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That Time of Year…

It’s the most wonderful time of the year, when investors snub research and data in favor of taking recommendations, while sipping spiced eggnog, at office holiday parties and family gatherings. As November closes out with a year-to-date gain in the S&P 500 of 25.14%, readers can expect this holiday season to be filled with recessionary predictions and apocalyptic market scenarios. In preparation, this month’s issue of The Samra Report focuses on the most relevant issues in December. The financial markets are as polarized as the U.S. political system, with the S&P Technology sector returning 41.78% YTD in comparison to the Energy sector returning 1.72% during the same time frame. Taking a deeper dive into the numbers, the heaviest weighted stock in the Tech Sector is Apple, with a year-to-date return of 69.42% in comparison to Chesapeake Energy losing 71.43%. With 21 trading days remaining in the year, at Samra Wealth Management we believe there is heightened probability for a pull-back, a correction of 5% to 10% between December 12th to March 4th, as investors consider reallocating their portfolios moving some of their gains off the table. In a polarized market, as described above, tax loss harvesting prior to year-end could send investors into a selling frenzy, dependent on a Stage-1 China deal, and outcome of the British General Election. No correction in December could lead to a heightened sell-off for Super Tuesday as U.S. voters head to primary polls. In our November issue of The Samra Report: Winter is coming, we reaffirmed our risk-on consensus through year-end, however, our tax-loss harvesting strategies went into effect November 27th, reducing exposure to equities by 15% to 35% in client portfolios. We are shifting our investment philosophy heading into the new year, with increased allocations away from the strategy side of client portfolios, to positions more tactical in nature, specifically quality dividend paying value stocks. Although Growth has beaten out Value over the past decade, increasing allocations towards strong dividend paying companies, we expect this strategy to allow portfolios to grow through compounding, while reducing risk exposure to growth companies in the event of a correction, or economic downturn. As the United States and China move closer to a Stage 1 deal, markets are seeing the markets move more on headlines than economic and fundamental data. Investors should be cautious that a Stage-1 deal is exactly that, one part of a complex negotiation. In a Bloomberg TV interview, Savita Subramanian of Bank of America Merrill Lynch shared her views, that “the trade war would not be quickly resolved and will morph into a tech/national security war.” Furthermore, “looking at the dividend yield of the S&P 500, it is higher than the 10YR treasury” which rarely happens. Historically, in such scenarios “94% of the time stocks outperform bonds”, suggesting equities are the best place for investors to be. Should Washington and Beijing be unable to come together and strike a trade deal prior to the end of the year, nervous investors could find themselves moving into cash, fixed-income and commodities. Although gold could become a tactical play, investors should move funds towards ultra-short duration fixed-income as an alternative. With extremely low volatility, and a year-to-date return of over 2%, we prefer ultra-short duration as a hedge against inflation over gold, given recent volatility in the commodities space. In the United States, we continue to favor a sector rotational investment strategy, favoring Technology, Healthcare, Industrials and Financials, with exposure to select areas of Consumer Discretionary/Staples. With regards to tactical investing, given the current investment landscape, we are recommending our clients allocate a larger portion of their strategy towards short-term tactical, with a flight towards quality dividend paying companies. On a global level, we are staying away from sector ETF’s and looking directly at listed companies, we believe may out-perform their peers. In the alternative space, specifically real estate, we believe diversifying broadly over the real estate sector carries unnecessary risks. Alternatively, we recommend investors looking towards real estate look toward 2 specific areas:

  1. Pooled rental real estate in secondary and tertiary areas of the United States, following social migration trends.

  2. Pooled net lease corporate real estate, staying away from retail.

Disclosure: All views/opinions expressed herein are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All economic and performance data is historical and not indicative of future results. The information contained here does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities. Before investing or using any strategy, individuals should consult with their tax, legal, or financial advisor. Investing involves risk including loss of principal. *Amended December 5th, 2019. References (2019). Bloomberg Market: Stocks. [online] Available at: [Accessed 1 Dec. 2019]. (2019). Sectors & Industries Overview - U.S. Sectors- Fidelity. [online] Available at: [Accessed 1 Dec. 2019]. Mason, J. and Lawder, D. (2019). U.S. outlines 'Phase 1' trade deal with China, suspends October tariff hike. [online] Available at: [Accessed 28 Nov. 2019]. (2019). MSCI ACWI Index - MSCI. [online] Available at: [Accessed 1 Dec. 2019]. Nazareth, R. and Hajric, V. (2019). Stocks Advance on Fresh Hopes for U.S.-China Deal: Markets Wrap. [online] Available at: [Accessed 4 Dec. 2019]. (2019). TMUBMUSD10Y | U.S. 10 Year Treasury Note Price & News - WSJ. [online] Available at: [Accessed 1 Dec. 2019]. Samra, I. (2019). When To Take Your Gains Off The Table. [online] Available at: [Accessed 28 Nov. 2019]. Samra, I. (2019). Winter is Coming…. [online] Available at: [Accessed 28 Nov. 2019]. Woodard, J., Devery, J. and Harris, D. (2019). The RIC Report: The Irrelevant Election. [online] Merrill Lynch. Available at: [Accessed 16 Nov. 2019].

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