From left: Chris Cook, Brandon Grimm and Megan Rosenstiel with Gilbert & Cook.
Writer: Steve Dinnen
Money in the market from mid-2020 to now has bounced back sharply from what Chris Cook called the “COVID crater,” the first-quarter 2020 financial meltdown that accompanied the shock of the pandemic shutdown.
Now comes the harder part: finding winners in a field of investments where everybody already got a blue ribbon. The folks at Gilbert & Cook, wealth managers in West Des Moines, didn’t have any specific stocks to pick but did note in their midyear review of economic conditions that opportunity awaits investors.
“The S&P 490 is just starting to wake up, and we actually see good value beyond that,” said Chris Cook, chief investment strategist. But is this new, something beyond the S&P 500 index of companies?
Actually, it’s something Cook crafted, a subset of the S&P 500. There are the top 10 members of the S&P 500 – such as Apple, Amazon, Google and Facebook – which account for 30% of its valuation. And then there are the other 490 stocks left for the remainder of the index. They have not rebounded from the pandemic as quickly as have the top 10. Case in point: The S&P 10 sport a price-to-earnings ratio of 30, while the S&P 490 carry a PE of 18.9. Clearly, there’s catching to do.
Of course, there are no sure bets. But there is a very good chance of volatility and a pullback that could trim some enthusiasm. Since 1980, the market has had pullbacks of an average of 14% every year. So far this year its heaviest retraction has been 4%.
Brandon Grimm, Gilbert & Cook portfolio manager, said fundamentals of the market appear to be strong enough to keep investors out of trouble. But now that the market rise has eased up, he said investors should use this time to review their portfolio and de-leverage perceived risk.
Also at play midyear are President Joe Biden’s tax tweaks that are part of his recently unveiled American Families Plan. These are mere proposals at this moment, but Megan Rosenstiel, adviser at Gilbert & Cook, said that if they come to pass they would drop capital gain tax rates in favor of a higher ordinary income rate of as much as 39.6% for high-income individuals. And of course, investors are still working through the impact of late 2019 legislation upon inherited IRAs (called stretch IRAs when they are continued upon the death of the original account holder).
As ever, then, there is much to think about money-wise as we move to the second half of the year. But do enjoy the summer. Find a good beach book.