that you can only receive right now by handing over your personal information.

How to avoid getting scammed:

  • Be suspicious of calls from the IRS, SSA, or any financial institution. If you receive one, ask for a case or employee ID, hang up, and call them back on the official number on their website.
  • Never confirm information over the phone unless you have personally called the official number or are expecting a call.
  • Hang up immediately if the caller threatens you or pressures you to resolve an issue over the phone right now.

Want to report a scammer who targeted you? The FTC collects reports here.

Folks, stay safe out there.

Scams work by taking advantage of fear, greed, and the desire to do the right thing. If something seems “off” or “too good to be true,” take a break.

Never be afraid to contact a company through its official phone number or website to ask for clarification about a message or call. Better safe than sorry.

P.S. This is not a scam. 🙂

P.P.S. How many red flags did you spot in the phishing email?

  1. The sender info shows the email did not come from Netflix’s domain.
  2. The email client (Gmail in this case) flagged this email as suspicious.
  3. No salutation. Typically, an official email will include some portion of your name.
  4. Weird syntax.
  5. That’s not an official Netflix phone number.

P.P.P.S. Review our Cybersecurity information page on our website at: mmwealth.com/cybersecurity