Written by Michael Forrester – Founder, President, and CIO of High Note Wealth
Happy Fri’YAY! It’s a cloudy and soggy April in Minnesota, but it’s the weekend of The Masters, so we can enjoy the sights of the green grass and stunning pink azaleas on the TV – a peaceful alternative.
This week saw new all-time highs in the stock market and interest rates remained tamped – the pattern continues. The rotation from sector-to-sector is still present which we like to see. As you may remember, we joked that the financial media would like you to believe that if you owned technology and didn’t own energy you were doing it all wrong. And since then? Well, energy is down about 10% and tech is up about 10%, so we must have gotten lucky. These things happen.
Just a couple of pieces for your consumption today as things are relatively tranquil. It is a good time to remind you that we are always open to any and all feedback regarding how we can make these notes more useful, informational, or enjoyable.
It might be fun to get a sense of readership by playing a game. There’s this trick authors do at times where they drop an innocuous statement in their writing to see if anyone catches it. An easter egg, if you will. As an example, we could state that the author will welcome a baby boy in September. That’s innocuous enough and completely out of context just hanging out in the middle of the note. Now we just leave it there and wait; all in fun.
Have a fantastic weekend. We hope to see all of you again very soon. All the best.
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VIX not VAX
The volatility index known as the VIX isn’t necessarily a favorite data point around here as its reliability is questionable. In theory, it represents the anticipated volatility in the stock market for the next 30 days. If it was reliable, we would be able to see the future and that would be cheating. What we do find useful is looking at longer term trends as a way to recap where we have been which helps form thoughts on where we might be going.
As the chart shows, the VIX has now done the roundtrip all the way back to levels seen before the pandemic. This makes sense as things have certainly calmed down with economic reopening, strong corporate earnings and improving employment numbers. While the breather is nice, volatility does provide opportunity for strong returns. At the current VIX level, it would be common for the market to tick slightly higher. For a larger up move to occur, we need some additional risk in the system. As the saying goes, “risk happens fast,” so what the VIX is indicating today could be very different tomorrow.
Let’s Fight About the Infrastructure Bill
President Biden has proposed a tiny little $2 trillion infrastructure bill with a proposed way to fund it (read: tax increases). Before we fight about the bill itself, we have to get in the weeds about this word: infrastructure. Traditionally, infrastructure has referred to buildings, roads, bridges, power supplies, etc. The common element being all things physical. In today’s political environment, we are now doing this fun thing where we take a word describing physical things and add an adjective which then turns it into non-physical things. For example, we now have social infrastructure, job infrastructure and educational infrastructure, which is a fancy way of saying money to support the people and services that may reside in the, well….actual infrastructure. With this in mind, looking at the breakdown of the $2T bill we find about half of it intended for physical things.
Besides the pure enjoyment of the political theater, the reason this bill topic is important is two-fold. First is the tax piece. Regardless of where the new money is intended to go, tax increases must be a part of it to make it work. Initial discussions include a corporate tax rate increase along with potential changes to the highest income bracket, estate taxes and capital gains. All are more or less in play with some being a little easier to sell than others. In addition to affecting our personal incomes, tax changes can have influence on the market, so we will be following this very closely. With all tax changes, there are things to do and not to do in financial planning, so we will have those ideas ready to go if or when we have actionable information.
The second piece is the impact on companies that may be involved in the building of the infrastructure. Often, government contracts for such services are difficult to sort through, but have the potential to be lucrative. So, there could be some industry-specific opportunity and a boost to the economy overall. It’s a lot to process, but we will sort through it all and keep you in the loop on what we are seeing. Regardless of government assistance, we know that there is a need for increased broadband coverage, cloud storage and all things data which is a theme we have woven into our current portfolios.
High Note Wealth LLC is registered as an investment adviser with the Securities and Exchange Commission (SEC). High Note Wealth LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.
