Happy Spring, Clients and Friends!
We hope this finds you and your family well as spring does it’s best to push forward, despite a string of persistent winter storms. The market has been dealing with some stormy weather of its own, with February posting a 2.3% decline in the S&P 500 Index and the recent news that the California bank subsidiary of SVB Financial Group (SIVB) fell into FDIC receivership on Friday, March 10th. The following Sunday, regulators also closed Signature Bank (SBNY), an FDIC-insured New York state commercial bank with total assets of $110 billion.
SVB is the largest FDIC-Insured institution to fail since 2020 and the largest by assets since Washington Mutual failed in 2008. Many market participants are focusing on SVB’s losses in its securities portfolio as a key cause for its demise and many market participants are also tying the bank’s failure to the Fed’s rising rate policies. We believe Fed policies were only partially to blame as SVB’s niche customer base in technology, and lack of earnings and asset diversification also contributed to the banks failure. At this time, we do not believe the SVB and SBNY bank failures are a deeper sign of things to come. Keep in mind, 72 FDIC insured banks have failed over the last 10 years. However, we are paying close attention to ongoing developments in the banking sector.
While, historically, March has been a pretty strong month for stocks, in recent years, seasonality trends have seen weaker average returns, before bouncing back with a stronger April. Our Market & Economic Update takes a deeper look at what clues seasonality data may give us for stock market performance in the coming months along with our thoughts on the recent bank closures and what this may mean for the markets, economy and investors.
We have a lot of other exciting things to talk about in this issue of Frank Talk, as well. Earlier this year Frank had an opportunity to participate in Seth Greene’s RIA Podcast where he talked about what it takes to build and grow a successful registered investment advisor business in today’s competitive marketplace and how our team approach and broad menu of services differentiates us among wealth management firms for the benefit of our clients. We’ve included the link to the podcast in our News & Events section, so please take a minute to watch or listen. Frank was also featured in the March issue of Smart Business where he talked about how a family constitution can help protect wealth across generations. You can find a link to that article under News & Events, as well as information about several live and virtual events planned for this year and new tools and resources available to download from our website to help you pursue the Return on Life® you desire for your family and business.
In the coming months, we will continue to proactively communicate information about the markets and economy, as well as information and education on topics such as charitable giving, estate planning, retirement income and preparing your business for a sale, through our blog, newsletter, social media channels, email communications, articles, seminars and webinars. If there are topics you would like to see us address through these or other communication channels, please don’t hesitate to contact us with your thoughts and suggestions.
As always, we encourage you to reach out to your dedicated team whenever you have questions or when circumstances in your life change. If you need additional help or someone you know needs our advice, remember, we’re only a phone call away at 440.740.0130.
What’s In It for You?
At-a-glance guide to your 4th Quarter 2022 Frank Talk newsletter:
- News & Events
- Awards & Recognition
- Frank Fantozzi Honored as an LPL Top Advisor
- Frank Fantozzi Featured on RIA Podcast
- Frank Fantozzi Featured in March issue of Smart Business magazine
- Business Continuity Planning Webinar
- 15th Annual Cleveland Economic Summit
- Awards & Recognition
- 2023 Tax Planning Guides
- Complimentary Second Opinion Service
- Visit Our Getting Frank Blog and Join Us on Social Media
- Market & Economic Update
News & Events
Frank Fantozzi Named Among LPL’s Top Financial Advisors
In February, Frank Fantozzi, CPA, MST, PFS, CDFA, AIF®, CEPA, announces his inclusion in LPL Financial’s Executive Council, LPL’s top advisory level. This elite award is presented to less than .5% of the firm’s more than 21,000 financial advisors nationwide. Achievement is based on annual production among LPL Advisors only.
Frank Featured on The RIA Podcast, hosted by Seth Greene
Frank was recently interviewed by Seth Greene, host of the Registered Investment Advisor (RIA) Podcast. The RIA Podcast features RIA industry executives, top producers and influencers on how they have built successful businesses, tips on business growth and development, and trends in the wealth management industry. Frank spoke about:
- What differentiates Planned Financial Services from other RIAs
- Why Frank believes an approach that focuses on life well-lived benefits clients and their families
- What drove Frank’s passion to develop a full suite of services to help simplify the complex needs of business owners and high-net-worth families
- Why he believes a team of advisors with experience across multiple financial disciplines is critical to help clients pursue their individually-defined Return on Life®
You can listen to or watch the podcast on our YouTube channel by clicking this link: Frank Fantozzi Featured on The RIA Podcast, hosted by Seth Greene
Smart Business Features Frank Fantozzi on Making Family Wealth Last
Smart Business magazine interviewed Frank on how creating a family constitution can help prevent conflicts that can tear families apart and diminish fortunes. Read or download the March 2023 article to learn how this flexible approach may help you better protect multigenerational wealth and encourage family harmony. Click here to read the March 2023 Smart Business article: How a family constitution can help protect wealth across generations.
Save these dates and plan to join us for:
Business Continuity Planning Webinar – May 17, 2023
This virtual event hosted by Frank Fantozzi will take place via Zoom on May 17th from 11:00 am – 11:45 pm. Frank will speak about the importance of continuity planning for business owners and their families. Watch for more information including an email invitation with registration instructions. Feel free to share the event details with other business owners you feel could benefit from attending the live webinar.
15th Annual Cleveland Economic Summit – September 21, 2023
We look forward to welcoming you and your guest(s) to our 15th Annual Cleveland Economic Summit on September 21st at the Cleveland Botanical Garden/Woodland Hall from 4:00 – 6:30 pm. Watch for a “Save the Date” email reminder in the coming weeks with more details about the event and venue.
Stay tuned for information on these upcoming events…
Watch for news and information in the months ahead about additional events we will host and/or sponsor in 2023, including:
- Smart Business - Cleveland Dealmakers Conference (June)
- Smart Business - Smart Women Breakfast & Awards(July)
- Understanding Medicare webinar (August)
- Smart Business - Family Business Conference & Awards (September)
- Market Noise Live! webinar (November)
Prepare for the Year Ahead with Our Complimentary Tax Planning Guides
- The Planned Financial Services 2022-2023 Tax Planning Guide is your comprehensive guide to key tax provisions and deadlines that can help you reap the full benefits of collaboration with your qualified tax advisor. View or download your PFS 2022-2023 Tax Planning Guide now.
- Our at-a-glance guide to your 2023 Federal Tax Rates makes it easy to quickly find the information you need from federal income tax brackets and rates to capital gains and qualified dividend rates, contribution limits for retirement plans, annual gift and estate tax exclusion amounts, and more. Feel free to download it, print it out or save it to your device to access throughout the year. View or download your complimentary 2023 Federal Tax Rates guide now!
Our Complimentary Second Opinion Service Was Designed for Your Family Members, Friends and Business Associates
Our complimentary Second Opinion Service continues to be well-received among the friends, family members and colleagues of our clients and business associates. This valuable service provides the people you care about with an opportunity to benefit from the same expertise and guidance that you have come to expect as a valued client of Planned Financial Services.
In many cases, a second opinion will simply provide confirmation, and the confidence that those you care about are on track to fulfill their values and achieve their goals with their current financial provider or strategy. However, if needed, we are happy to suggest ways in which we can help, including recommending another provider if we are not a good fit for their needs. Either way, following a Discovery Meeting and Investment Plan Meeting with our experienced team, they will receive a Total Client Profile and a Personalized Financial Assessment of their current situation.
Don’t Miss Out on the Topics that Are Important to You: Visit Our Getting Frank Blog
Get a jumpstart on the new year with timely information on the financial planning, business growth and investment topics that are meaningful to you. Visit our Getting Frank Blog at PlannedFinancial.com. We post new articles and opinions weekly, so be sure to visit often. You can also read the latest blog articles by connecting with Frank personally on social media at LinkedIn, Twitter and Facebook.
Market & Economic Update
What Can March Seasonals Tell Us About the Outlook for Stocks?**
As mentioned in my opening remarks, March has historically been a pretty strong month for stocks. In recent years, seasonality trends have seen weaker average returns, before bouncing back with a stronger April. Based on seasonals, it was perhaps no surprise that stocks struggled in February. Looking at average returns by month, dating back to 1950, February is one of only two months (along with September) to post average declines. Over the most recent history of the last 5 and 10 years, February has posted the worst or second worst monthly returns, and the two-month period of January to February has been the worst such period over the past 10 and 20 years.
Historically, March has been a strong month for average returns, in the top four or five months, but in the past 5 years it has slipped to be the third worst. In fact, the February to March period has been the worst two-month period over the past 5 years.
More encouraging is the March to April two-month period that has been the second strongest (behind only November to December) over all periods dating back to 1950, and over the past 20 years it has been the strongest two-month period. Over more recent periods the weaker March returns have been a drag before a strong April. April has consistently been the second or third strongest month over all the time periods studied. In recent years, May and June have historically been weaker months prior to a blockbuster July.
Taking a look at this from a slightly different angle, March has been the fourth strongest month as measured by the percentage of positive S&P 500 Index monthly returns (going back to 1950). Although this data has been weakening in recent years, a solid 60% of March monthly returns have been positive over the past 5, 10 and 20-year periods. April is the second-best month since 1950, as measured by this statistic, and has been strengthening in recent years. Last April’s negative return (-10.8%) was the first negative April in 10 years and only the second in the prior 17 years.
As we highlighted prior to the midterm election last year, a favorable historic longer-term trend for stocks is looking at returns a year after the midterm election. Since 1950, stocks have had a positive return one year after the midterm election every single time, with an impressive average of almost 15%. So far, since the midterm election, stocks returns are positive, just by 0.5%, but there is still a long way to go to November.
Another positive sign from the current stage of the presidential cycle is that we have moved into the stage where historic trends have been a tailwind for stocks. Under new presidents, markets historically struggled in the second year coming into the midterms, as they did last year, before seeing strong returns in the second half of the presidential cycle. In data going back to 1950, year three of a new president’s term has seen the best annual returns of the periods studied—posting an average gain of over 20%.
The immediate seasonal picture for March is mixed, but longer-term data around the stage of the presidential cycle is more positive, as are the strong returns that April often brings. We maintain a positive but cautious view on equities, as markets could remain volatile as the Federal Reserve tries to break the back of inflation without a deep and/or prolonged recession. Such a recession is not our base case, and we see a return to a lower volatility environment as likely, but investors will probably have to wait until later this year for clarity on the ultimate destination of interest rates. Meanwhile, prolonged debt-ceiling debates may cause flare-ups in volatility.
Bank Failures Raise Concerns
In the meantime, financial markets were shaken as Silicon Valley Bank (SVB), the California bank subsidiary of SVB Financial Group (SIVB), fell into FDIC receivership. SVB is the first FDIC-insured institution to fail since 2020 and the largest by assets since Washington Mutual failed in 2008. Prior to the latest distress, the bank held more than $200 billion in assets. SVB’s failure was then followed by another, crypto-focused Signature Bank. The news, not surprisingly, caused market participants to speculate if there will be another shoe to drop. For some, these developments have brought back painful memories of the financial crisis 15 years ago.
Before explaining what happened, let’s start with the most recent headlines. On the evening of March 12th. we got word that the U.S. government would step in to prevent contagion by offering SVB customers access to their uninsured deposits. And by designating SVB as a systemic risk to the banking system, the Federal Reserve (Fed) and U.S. Treasury Department are able to use emergency lending authority to help prevent runs on other banks (by making it easier to borrow against depreciating securities without suffering the balance sheet damage SVB experienced). The top priority in this situation was to prevent runs on other banks, particularly the many small and mid-sized banks not under the watchful eye of the Fed and not subject to sophisticated stress tests. The Fed Board of Governors also held a special meeting on March 13th.
Now to the 2008 comparison. Back then, the problem was far-reaching credit risk—junky mortgages on virtually every financial institution’s balance sheet (and the balance sheets of many non-financial institutions). Credit risk is not the problem this time, it is interest rate risk. Rising interest rates caused the value of the bonds on SVB’s balance sheet to lose value. Once those securities were marked to market, as is prescribed by accounting rules, SVB was no longer capitalized as well as it needed to be, prompting the FDIC to place the bank in receivership
However, that wasn’t the whole story. SVB’s niche customer base was another big problem. Its emphasis on early-stage venture capital customers meant its deposit base was more concentrated and less sticky. Many of those start-up companies burned through a lot of cash recently, while funding options such as initial public offerings dried up.
One other unique element of this story is SVB’s mismanagement of its balance sheet. Its heavy exposure to interest rate sensitive Treasury and other government securities, with insufficient interest rate hedging activities, left the bank particularly vulnerable to a run. Once the bank was known to be facing solvency issues, word traveled fast through the venture capital community and the deposits fled as fast as these entrepreneurs could log into their online accounts.
With the federal backstop now in place and few, if any, other large banks facing similar interest rate risk, any further spillover should be limited. One potential silver lining is the Fed will likely slow its rate hiking campaign until confidence in banks is restored, though a quarter-point hike on March 22 still seems likely.
So, what should investors do? Some caution is warranted as sentiment around the banking system remains fragile. But we believe tactical investors should maintain multi-asset allocations at or near benchmark levels. And don’t lose sight of opportunities to potentially add risk after the SVB distress passes. Conditions will improve before long, in our view. For longer-term, strategic investors with well-balanced allocations, we would not make any changes at this point.
In closing, SIVB’s niche clientele and its balance sheet mismanagement were distinctive contributors of the bank’s downfall. Meanwhile, the government’s actions to backstop deposits and provide short-term funding to banks that need it, greatly reduce the odds of a systemic crisis. We may see a bit more market volatility than we would like to see in the short term, but this is not another 2008.
As these and other conditions evolve in the weeks and months ahead, you can rely on your PFS team to continue to monitor and adjust our portfolios and keep you up to date on market and economic developments. We understand the concerns that can accompany change and uncertainty and are confident in our approach to navigating through these challenging times.
We also want to remind you that you are always welcome to contact your dedicated team if you have questions or to schedule time to meet with us at our office. For those who prefer to meet virtually, we continue to use Zoom for virtual meetings, and are always available via phone. Just let us know how you prefer to meet, and we’ll make it happen!
We are always honored to help our clients’ friends and business associates take greater control of their future with guidance from the PFS team. We welcome and are grateful for the many introductions our clients continue to provide. If you, or someone you know, has questions or concerns about your personal investment strategy or business finances, please don’t hesitate to share information about our complimentary Second Opinion Service and reach out to us at 440.740.0130.
Real People. Real Answers.
Health, Happiness, and Good Fortune,
CPA, MST, PFS, CDFA, AIF®, CEPA
President & Founder
**A portion of this research material was provided by LPL Financial, LLC, March 2023. All information is believed to be from reliable sources; however, neither Planned Financial Services or LPL Financial make any representation as to its completeness or accuracy.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
For a list of descriptions of the indexes and economic terms referenced in this publication, please visit lplresearch.com/definitions.
All index and market data from FactSet and MarketWatch.
Unless otherwise stated Planned Financial Services and the third-party persons and firms mentioned are not affiliates of each other and make no representation with respect to each other. Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.
This information is not intended to be a substitute for individualized tax advice. We suggest that you discuss your specific issues with a qualified tax advisor.
Investment advice offered through Planned Financial Services, a Registered Investment Advisor.