When business owners decide it’s time to exit, whether through selling the company, merging with another entity, or transferring ownership, many of them focus primarily on maximizing the financial return.
However, a well-planned exit strategy goes beyond simply receiving the best price—it requires careful consideration of the tax implications. One of the most effective ways to ensure a tax-savvy exit is to conduct an early business valuation.
In this blog, we’ll explore why early valuation is so important in crafting a tax-efficient business exit plan and how business owners can benefit from it.
What Is Business Valuation?
Business valuation is the process of determining the worth of a company. This can be done through a variety of methods, including comparing the business to similar companies, analyzing earnings, assessing assets, or using more complex financial modeling techniques. A valuation helps business owners understand their company’s true value, providing the information needed to make informed decisions about selling, succession planning, or other exit strategies.
Early business valuation means conducting this process well before the planned exit. This timing gives the business owner the opportunity to address any issues that may arise and to make adjustments to enhance both the business’s value and tax efficiency. By engaging in early valuation, a business owner is better positioned to maximize their net proceeds and minimize the tax impact of the transaction.
The Tax Impact of Exiting a Business
Understanding the tax impact of exiting a business is essential for owners to secure a substantial net gain. The IRS and state tax agencies impose various taxes on business transactions, and these taxes can significantly reduce the amount an owner walks away with. For example, when selling a business, the owner may be subject to:
Capital Gains Tax: This tax applies to the profit made from selling an asset, such as a business. The rate varies depending on how long the business owner has held the company. For businesses held for more than a year, the long-term capital gains tax rate applies, which is generally lower than short-term rates.
Ordinary Income Tax: In some cases, parts of the sale may be taxed as ordinary income, depending on how the sale is structured. For instance, the sale of inventory, accounts receivable, and other current assets could result in ordinary income tax rates applying to the proceeds.
Self-Employment Taxes: If the business owner is also an employee of the company, they may owe self-employment taxes on a portion of their income during the exit process.
Beyond these federal taxes, business owners may face state and local taxes as well. Each state has different tax laws governing business sales, so understanding the regional tax environment is key to structuring an effective exit strategy.
How Early Valuation Helps with Tax Planning
By conducting a business valuation well in advance of an exit, business owners can take proactive steps to reduce their tax liability. Here’s how early valuation contributes to tax-savvy exit planning:
1. Identifying the Optimal Exit Timing
A business valuation conducted early allows owners to examine the current market conditions and the financial health of their company. They can assess whether it’s a good time to sell or if waiting for a few more years could yield a higher valuation and, therefore, better returns. Sometimes, business owners may find that their company is not as valuable as they initially thought, and they may choose to implement strategies to increase its value before an exit.
Additionally, a valuation helps owners better understand when they’ll hit certain tax thresholds. For example, if an owner’s business has grown significantly in value over a short period, they may want to consider selling sooner to benefit from long-term capital gains tax rates.
2. Identifying and Addressing Potential Tax Traps
Some parts of a business may have hidden tax implications that the owner may not immediately recognize. An early valuation can reveal potential areas that could be taxed at higher rates, such as depreciation recapture or ordinary income tax on the sale of certain assets. By identifying these areas ahead of time, a business owner can take steps to minimize these tax burdens by either restructuring the business, selling certain assets separately, or waiting until specific tax benefits apply.
For instance, an early valuation might uncover significant depreciation that could lead to depreciation recapture, a situation where the IRS taxes some of the sale proceeds at ordinary income tax rates. Addressing these issues early allows owners to plan their exit more efficiently, potentially delaying or mitigating the impact of this tax.
3. Structuring the Sale to Minimize Taxes
Once a business valuation has been completed, business owners and their advisors can work together to structure the sale in the most tax-efficient manner possible. For example, a tax-savvy business exit strategy might involve selling the business in a way that triggers long-term capital gains rather than ordinary income. It may also involve structuring the transaction as a stock sale or an asset sale, each of which has different tax consequences.
In some cases, a business owner may want to explore tax-deferral options, such as selling to an employee stock ownership plan (ESOP) or utilizing tax-advantaged methods like Section 1031 exchanges for certain types of real estate.
4. Preparing for the Estate Tax Impact
In addition to the immediate tax consequences of a business sale, there may also be estate tax implications to consider. If a business owner plans to pass on the business or its proceeds to heirs, early valuation helps to determine if their estate will be subject to estate taxes upon their death. An early valuation can help business owners establish a clear plan for transferring ownership or assets to heirs in a tax-efficient manner. This might involve gifting shares, setting up trusts, or utilizing other wealth transfer strategies.
By understanding the potential estate tax impact, business owners can better prepare for the future, minimizing the tax burden for their beneficiaries and ensuring a smooth transition.
Benefits of Early Valuation Beyond Taxes
While early valuation is critical for tax planning, it offers several other benefits that contribute to a successful business exit strategy.
Understanding Business Weaknesses: Early valuation helps business owners identify areas that need improvement, whether it’s the company’s financials, operations, or management team. By addressing these weaknesses early, owners can increase the business’s overall value.
Enhanced Negotiation Leverage: A comprehensive business valuation gives the owner a solid foundation for negotiating with potential buyers or investors. By having a clear understanding of the company’s value, business owners are in a better position to negotiate favorable terms that align with their financial goals.
Business Readiness: Early valuation serves as a checkup for the business, ensuring that everything is in place for a successful transition. It helps owners prepare for potential buyers by addressing legal, financial, and operational issues before putting the business on the market.
Final Notes
For business owners looking to exit their companies, early business valuation is an essential part of crafting a tax-savvy exit strategy. By conducting a valuation well before the sale, owners can understand their company’s worth, optimize the timing of the exit, and identify ways to minimize tax liability. They can also prepare for future estate taxes, increase the business’s value, and negotiate more favorable terms. With proper planning and expert guidance, an early valuation helps business owners make smarter decisions that lead to a successful and financially rewarding exit.
If you’re considering exiting your business, now is the time to get started on your business valuation. By working with experienced advisors, you can ensure that you’re prepared for both the financial and tax aspects of the process, maximizing your exit strategy and preserving your wealth for the future.
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https://centurawealth.com/wp-content/uploads/2025/02/Screenshot-2025-02-11-at-12.10.10 PM.png534803centurawealthhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngcenturawealth2025-02-11 20:11:442025-02-11 20:11:45The Importance of Early Valuation for a Tax-Savvy Business Exit
Macro Indicators: Headline and core PCE inflation increased 2.6% and 2.8%, respectively, in December 2024. The increases were in line with expectations but strengthen concerns that inflation will remain sticky. The December jobs report showed continued strength in the labor market, with jobs added exceeding expectations by over 100,000. The unemployment rate fell slightly from the prior month from 4.2% to 4.1%. After expanding 2.3% in 4Q, GDP grew 2.8% in 2024, signaling a relatively strong economy despite higher interest rates. Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.
Trump & Geopolitics: As of month-end, tariffs are expected to be levied on Mexico, Canada, and China, fueling the start of a potential trade war with uncertain impacts.
Fed & Monetary Policy: After cutting 100 bps between September and December 2024, the Fed held rates steady at their January Federal Open Markets Committee (FOMC) meeting, reiterating their “higher for longer” narrative and dependency on macro data like inflation and jobs.
Equity Markets: Tech stocks witnessed volatility in January with the publication of a report from DeepSeek, an emerging artificial intelligence (AI) technology out of China. Key players, like Nvidia, lost more than 17% from the report, an important reminder that competition will be rampant as companies look to develop and incorporate AI, making portfolio diversification imperative to help protect against potential downside risks.
Asset Class Performance
Despite volatility surrounding President Trump’s return to office in January, positive monthly returns were posted across all asset classes with the largest gains coming from equity markets. Developed international performed the best over the month largely due to strong company fundamentals, and U.S. markets were up over 2.5% across both large and small-cap stocks.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI ACWI ex US TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
Data Dependency Strikes Again
In the current environment, the Fed continues to reiterate its “data dependent” mode, with their January Federal Open Markets Committee (FOMC) statement expressing, “the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks” in determining the future path of monetary policy. The Fed is expected to keep interest rates at current levels until a catalyst emerges to support lower rates, which will likely come from inflation, the labor market, or GDP. Inflation data, including both PCE and CPI, increased relatively in line with market expectations in December 2024 but remains elevated above the Fed’s 2% inflation target. Core PCE, which excludes more volatile food and energy costs, increased 2.8% in December 2024 on a year-over-year basis, the third month in a row it has logged a 2.8% growth rate. Certainly, the “last mile of inflation” is proving difficult, supporting the Fed’s decision to hold interest rates steady.
This stickiness has ignited concerns that market inflation expectations are being re-anchored to a higher level long-term, which is illustrated by the rise in the 10-year Treasury yield, which partially reflects inflation expectations (among many other factors) and reached 4.8% earlier this month after falling back down to 4.5% by month-end, depicted in Exhibit 1. The Fed’s decision-making is also highly dependent on the health of the labor market, which remains strong. While this is a good thing, the market interprets this as bad news because it does not justify lower interest rates and ultimately keeps the Fed on pause.
Exhibit 1: 10-Year Treasury Yield
Source: YCharts
The Fed remains hyper-focused on the impact of inflation and the labor market on the U.S. economy, and, in turn, markets remain dependent on the Fed and its actions (or inactions) with interest rates. Complicating matters today, data dependencies have also arisen from the onslaught of data and news coming out of the White House, as well as data in equity markets related to earnings or market reports. On the latter, we recently witnessed the vulnerability of major U.S. indices, particularly the tech-heavy Nasdaq-100, when a report was published on a new artificial intelligence (AI) technology out of China, called DeepSeek, a competitor to AI giants in the U.S., like OpenAI, the creator of ChatGPT. The report, which was published on January 27, reverberated through markets, sending the Mag 7 darling and chipmaker, Nvidia, to close down nearly 17%, illustrated in Exhibit 2, resulting in nearly $600 billion of market cap lost – the largest single-day loss ever – due to the report’s claim that DeepSeek cost a fraction to build versus U.S. models, potentially threatening the future profitability of a chipmaker like Nvidia. The lesson learned from the DeepSeek drama is that competition will be rampant in the AI space, and this competition will continue to disrupt equity market performance as winners and losers are identified in the AI arms race, making diversification away from tech concentrations an important theme in 2025.
Exhibit 2: Impact of DeepSeek Report
Source: YCharts
The Bottom Line: Markets today are highly dependent on data, whether it be from the Fed, macroeconomic indicators, the White House, or the latest in AI technologies. These dependencies create hyper-sensitive markets prone to volatility, which is expected to be a continuing theme in 2025
Looking Ahead
Trump 2.0 – Tariffs, Tax Policy & Uncertainty
As Trump entered office on January 20, he signed 24 executive orders, the most any President has signed on their first day in office, illustrated in Exhibit 3, setting an important precedent that he intends to fiercely pursue his policy agenda. Despite Republicans holding a slim majority in the House and Senate, Trump’s aggressive policies will likely face opposition, making the overall success of his agenda uncertain. As his policies take shape over the coming weeks and months, investors should stay informed and cautious about making portfolio changes based on speculation or promises made by the government, focusing instead on the known facts.
Exhibit 3: Executive Orders Signed First Day
Source: Federal Register
What we do know is that Trump is proposing a comprehensive swath of changes, spanning stricter controls on immigration and border protection, greater government efficiency including the reduction of the federal workforce, tax policy reform and likely tax cuts, broader as well as tactical tariffs, expansion of cryptocurrency markets, and even more esoteric changes, like the renaming of landmarks, including the Gulf of Mexico, just to name a few. Clarity will emerge as his policies take physical shape, but, in the interim, there is much consternation in the investing community about the impact of some of these policies on federal finances, as well as on growth in the U.S. economy, which has already had to withstand years of restrictive monetary policy. One of the more significant pieces of legislation up for debate this year is the sunsetting of Trump’s 2017 Tax Cuts and Jobs Act (TCJA), which was passed during his first term and is set to expire at the end of 2025. There is a high probability that Trump will extend or even expand the TCJA, broadly reducing taxes and simultaneously putting further pressure on federal finances, which the Congressional Budget Office (CBO) has estimated would cost at least $4.6 trillion over the next 10 years. A ballooning federal debt could put strain on the demand for U.S. Treasuries, while changes to U.S. tax policy, particularly as it relates to alternative minimum tax (AMT) exemptions and the state and local tax (SALT) caps, could have implications for the municipal market.
Trump is hoping to fund part of these tax cuts through tariffs, which do not require congressional approval under the “national emergency” Trump is claiming for tariff enforcement. As of month-end, Trump was threatening tariffs on imports from key trading partners Canada, Mexico, and China, illustrated in Exhibit 4, who in turn, promised retaliation, introducing concrete concerns about a re-acceleration in inflation and even stagflation, which could trouble the Fed in their plight to reduce interest rates. As negotiations play out in the coming weeks, we could see changes to these initial tariffs and ensuing volatility in equity markets. The TCJA and tariffs are textbook examples of uncertainty surrounding Trump’s fiscal agenda. There are countless ways these policies could take shape with potential implications on federal finances, U.S. growth, inflation, labor market health, and both equity and bond markets that are difficult to predict, making uncertainty almost a guarantee.
Exhibit 4: U.S. Key Trading Partners
Source: Council on Foreign Relation
The Bottom Line: Trump is pursuing his policy agenda aggressively, focusing first on tariffs and tax policy. Investors should expect uncertain and likely volatile conditions in the weeks and months ahead and should remain cautious about making portfolio changes amidst this uncertainty.
Capital Markets Themes
What Worked, What Didn’t
•Values Bests Growth: After a volatile month for growth and tech stocks, fueled primarily by the DeepSeek drama that routed artificial intelligence-based companies, value stocks outperformed growth by nearly 250 bps in January, supporting the story of equity market breadth.
•Invest in Bonds for Income: Taxable and municipal bonds performed roughly in-line with one another in January, returning 50 bps for the month, but municipal markets continue to provide attractive tax equivalent yields for investors, particularly in the high yield muni sector, emphasizing the benefit of income when investing in bond markets.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
2025 Outlook for Private Markets
Private Equity – After a slow exit environment in recent years, the tide may be changing for the initial public offering (IPO) market in 2025. With a new political regime and the Fed cutting interest rates by 100-bps late last year, optimism is rebounding for the ability of firms to sell portfolio companies at more attractive valuations; however, expectations for further cuts this year are uncertain given the Fed’s “higher for longer” stance. Private equity is also sitting on high levels of dry powder – assets raised for investments but not yet deployed – strengthening the potential for a boost in deal flow activity in 2025, illustrated in purple in Exhibit 5, particularly against Trump’s “deregulation” backdrop.
Exhibit 5: Alternatives Dry Powder
Source: Preqin, J.P. Morgan Asset Management. Data as of 11/30/2024.
Private Credit – The private credit asset class has seen more inflows in recent years than any other private market, largely due to its consistent return profile, high level of income production, and resilience against market volatility. This market-wide migration, however, caused spreads in the private credit market to compress, making the opportunity set potentially less appealing in the current environment, particularly as the Fed has cut rates 100-bps. Interest rates also play a critical role in the private credit market, and rates staying “higher for longer” could continue to put pressure on borrowers, testing the resilience of the asset class to deliver income during times of uncertainty, making the focus on high-quality lenders critical to success in 2025.
Private Real Estate – Interest rate volatility witnessed in the 10-Year Treasury yield in recent months has created a difficult environment for operators and valuations in the real estate market, a trend that is likely to continue in 2025 with a confluence of factors affecting the Treasury market. Zeroing in on multifamily real estate, perhaps the most significant factor affecting this sector in 2025 is the number of deliveries, a measurement of supply, falling off a cliff, as illustrated in Exhibit 6. Deliveries represent the completion of a property and lag starts, which have already seen a precipitous decline, meaning that 2025 could bring limited supply, which should help fuel rental demand and lead to robust rent growth in the multifamily sector this year and beyond.
Exhibit 6: Multifamily Real Estate Supply
Source: CoStar, J.P. Morgan Asset Management. Data as of 11/30/2024.
The Bottom Line: The 2025 outlook for private investments remains solid but is largely dependent on the direction of interest rates, which, of course, is dependent on the U.S. macroeconomic picture. Amidst this uncertainty in the macro environment, a focus on quality and diversification across private investments remains crucial to defend against potential downside risks.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI ACWI ex US ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
https://centurawealth.com/wp-content/uploads/2024/11/iStock-1816227914.jpg12242448Christian Duranhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngChristian Duran2025-02-05 17:31:452025-02-05 19:22:32Market Month in Review – January 2025
Global markets saw significant developments in the fourth quarter of 2024, concluding a year marked by economic shifts, policy changes, and geopolitical events. The S&P 500 achieved 57 new all-time highs, delivering a remarkable annual gain of 25% and marking its strongest back-to-back performance since 1997/1998. In the fourth quarter, the “Trump Trade” returned in full force following the November election results, significantly influencing market dynamics and delivering the strongest monthly performance of the year.
With Donald Trump securing another term as President, market participants quickly shifted their strategies to align with expected policy changes, including key proposed initiatives like deregulation, international trade, and lower taxes. As investors anticipated a favorable environment for corporate profits, U.S. equity markets, particularly those sectors with high exposure to domestic economic activity, benefited immensely. Focus on the “Trump Trade” also fostered renewed optimism in venture capital and the small-cap sector, which gained from speculation that domestic-focused companies would be prime beneficiaries under Trump’s administration. Below are highlights from the fourth quarter and year:
The S&P 500 and NASDAQ 100 both rallied +25% through year-end despite geopolitical headwinds, economic challenges, and the final five trading days of the year failing to materialize a Santa Claus Rally. Their strong performance was aided by the tech sector, which benefitted from the AI boom and contributed significantly to their growth. Magnificent Seven giants like Nvidia (NVDA), Meta (META), and Tesla (TSLA) propelled the indexes to new heights as these companies harnessed the transformative potential of AI and similar technologies, capturing investor interest and driving substantial returns.
The Magnificent Seven, comprising the seven largest technology stocks (Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia, and Tesla), make up approximately 35% of the S&P 500 and nearly 50% of the NASDAQ. Investors fueled inflows into the stocks given their expanding service segments and innovative product lines, which resonated well with consumers worldwide. Given their size and profitability, investors believe that the Magnificent 7 companies’ scale and financial flexibility best position these companies to capitalize on artificial intelligence. While there has been some rotation out of the Magnificent Seven, given their exorbitant valuations, their complex interplay of innovation, market leadership, and strategic expansions contributed 55% of the S&P 500’s gains for 2024, with Nvidia alone producing 21% of the index’s return. Leveraging their financial flexibility and technological prowess, these companies positioned themselves at the forefront of market trends, setting the tone for technology-driven growth as we transition into 2025.
Cryptocurrency, once considered a high-risk investment, is gaining greater acceptance among retail and, importantly, institutional investors. Bitcoin (BTC-USD) surged to an all-time high of $108,369 in December, pushing the global crypto market’s value over $3T for the first time in three years, as BlackRock, the world’s largest asset manager, stated that a Bitcoin allocation of up to 2% in portfolios is “reasonable.” The shifting regulatory environment with Trump’s victory further aided the advance of cryptocurrency. While Bitcoin contracted from its peak to close the year, as digital assets grow and regulatory acceptance increases, many investors may seek an opportunity to capitalize.
Bloomberg Barclays U.S. Aggregate Bond Index experienced a rollercoaster year, though it turned into a positive year for the second in a row. Driven by growth prospects, inflation, and monetary policy projections, the 10-Year Treasury entered 2024 at 3.88%, only to rise and peak at 4.70% before collapsing to 3.63%. As growth improved and the “Trump Trade” took hold, rates reversed sharply to end the year at 5.58%. Despite the yield rising 0.77% in 2024; the bond index eked out a positive 1.25% return.
Geopolitical Tensions and Volatility further supported the case for U.S. equities and pushed valuations higher. Tensions in the Middle East and Russia-Ukraine continued to escalate, as did tensions between China and Taiwan. Additionally, South Korea finds itself in the middle of a political crisis after their now impeached president briefly declared martial law, and both France and Germany saw their governments collapse in December, fueling geopolitical concerns.
Gold Bullion returned the best year since 2010 with gains of +27%. Strong global central bank purchases, rising geopolitical uncertainties, and monetary policy easing all propelled the safe-haven asset’s record-breaking rally near an all-time high of $2,790.15 on Halloween. While the surging U.S. Dollar took some of the air out of gold’s sail, the same catalysts that pushed gold higher in 2024 remain, potentially supporting further gains in 2025.
Equities – U.S. stocks continued their impressive run through Q4, building on gains from earlier in the year. The technology sector remained a key driver of market performance, buoyed by an ongoing enthusiasm for artificial intelligence and other emerging technologies. Nvidia (NVDA) continued its meteoric rise, solidifying its position as one of the world’s most valuable companies. The S&P 500 rose 2.41% for the quarter, bringing its year-to-date return to an impressive 25%.
Bonds – The bond market experienced significant volatility in Q4, largely driven by shifting expectations for the economy, hypothetical fiscal policy, Fed policy, and inflation. Entering the quarter at 3.81%, the 10-Year Treasury yield rose sharply over the course of 2024’s final months to end the year at 4.58%. Robust economic growth paired with a slower pace of Fed rate cuts and the prospects of pro-inflation fiscal policy initiatives caused the market to reassess both long-term growth and inflation expectations higher, lifting long-term bond yields. With the upward move in yields, the Bloomberg U.S. Aggregate Bond Index fell 3.06% in Q4, erasing earlier gains, though it still produced a positive calendar year, closing 2024 up 1.25%.
Source: YCharts. The Bloomberg US Aggregate Index was used as a proxy for Bonds; the Bloomberg US High Yield 2% Issuer Capped Index was used as a proxy for High Yield Bonds; the Russell 2000 Index was used as a proxy for Small Cap Equities; and the MSCI ACWI Ex USA Index was used as a proxy for Foreign Equities. All returns are based on total return levels as of 12/31/2024.
Economy: Robust Consumer Spending in 2024
Consumption has remained one of the biggest drivers for the U.S. economy, whose real GDP is on track to expand more than 3% in Q4 2024. The consumer discretionary sector was the top-performing sector in December and one of the top sectors in 2024. Major retailers and discretionary companies capitalized on this year’s seasonal surge in holiday sales, which saw record-breaking transactions amid consumers’ willingness to stretch budgets for year-end gifting.
Despite the optimistic consumption data, businesses remain cautious and keenly aware of the potential risks posed by fluctuating consumer sentiment and the specter of inflationary pressures lingering from policy shifts both domestically and globally.
During Q4 2024, consumer spending remained a pivotal component of the economic landscape, although it exhibited signs of moderation. Robust consumer activity, invigorated by wage growth and stronger purchasing power than previous years, continued to support the broader economy. Despite elevated borrowing costs, consumers showcased resilience, navigating a complex environment marked by geopolitical tensions and evolving fiscal policies. The U.S. economy continued to demonstrate resilience in Q4. According to the Atlanta Fed’s GDPNow model, as of Christmas Eve, Q4 growth is estimated at 3.1%, reflecting a continuation of the robust 3.1% expansion seen in Q3. This growth aligns with the Federal Reserve’s efforts to reach a “soft landing” and avoid recession while combating inflation.
Consumer spending is a bellwether for economic growth, but it also faces notable headwinds, most notably the rising levels of household debt. U.S. credit card defaults jumped to the highest level since 2010 as credit card lenders wrote off $46 billion in seriously delinquent loans through September (50% year-over-year increase); a sign that the financial well-being of lower-income consumers is waning after years of high inflation. Trump’s planned fiscal policy changes also have the potential to further erode consumers’ purchasing power, particularly if his policies lead to a resurgence in inflation.
Labor Market Dynamics
As one of the dual mandates of the Fed, the labor market remains a focal point of economic analysis. Marred by two hurricanes and a Boeing strike, October’s labor gains were anemic. Meanwhile, 227,000 jobs were added in November, beating expectations, as the unemployment rate inched up to 4.2%, which represents a 0.5% increase in unemployment from 3.7% to start the year.
Higher unemployment figures and reduced job openings tested the labor market’s resilience, with October job openings (JOLTs) around eight million, a palpable decline from nearly nine million openings in January 2024. Another signal of labor market softening is the ratio of job openings to those unemployed, which moved down over the year to 1.08:1. While the ratio of 1.08:1 is near historical levels, the ratio has fallen significantly from nearly two job openings for every job posting in 2022, indicating the labor market is showing signs of tightening.
As the number of open jobs trended lower, the number of unemployed job seekers trended higher, as evidenced by the more than one million additional unemployed persons from January through November. The current levels show signs of tightening, reflecting a labor market that remains healthy but is gradually moderating after an extended period of strength. More concerning is the reversal witnessed in wage growth. After bottoming in June at 3.83%, wage inflation has risen back above the critical 4% threshold. Robust wage gains have bolstered consumer spending but have also heightened the risk of reigniting inflation. Heading into 2025, the job market will serve as a key indicator of economic stability, with any significant downturn threatening consumer spending and overall economic growth, and also prompting potential shifts in monetary policy.
Inflation and Monetary Policy
Inflation trends remained a central focus for markets and policymakers. After showing signs of moderation in early 2024, inflation has remained sticky, with measures ticking up slightly in the latter part of Q4. The headline Consumer Price Index (CPI) edged higher to 2.7% year-over-year in November, while core CPI (excluding food and energy) held steady at 3.2%. In line with CPI, the Fed’s preferred inflation gauge ran into the proverbial wall mid-year and has proven stubborn during this last mile of contraction as the Core Personal Consumption Expenditures (PCE) price index has risen from 2.6% in June to 2.8% in November. While significantly lower than the peaks seen in 2023, these figures remain above the Federal Reserve’s 2% target.
Following their surprisingly aggressive 50 basis point rate cut in September, the Federal Reserve reduced interest rates by another 50 basis points in the fourth quarter, bringing the interest rate cut total to 100 bps for 2024. December’s meeting also provided insight into the Fed’s outlook for 2025 and beyond. The Fed’s updated Statement of Economic Projections showed a slower pace of rate reductions in 2025 than previously projected in September, cutting projections in half from 100 basis points of cuts, to 50 basis points, or two potential 25 basis point cuts in 2025. This deviation sent long-term bond yields surging and prompted a risk-off mentality as investors started repricing a “higher-for-longer” outlook, causing a sell-off in interest rate-sensitive small-cap and technology stocks. With persistent inflation, wage growth elevated, and Trump set to take office, we anticipate the Fed to adopt a patient and methodical approach to future rate reductions.
We believe the Fed will ultimately deliver on their goal to lower inflation to its 2% mandate and avoid a recession for the U.S. economy. However, the Fed will need to monitor the state of the labor market deterioration and reversal of inflation closely if they are to fully avoid an economic contraction and achieve their inflation target. Successfully delivering lower inflation and monetary policy normalization should bode well for equities and bonds. As always, there are several potential risks looming, and investors should proceed carefully.
By most measures, the S&P 500 remains overvalued. According to FactSet, as of December 15, the forward 12-month Price-to-Earnings Ratio (P/E) was 22.3x, which is higher than both the 5-year and 10-year averages of 19.7x and 18.1x, respectively. Valuations continue to pose a risk to the market, as negative sentiment can lead to sharper sell-offs. Furthermore, the concentration of the Top 10 largest stocks in the S&P 500 poses a significant concentration risk. According to JPMorgan Asset Management, the 10 largest constituents represent 38.7% of the index as of December 31. Concentrations of this magnitude make the index more sensitive to changes in its top constituents, particularly when those 10 companies are significantly more overvalued than the remaining 490 companies, as is the case in the current environment. The P/E of the top 10 is currently 29.8x, while the remaining stocks currently boast a P/E of only 18.2x, both of which are above their historical averages. Concentrations like this are precisely why we favor global diversification across several asset classes, both public and private. This high level of concentration also supported our decision to reduce overall large-cap exposure, particularly to large-cap technology stocks, in our public model allocations as we enter the new year.
Looking under the hood of public markets, corporate profits remain resilient despite elevated borrowing costs. This trend is illustrated by the S&P 500’s fifth consecutive quarter of positive earnings growth, rising 5.9% in Q3 2024. As of December 20, FactSet estimates fourth-quarter earnings to expand at a faster pace of 11.9% year-over-year.
Since 2023, the Magnificent Seven has been responsible for most of the market’s earnings growth, increasing 31%, versus the -4% contraction of the remaining 493 companies’ earnings in the S&P 500 last year. This trend is expected to persist in 2024, but we remain optimistic as JPMorgan predicts the remaining companies outside the Magnificent Seven to catch up and accelerate earnings growth in the forward-looking environment. Both groups are expected to experience robust year-over-year earnings growth of 21% and 13%, respectively, in 2025. A broadening of earnings growth should bode well for increased market breadth and carve a path for higher broad-based returns for equities outside the Magnificent Seven.
Perhaps even more encouraging is the rebound and contribution to earnings growth expected from both mid- and small-cap companies. While elevated rates will continue to cause issues for some smaller companies, earnings for small caps are expected to grow 44% in 2025. When coupled with easing monetary policy, potentially pro-business fiscal policies like deregulation, international trade, and lower tax rates, the backdrop appears encouraging for mid- and small-cap companies; hence supporting our decision to eliminate our underweight and increase exposure in our allocations to align with our long-term target allocations.
From the political crisis in South Korea, to the government collapses in France and Germany, to the armed conflicts, notably in the Middle East, where tensions between Israel and Iran escalated, and in Russia-Ukraine, and the threat of intensifying conflicts between China and Taiwan – international markets are on fragile ground. As these international disputes unfold, they have a cascading effect on market sentiment, influencing everything from currency valuations to sector performance. The specter of further geopolitical instability remains a crucial factor to monitor in the upcoming year, with potential policy responses from global leaders poised to have far-reaching consequences for economic forecasts and asset allocations worldwide. One of the most significant economic initiatives anticipated in 2025 is the resurgence of tariffs under President Trump’s administration. Known for a protectionist stance, Trump’s economic strategy could reignite trade tensions globally as the administration revisits import tariffs with the goal of reshoring jobs and boosting domestic manufacturing. This strategy is expected to lead to a more protectionist trade policy, potentially affecting global trade dynamics and introducing volatility into markets sensitive to international trade. Given the disruption abroad, paired with a strengthening dollar, we further reduced our allocations to foreign equities.
Interest rate volatility was once again prevalent in 2024, and while we expect this trend to continue in 2025, we do anticipate more moderate moves. Markets repriced their growth and inflation expectations over the second half of the year, pushing long-term rates (as measured by the 10-Year Treasury) back over 4.5%. At this point, with so much unknown on the path of inflation and the fiscal policy front with Trump entering office, barring an exogenous event, we would expect long-term yields to remain range-bound, producing a return relatively in line with the coupons on bonds. We also expect to witness further bull steepening – where shorter-term yields fall quicker than longer-term yields, eventually normalizing the yield curve back to upward sloping, albeit given the latest Fed rate projections, at a slower pace than previously anticipated.
In conclusion, Q4 2024 capped off another year of significant market gains and economic resilience. The Federal Reserve’s pivot towards monetary easing provided a tailwind for both stocks and bonds, setting the stage for an interesting 2025. With so much uncertainty surrounding the changing political landscape and resulting policy changes, we enter the year with our allocations balanced and in line with our long-term targets. The reset to our allocations reflects our expectations for volatility in 2025 as markets work through the political noise and reassess potential economic ramifications, and, on the other hand, our expectation for solid earnings growth across U.S. equities. Diversification across several public and private market asset classes should serve clients well in 2025. As always, investors should remain vigilant to potential risks while positioning themselves to capitalize on opportunities in the evolving market landscape.
Thank you for your continued confidence and support. If you have questions or concerns, please contact your Centura Wealth advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
Centura Wealth Advisory is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura Wealth Advisory and its representatives are properly licensed or exempt from licensure. 12255 El Camino Real, St. 125, San Diego, CA 92130.
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Inflation & Labor Data: Headline and core PCE inflation data increased in October to 2.3% and 2.8%, respectively (vs. 2.1% and 2.7% the month prior). The PCE increases were in line with expectations but introduce concerns that inflation will remain sticky. After September’s noisy labor report, the October report, published on December 6, will be widely anticipated. The unemployment rate remains at 4.1%.
U.S. Election: Since the election on November 6, markets have been assessing potential policy changes and cabinet appointees from President-Elect Trump, ushering in a “Trump Trade.”
Fed & Monetary Policy: The Fed continued their easing cycle by cutting interest rates another 25-bps in November. Inflation and labor market data remain hyper-important as the Fed continues to be data dependent. There is one final FOMC meeting in 2024 in December, which will likely witness another rate cut and an update to the Fed’s Summary of Economic Projections, providing insights into the possible monetary policy activity for 2025 and beyond.
Equity Markets: Equity markets continued their year-to-date run-up in November, with major equity indices continuing to notch record highs. The S&P 500 reached its 53rd all time high (ATH) in 2024 on November 29.
Asset Class Performance
The “Trump Trade” took full effect in November, as news of President Trump’s re-election reverberated through global markets. Emerging markets were hit the hardest, a direct result of Trump’s tariff threats and a surging U.S. Dollar. Conversely, U.S. equities fared the best, led by small cap stocks, which stand to benefit from expected Trump policies, including de-regulation and greater reliance on domestic companies.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI EAFE TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
Elections and Rate Cuts and Earnings, Oh My!
Markets digested a lot of information in the month of November, including the results of the U.S. election, another Fed interest rate cut, and a slew of 3Q earnings reports. While markets experienced volatility intra-month, they ended the month solidly up, with major indices like the S&P 500 and Russell 2000 turning in their best monthly results of the year, gaining 5.7% and 11.0%, respectively, in November.
The results of the U.S. election in early November brought news of another Trump Administration and a “red sweep” across Congress. Markets reacted positively to this outcome, with small caps as measured by the Russell 2000 up nearly 8% from November 4, the day before the election, through November 6, the day after the election. The market enthusiasm in small caps was primarily due to Trump’s promise of “deregulation,” which has the potential to positively impact smaller companies more than larger ones. Market participants also started positioning around Trump’s stance on tariffs, immigration, and other potential policy decisions. Cryptocurrency is another asset class benefiting from Trump’s re-election, illustrated by Bitcoin’s run-up of over 140% in 2024. Fervor related to the so-called “Trump Trade” waned over the course of the month as much uncertainty remains around the extent of Trump’s policies.
Exhibit 1: Equity Markets Pre- and Post-Election
One day after the Presidential election results were declared, on November 7, the Federal Reserve cut interest rates by 25 bps, continuing their policy easing. The Fed has continued to reiterate its “data dependent” approach, particularly as it concerns inflation and labor data. Whether the policies outlined in the Trump agenda have the potential to impact the course of monetary policy is of no concern to the Fed – they remain independent from politics and focused on a broad set of data to determine their policy trajectory, not speculation of potential fiscal policy changes. The Fed meets one more time in 2024 in December, where they will publish a new set of economic projections, providing important data on what to expect in 2025.
Source: YCharts
Finally, 3Q earnings season is drawing to a close, with over 95% of companies having reported already. Earnings have now grown for five quarters in a row, and expectations for 4Q are expected to double the growth seen in 3Q, with broader contributions from companies outside the Magnificent Seven expected. Year-over-year earnings growth was led by the Health Care and Communication Services sectors, meanwhile the Energy sector was the most challenged in 3Q. As company earnings continue to grow, so too do major equity indices, with the S&P 500 and Dow Jones indices notching multiple all-time highs over the course of the month. The S&P 500 now has 53 all-time highs in 2024. Equity markets remain slightly overvalued, making it important to not just consider large cap stocks, but diversify across asset classes and sectors.
The Bottom Line: November was an eventful month, with the U.S. election, an interest rate cut, and the 3Q earnings season keeping markets busy. As the “Trump Trade” took effect, we saw markets end the month higher, as illustrated by the number of all-time highs by major U.S. equity indices. The Fed continues its easing policy which may come into conflict with Trump’s fiscal agenda in 2025.
Looking Ahead
Wrapping Up 2024
With 2024 drawing to a close, there are still a few events left that have the potential to drive market activity in the final month of the year: the December Federal Open Markets Committee (FOMC) meeting, including the publication of the Fed’s latest economic projections, and, of course, Santa Claus!
Every quarter, the Federal Reserve updates their projections for future GDP growth, unemployment, inflation, and interest rates in a publication titled the Summary of Economic Projections, the “SEP” or “Dot Plot” for short. Updates to the Dot Plot inform market participants about the trajectory of interest rates, both in the short- and long-term, and this trajectory can shift course as economic data changes. Throughout 2024, the Fed has been extremely “data dependent” with monetary policy, meaning their decisions have been heavily influenced by monthly macroeconomic data points, particularly inflation and unemployment data. This data has guided the Fed in their decision-making and has resulted in changes to their economic projections, as illustrated in Exhibit 2 below, which shows the March, June, and September SEP or Dot Plot projections. What we learned from these projections is that the latest Dot Plot in September showed interest rates elevated at a higher level in the long-term (2027 and beyond) than previous projections in March and June, indicating a slower pace of rate reductions. The December Dot Plot, which will be published on December 18, will provide important clarity on whether the Fed’s thinking has changed based on the latest macroeconomic data. We could also see an additional rate cut at the December FOMC meeting.
Exhibit 2: Changing Fed Funds Projections
Source: The Federal Reserve
As markets assess the Fed and the direction of monetary policy, they may also get to experience the magic of Santa Claus this December. The “Santa Claus Rally” is a technical market phenomenon explaining why equity markets advance in the final week of the year. This phenomenon is illustrated in Exhibit 3 below, where four out of the past five years saw equity market gains in the last week of December. There are numerous reasons why this phenomenon can occur, with one major explanation being the lower institutional trading volume during the holidays. Some believe a Santa Claus Rally can help set expectations for market performance in the coming year; however, skeptics believe it to be a self-fulfilling prophecy. Either way, wrapping up 2024 could see continued growth in equity markets, and depending on the commentary and decisions from the Fed, may introduce short-term volatility to close out the year.
The Bottom Line: 2024 is wrapping up and two events have the potential to keep markets busy through year-end: the last FOMC meeting, where an interest rate cut is largely expected, in addition to updates to economic projections, and a potential for a Santa Claus Rally, which could drive equity markets even higher to end the year.
Exhibit 3: S&P 500 Recent December Returns
Source: YCharts
Capital Markets Themes
What Worked, What Didn’t
•Small Caps Take Off: Small cap stocks, as measured by the Russell 2000 Index, were up nearly 11% in November, spurred by the “Trump Trade” and policy implications that would stand to benefit smaller domestic companies.
•Growth vs. Value Equity: While growth equities have largely outperformed value equities in 2024 due to the tech- and AI-boom, these two styles performed roughly in-line with one another in November, illustrating how equity market participation may be starting to broaden outside of tech.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
The Outlook for Private Credit
The private credit market is around $1.7 trillion in size and has grown nearly two-fold in the past 10 years. Most of this growth has been in the direct lending sector of the market, which represents close to 50% of the entire private credit market, illustrated in Exhibit 4 below. Direct lending is a form of private lending to small- or medium-sized companies without the use of an intermediary, typically in the higher quality, or senior, portion of the company’s capital structure.
Exhibit 4: Private Credit AUM
Source: Preqin. Data as of 6/30/2024
Direct lending, and private credit as a whole, is predominately floating rate, meaning that the underlying debt instrument is tied to a rate, typically the secured overnight financing rate (SOFR), that can fluctuate over its life, i.e., the rate “floats.” SOFR is an interest rate that is directly tied to the federal funds rate, meaning that as the fed funds rate increased in 2022 and 2023, so did SOFR, and, subsequently, the yields for private credit. Conversely, this means the opposite also holds true in the current environment: as the Fed cuts interest rates, the yields across private credit are expected to decline, albeit at a delayed cadence to rate cuts.
Illustrated in Exhibit 5, private credit has recently enjoyed elevated yields of close to 12%, measured by the private credit benchmark, the Cliffwater Direct Lending Index (“CDLI”). Compared to the public credit alternative, short-term Treasury bills, private credit offers a yield advantage of nearly 6%. This yield advantage helps explain why private credit has seen such strong inflows in recent years.
While declining interest rates typically lead to lower yields for private credit, they also reduce the interest burden on companies, particularly the smaller companies that direct lending targets. Smaller-sized companies are more sensitive to interest rates, meaning they benefit more when rates fall. This creates a double-edged sword in the private credit market: lower rates mean lower yields, but they also ease the burden on borrowers, potentially reducing default risks and overall investment risk.
Although investors may not see yields of 11% or higher moving forward, private credit still offers elevated yields and other advantages, such as diversification from traditional fixed income – a key benefit that has become even more important in the falling rate environment.
Exhibit 5: Private vs. Public Credit Yields
Source: Cliffwater
The Bottom Line: The outlook for private credit is changing, driven by falling interest rates which will reduce yields within the asset class over time. Falling rates should also reduce the interest burden on companies targeted by direct lending. Private credit still offers advantages against traditional fixed income, including higher yields and diversification benefits, which remain paramount in the current environment.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares Core MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
Disclosure: CCG Wealth Management LLC (“Centura Wealth Advisory”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura and its representatives are properly licensed or exempt from licensure. Insurance products are implemented through CCG Insurance Services, LLC (“Centura Insurance Solutions”). Centura Wealth Advisory and Centura Insurance Solutions are affiliated. For current Centura Wealth Advisory information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Centura Wealth Advisory’s CRD #296985.
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In today’s unpredictable financial environment, high-net-worth families and business owners face unique challenges when it comes to protecting their wealth and maximizing tax efficiency. As markets fluctuate and tax laws evolve, finding strategies that both safeguard assets and optimize returns is paramount.
This week on Live Life Liberated, Sean Clark, Partner at Centura Wealth Advisory, and Chris Osmond, Chief Investment Officer, dive into a transformative approach: direct indexing. This personalized investment strategy not only provides flexibility and alignment with your financial goals but also unlocks the potential for significant tax advantages.
In this blog, we’ll explore the key insights from Sean and Chris on how direct indexing can help you navigate today’s markets while maximizing your portfolio’s efficiency.
What Is Direct Indexing?
Direct indexing is an innovative investment approach that allows investors to directly own individual stocks that replicate the performance of a specific market index, such as the S&P 500. Unlike traditional mutual funds or exchange-traded funds (ETFs), direct indexing uses Separately Managed Accounts (SMAs), which provide greater customization, control, and tax advantages.
In a typical mutual fund or ETF, an investor buys shares of a pooled portfolio of stocks. The downside of this approach is the lack of flexibility—it’s difficult to exclude stocks from specific sectors or adjust for personal values. However, with direct indexing, investors hold individual stocks within their portfolios. This offers several key benefits:
Tax Loss Harvesting: Direct indexing allows for efficient tax loss harvesting, which can offset capital gains and reduce taxable income.
Customizations for Values and Financial Goals: Investors can exclude industries or companies they don’t want to invest in (e.g., tobacco or fossil fuels) and tailor sector exposures to match their financial outlook.
Flexibility: Direct indexing allows for greater control over investment decisions, as investors can add or remove individual stocks at their discretion.
Let’s take a closer look at some of the primary benefits of direct indexing.
The Power of Tax Alpha
One of the key reasons that direct indexing stands out as a wealth management tool is its ability to generate tax alpha. Tax alpha refers to the incremental value that is added to an investment portfolio through strategic tax-efficient strategies, such as tax loss harvesting.
Tax loss harvesting is particularly beneficial in volatile markets, where the value of individual stocks can fluctuate dramatically. In these circumstances, investors can sell underperforming stocks at a loss, which can be used to offset other gains or income within their portfolio. This strategy can potentially add 0.5% to 2% to your annual returns.
Here’s a breakdown of how tax loss harvesting works in the context of direct indexing:
Identify Losses: The first step is to sell underperforming stocks to realize a loss. While it’s not ideal to sell stocks at a loss, this can be a beneficial move when it helps to offset taxable gains.
Offset Gains: The loss from the sale can be used to offset capital gains or reduce taxable income, lowering your overall tax liability.
Reinvest Strategically: To maintain exposure to the same sectors or industries, investors can replace the sold positions with similar securities (often referred to as “tax-efficient replacements”). This allows them to preserve their portfolio’s overall strategy without triggering the wash-sale rule, which prevents investors from claiming tax losses on positions they repurchase within 30 days.
For high-net-worth individuals, tax loss harvesting can provide a significant advantage, especially during periods of market turbulence. This proactive strategy helps investors reduce their tax burden and optimize long-term growth.
Personalized Portfolios for Unique Goals
Direct indexing isn’t just about tax optimization—it also offers exceptional customization options, allowing families and business owners to align their investment portfolios with their unique goals, values, and financial objectives.
Align with Your Values: Many investors want to ensure that their portfolios reflect their personal values. With direct indexing, you have the ability to exclude industries or specific companies that don’t align with your ethical or social principles. For example, if you prefer not to invest in tobacco or fossil fuels, direct indexing allows you to tailor your holdings accordingly.
Tailor Exposures to Your Financial Goals: High-net-worth families and business owners often have specific financial objectives—whether that’s prioritizing growth, minimizing risk, or investing in specific sectors. With direct indexing, you can fine-tune your portfolio to emphasize the sectors or companies that align with your investment strategy and outlook for the future.
Direct indexing enables a level of portfolio customization that traditional index funds and ETFs simply cannot match. Whether you’re focused on long-term growth or specific sector exposure, this strategy offers the flexibility to build a portfolio that is perfectly aligned with your financial goals.
Best Use Cases for Direct Indexing
Direct indexing has several key advantages, but it is particularly effective in certain scenarios. Here are the best use cases for this approach:
Maximizing Tax Benefits in Taxable Accounts: For high-net-worth individuals with taxable accounts, direct indexing is a powerful tool for maximizing tax benefits. The ability to conduct tax loss harvesting and strategically offset capital gains can have a significant impact on long-term portfolio growth. This is especially important for families and business owners who may face higher tax liabilities due to significant income or capital gains.
Preparing for Liquidity Events: Business owners who are approaching a sale or other liquidity events, such as an acquisition or IPO, can greatly benefit from direct indexing. The strategy can help optimize the management of newfound wealth after these events by offering greater tax efficiency and diversification. It also provides the flexibility to adjust exposures based on changing financial circumstances and goals.
Managing Concentrated Stock Positions: Many executives and business owners hold significant amounts of stock in their own company. Direct indexing offers a tax-efficient way to diversify these concentrated positions without triggering massive tax bills. By strategically selling portions of the company stock and reinvesting in a diversified portfolio, business owners can reduce risk and maintain tax efficiency.
Why Now?
In today’s volatile markets, wealth preservation and tax efficiency are more critical than ever. Global economic uncertainty, fluctuating interest rates, and ongoing market disruptions demand proactive and flexible wealth management strategies. Direct indexing offers a unique combination of personalization, tax optimization, and customization that traditional investment vehicles simply can’t provide.
For high-net-worth families and business owners, direct indexing is more than just a tool for tax efficiency—it’s an investment strategy that provides control, flexibility, and growth potential. By partnering with wealth management experts who specialize in direct indexing, you can take a hands-on approach to safeguard your wealth, manage risk, and optimize returns.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Connect with our team today to learn how we can help you navigate complex financial decisions and secure your financial future with confidence.
Disclosures
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
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Trust planning can be overwhelming, especially with tax laws that seem to change constantly. But understanding the ins and outs of grantor and non-grantor trusts is key to making smart decisions about your wealth and legacy.
In this episode of the Live Life Liberated podcast, Kyle Malmstrom from Centura Wealth Advisory and Adam Buchwalter from Wilson Elser break down the differences between grantor and non-grantor trusts, and how they can be used to optimize your income and estate tax strategies.
What Are Grantor and Non-Grantor Trusts?
At the most basic level, trusts fall into two categories when it comes to taxes: grantor trusts and non-grantor trusts. Both types of trusts are designed to move assets out of your taxable estate, but they handle taxes in very different ways.
A grantor trustis treated as if the grantor (the person who creates the trust) still owns the trust’s assets for tax purposes. This means that all the income generated by the trust is reported on the grantor’s personal tax return.
“A grantor trust is, in essence, invisible to the grantor. All income is reported on the grantor’s personal tax return, while the trust grows tax-free.” – Adam Buchwalter, Wilson Elser
While the grantor pays taxes on the income generated by the trust, the trust itself is not taxed on the money it earns. The key benefit here is that the trust can grow without being burdened by taxes, helping assets compound over time.
In contrast, a non-grantor trust is a separate tax entity. It gets its own tax identification number and must file its own tax returns. Non-grantor trusts are taxed at their own rates, which are generally higher than individual rates, and any income the trust generates is taxed within the trust.
The Upside of Grantor Trusts
Grantor trusts can be a great way to accelerate wealth growth, especially for those looking to pass wealth on to future generations without the drag of taxes.
“Because the grantor pays the taxes, the trust can grow faster without the drag of taxes. This payment is not considered an additional gift to the trust.” – Adam Buchwalter
By paying the taxes on the trust’s income, the assets in the trust are free to grow without being diminished. This can be especially helpful when you’re looking to pass down wealth to heirs, as it allows the trust to accumulate more value over time. It’s also a powerful tool in estate and asset protection planning.
That said, there are some things to keep in mind. Legislative proposals, like those in Senator Elizabeth Warren’s bill and President Biden’s Green Book, could change how grantor trusts are taxed. These changes might limit the benefits of grantor trusts, particularly for future contributions.
Why Go With Non-Grantor Trusts?
Non-grantor trusts offer a different set of benefits that can be especially helpful for individuals in high-tax states or those looking to maximize their tax efficiency.
“By domiciling the trust in a state like Nevada, where there’s no state income tax, you can save millions on transactions like the sale of a business or stock.” – Adam Buchwalter
For example, if you live in a high-income tax state like California, a non-grantor trust can help you avoid those state taxes by setting up the trust in a state with no income tax, such as Nevada or Delaware. This can lead to significant savings, particularly when selling assets like a business or stocks.
Non-grantor trusts also tend to be more insulated from changes in tax laws. While grantor trusts are more directly affected by tax law changes, non-grantor trusts are taxed as separate entities, which can provide more stability in the face of potential legislative shifts.
Why the Time to Act Is Now
Given the potential changes in tax regulations, now is the perfect time to consider your trust planning options. With proposals that could impact the tax treatment of grantor trusts, it may be wise to set up or fund your trust before any new legislation is passed.
“This may be your last planning opportunity. Talk to your advisors now to ensure your trust is set up properly and aligns with your goals.” – Kyle Malmstrom, Centura Wealth Advisory
Talking to your financial and legal advisors now can help ensure that your trust is set up in a way that takes full advantage of current tax rules. Whether you’re setting up a new trust or making changes to an existing one, getting proactive now can protect the benefits you currently enjoy.
Trust Strategies Tailored to Your Family
No two families are the same, and your trust planning should reflect your unique financial situation. Whether your focus is on minimizing taxes, preserving your wealth, or supporting charitable causes, it’s important to have the right strategy in place.
A custom trust strategy can help optimize your income tax savings, minimize estate taxes, and support your philanthropic goals. The right advisors will help you navigate the complexities of trust planning and ensure that your strategy fits your family’s needs.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
https://centurawealth.com/wp-content/uploads/2025/01/Screenshot-2025-01-30-at-4.46.03 PM.png544819centurawealthhttps://centurawealth.com/wp-content/uploads/2024/07/Centura-Logo-Grey.pngcenturawealth2024-11-13 00:40:002025-02-19 17:45:57Ep. 103: Grantor vs. Non-Grantor Trusts: Tax Strategies for Wealth Preservation
Inflation & Labor Data: With inflation data continuing to decline, illustrated by the latest headline and core PCE data of 2.1% and 2.7%, respectively, the focus has turned to the labor market. September’s labor report included noise related to Hurricanes Helene and Milton and the Boeing strike, making it difficult to assess the latest reading of labor market health. The unemployment rate remains at 4.1%.
U.S. Election: Donald Trump was elected the 47th President, and markets are likely to experience short-term volatility as they adjust to the results and the subsequent implications for broader markets.
Fed & Monetary Policy: The Fed cut interest rates by 50-bps in September, with an additional 50-bps of cuts forecasted by Fed officials through the end of 2024. Monetary policy decisions continue to be data dependent, meaning markets have become more data dependent, creating volatility ahead of future Federal Open Market Committee (FOMC) meetings, including the next one on November 6.
Equity Markets: As of month-end, the S&P 500 is experiencing the best first 10 months of an election year since 1936. Additionally, the third quarter earnings season is off to a solid start, with positive, albeit slowing, quarter-over-quarter earnings growth.
Asset Class Performance
International markets fared the worst in October, with bonds, developed international equities, and emerging market equities all down over 4%. U.S. large cap equities were slightly down for the month and experienced volatility ahead of the November U.S. election but remain up 20% on a year-to-date basis. High yield bonds performed better than investment grade bonds in the U.S.
Source: YCharts. Asset class performance is presented using total returns for an index proxy that best represents the respective broad asset class. U.S. Bonds (Bloomberg U.S. Aggregate Bond TR), U.S. High Yield (Bloomberg U.S. Corporate High Yield TR), International Bonds (Bloomberg Global Aggregate ex-USD TR), U.S. Large Cap (S&P 500 TR), U.S. Small Cap (Russell 2000 TR), Developed International (MSCI EAFE TR), Emerging Markets (MSCI EM TR), and Real Estate (Dow Jones U.S. Real Estate TR).
Markets & Macroeconomics
3Q Earnings Season – Slower but Solid Growth
U.S. equity markets continue to surprise investors in 2024 with their solid performance. Even amidst the volatility and uncertainty in the lead-up to the U.S. Election throughout October, major equity indices, like the S&P 500 and Nasdaq-100, continued their run-up and reached all-time highs over the month, with both indices up 20% year-to-date through October 31. In fact, the S&P 500 experienced the best first 10 months of an election year since 1936, and this trend may continue depending on the election outcome.
Looking at third quarter (Q3) earnings data, 70% of companies in the S&P 500 have reported earnings as of month-end, with eight out of the eleven sectors reporting year-over-year growth. A lot of this has to do with the larger macroeconomic picture, where the U.S. is seeing a resilient consumer and a strong labor market, both of which have contributed to solid corporate profits. Additionally, the percentage of companies in the S&P 500 reporting earnings above consensus estimates is the predominant trend across most sectors, depicted by the green bars in Exhibit 1 below.
Exhibit 1: Earnings Scorecard
The S&P 500 is currently reporting 5.1% earnings growth as of month-end, and, if this trend continues through the end of earnings season, it will mark the fifth-straight quarter of earnings growth. The magnitude of growth, however, illustrates a slowing trend, compared to the 10.9% and 11.3% growth seen in Q1 and Q2 of this year, respectively. This slowdown in Q3 is largely being driven by the energy sector.
Source: FactSet. Data as of 11/01/24
With the slower growth trend in Q3 earnings, investors may be wondering why equity markets continue to reach new highs, and, while earnings are generally supportive of current market valuations, the S&P 500 remains relatively rich in today’s environment, placing even greater focus on future company earnings growth potential.
Prudent investors understand that markets don’t go up forever, nor do company earnings, and while we have witnessed solid performance in the ongoing Q3 earnings season, as well as in 2024 as a whole, it does not mean this trend will continue in perpetuity. The U.S. will have to contend with falling interest rates, a new political regime, and potential policy changes, all of which could have trickle-down effects on corporate earnings, making this and future earnings seasons ever-important to watch.
The Bottom Line: Thus far, third quarter earnings have been relatively solid, surprising investors to the upside, illustrated by above-estimate earnings growth, and while we are starting to see this growth moderate from recent quarterly trends, corporate profits remain on solid footing amidst an uncertain macro and fiscal backdrop.
Looking Ahead
U.S. Election, Fiscal Policy & Muni Markets
The 2024 U.S. Presidential election has shaped up to be one for the history books, with major policy decisions surrounding international trade, health care, and, perhaps most importantly, taxes, on the docket. The uncertainty surrounding these potential policy changes may concern some investors, but it is important to keep in mind that policy implementation takes time and is not a foregone conclusion given how close races across Congress have been.
One of the most important policy decisions that will have to be addressed is the Tax Cuts and Jobs Act (TCJA), which is scheduled to sunset at the end of 2025, unless the newly elected President moves to extend it. Choosing to extend all, or part, of the TCJA could impact corporate tax rates, individual income tax rates, alternative minimum tax (AMT) exemptions, to name a few, and most importantly, any extension is expected to increase the federal deficit. The Congressional Budget Office (CBO) estimates that, if extended, the TCJA could cause federal net debt-to-GDP to increase to nearly 132% by 2034, as illustrated in Exhibit 2, from the current level of approximately 98%.
Exhibit 2
Source: J.P. Morgan Asset Management. Data as of 10/31/24
These potential tax changes offer investors the opportunity to assess their tax ramifications and diversify their fixed income exposure, particularly in the tax-exempt, or municipal, bond market. Municipal bonds are issued to fund local projects and agencies, including initiatives related to schools, parks, airports, and toll roads. The interest on municipal bonds is typically exempt from federal, often state, and even local taxes, making them attractive for higher-taxed individuals and entities. Unlike the federal government, municipal governments are not facing the same level of fiscal challenges as they are required to have a balanced budget, making them a potentially important diversifier as the federal deficit expands.
It does not appear either party in the U.S. is equipped to deal with the rising federal deficit, and, while worrisome, investors should focus on what they can control: managing risk and exposure of their investments. Diversifying exposure by looking to other areas of fixed income, like municipal bonds, can help provide greater stability and manage risk related to fiscal and tax policy decisions on the horizon.
Remember, policy changes take time and require collective government action, and, while investors wait for any changes to occur, they can enjoy elevated tax equivalent yields across the municipal curve and a strong outlook for fixed income amidst the falling interest rate and fiscally challenged environment.
The Bottom Line: With voting for the U.S. Election closed and markets digesting the results, the focus will begin to turn to fiscal policy, particularly as it relates to tax policy and the 2017 Tax Cuts and Jobs Act. Given continued rising fiscal deficits, the timing may be appropriate for investors to consider diversifying exposure across the entire fixed income spectrum, including in municipal securities, which are currently offering higher income advantages relative to historical averages, and, in many cases, traditional fixed income on a tax-adjusted basis.
Capital Markets Themes
What Worked, What Didn’t
•International Markets Had Tougher October: International markets, including both developed international and emerging markets equities, performed the worst for the month of October, down over 5% and 4%, respectively.
•Municipal Bonds Outperform Taxable: Municipal bonds underperformed in October but outpaced taxable bonds by 100 bps, with high yield municipals delivering the strongest performance and highest yield advantages.
Large vs Small Cap Equity
Growth vs Value Equity
Developed vs Emerging Equity
Short vs Long Duration Bonds
Taxable vs Municipal Bonds
Investment Grade vs High Yield Bonds
Source: YCharts. Data call-out figures represent total monthly returns
On Alternatives
Supply/Demand Dynamics in Multifamily Real Estate
The multifamily real estate market is currently experiencing a historic wave of new supply in 2024, with over 671,000 units projected to be completed this year according to RealPage, the highest level since 1974. This supply/demand dynamic is illustrated in Exhibit 3, where deliveries in the multifamily sector have outpaced absorption since 2022 when the Fed started raising interest rates. While this current surge in supply is meaningful, it is likely to be temporary, as the increased cost of financing due to higher interest rates have halted new construction projects. Experts project multifamily supply will start to dry up after 2025, causing the supply/demand dynamic to shift once again.
Exhibit 3
Source: J.P. Morgan Asset Management. Data as of 9/30/24
The current oversupply within multifamily severely hampers rent growth, which benefits tenants, but restricts the property’s ability to drive revenue growth. Coupled with higher interest rates, operating expense growth has outpaced rent growth, a trend that is expected to continue until supply dwindles in 2026.
While the multifamily sector is trying to absorb the excess supply hitting the market, demand remains somewhat strong, due in large part by the lack of home affordability across the nation. Along with high interest rates, mortgage rates have also been historically high, with the 30-year mortgage rate around 6.7%, causing home affordability to reach a 10-year low, both illustrated in Exhibit 4. In fact, the median price of a home in the U.S. is currently around $420,000, a 32% increase over the past 5 years.
While the home affordability metrics are grim, they create a significant tailwind for multifamily housing as the double-whammy of high mortgage rates and low home affordability have priced many tenants out of single-family homes, pushing them into multifamily housing instead.
It may be a bumpy ride along the way as supply/demand dynamics shift back into favor, but beyond 2025, we expect properties to perform well and rent growth to pick back up in the multifamily sector, particularly as the Fed continues to cut interest rates.
Exhibit 4: Home Affordability vs. Mortgage Rate
Source: YCharts. Data as of 10/31/24
The Bottom Line: The multifamily real estate sector is currently experiencing a surge of new supply, hampering rent growth amid rising expenses due to high interest rates, labor costs, and insurance. Demand remains robust as home affordability in the U.S. has reached a 10-year low. These supply and demand dynamics are expected to shift after 2025 when the influx of new supply falls off a cliff.
Asset Class Performance Quilt
Markets are ever-changing, making diversification across asset classes and sectors a critical component to portfolio construction. As illustrated below, a Balanced 60/40 portfolio provides greater consistency of returns and less volatility over time.
Source: YCharts. Asset class performance is presented using market returns from an exchange-traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by Centura Wealth Advisory. The performance of those funds may be substantially different than the performance of broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High Yield Bonds (iShares iBoxx $ High Yield Corp Bond ETF); Intl Bonds (Invesco International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares Core MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 40% U.S. Bonds, 12% International Stock, and 48% Large Blend.
Disclosure: CCG Wealth Management LLC (“Centura Wealth Advisory”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura and its representatives are properly licensed or exempt from licensure. Insurance products are implemented through CCG Insurance Services, LLC (“Centura Insurance Solutions”). Centura Wealth Advisory and Centura Insurance Solutions are affiliated. For current Centura Wealth Advisory information, please visit the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Centura Wealth Advisory’s CRD #296985.
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Managing significant wealth comes with complexities that go beyond basic financial planning. For ultra-high-net-worth families—those with a net worth of $20 million or more and annual incomes exceeding $2 million—building a lasting legacy requires a strategic and personalized approach. At Centura Wealth Advisory, Derek Myron and Sean Clark specialize in crafting solutions tailored to the unique needs of business owners, C-suite executives, and other high-net-worth individuals.
In a recent episode of the Live Life Liberated podcast, Derek and Sean shared insights into Centura’s distinctive service model, their approach to investment and tax strategies, and how they help clients optimize their wealth to create long-term financial security.
Tune in below:
Understanding the Unique Needs of Ultra-High-Net-Worth Families
Traditional financial planning isn’t enough for those with complex wealth. Business ownership, real estate investments, and tax-efficient wealth transfer require a deeper level of expertise.
Centura Wealth Advisory takes a holistic approach to financial management, ensuring that every aspect of a client’s financial picture is optimized. Whether planning for the sale of a business, structuring generational wealth transfers, or maximizing tax efficiency, their strategies go beyond cookie-cutter solutions.
“Our service model is designed to help ultra-high-net-worth families not only manage their wealth but also maximize its impact, both for their lifetime and for future generations,” Derek explains.
The Liberated Wealth Planning Process: A 5X Approach
One of the cornerstones of Centura’s strategy is their Liberated Wealth Planning Process, which aims to deliver five times the return on costs by focusing on tax mitigation, balance sheet optimization, and strategic investment planning.
Sean breaks it down:
“We’re not just managing assets. We’re integrating a full-picture approach that includes investment planning, tax strategy, estate structuring, and business transition planning. The goal is to create efficiencies that significantly increase the value we provide.”
This process helps clients retain more of their wealth by minimizing unnecessary taxes and ensuring assets are working as effectively as possible.
Helping Business Owners Plan for Their Next Chapter
Many of Centura’s clients are business owners preparing for a sale or transition. These transitions require more than just financial projections—they need a clear roadmap for maximizing liquidity while minimizing tax burdens.
“We specialize in helping entrepreneurs who are considering selling their companies. Our planning ensures that when they do exit, they’re in the best financial position possible,” Derek says. “That means structuring deals wisely, considering tax implications, and ensuring their wealth is aligned with their long-term goals.”
By addressing everything from estate planning to reinvestment strategies, Centura helps business owners confidently move into the next phase of their financial lives.
Balancing Personalization with Exclusive Investment Access
One of Centura’s key differentiators is what Derek calls the “Goldilocks” approach—being small enough to provide highly personalized service but large enough to offer clients exclusive alternative investment opportunities.
“A lot of firms are either too small to offer meaningful opportunities or too large to provide truly customized strategies,” Sean explains. “We bridge that gap by ensuring our clients get both.”
These alternative investment opportunities can include private equity, real estate, and tax-efficient vehicles that go beyond traditional stock and bond portfolios. The goal is to maximize returns while maintaining a strategy aligned with each client’s risk tolerance and long-term vision.
Transparency and Trust: The Foundation of Client Relationships
At Centura, building long-term relationships based on trust and transparency is a top priority. From the first client meeting through ongoing wealth management, communication and clarity remain central to their process.
“We want clients to know exactly what they’re getting from us at all times,” Derek emphasizes. “That means clear reporting, open discussions about investment strategies, and a process that prioritizes their best interests.”
This commitment to transparency ensures that clients feel confident in their financial strategies and trust that Centura is always acting in their best interests.
Key Takeaways from the Discussion:
Specialized Planning for Business Owners: Centura helps entrepreneurs maximize their wealth before and after selling their businesses.
The Liberated Wealth Process: Designed to provide a 5X return on costs through strategic tax and investment planning.
Exclusive Investment Access: Personalized services paired with alternative investment opportunities.
The “Goldilocks” Firm Philosophy: Large enough to access meaningful opportunities, small enough for personalized attention.
Transparency and Trust: A client-first approach that ensures clarity in planning and execution.
For ultra-high-net-worth individuals looking to optimize their financial strategies, Centura Wealth Advisory offers a unique blend of expertise, personalized service, and exclusive opportunities. By focusing on long-term wealth preservation and tax-efficient planning, they help clients turn financial success into a lasting legacy.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
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What’s the secret to cultivating a workplace where people are empowered, engaged, and driven to succeed?
At Centura Wealth Advisory, it all starts with a commitment to core values and a leadership approach rooted in trust and open communication.
Krystal Puryear, SHRM-CP, Director of People and Culture, and Nicole Hubbs, Talent Acquisition Specialist, share how Centura has built a thriving culture by focusing on transparency, excellence, integrity, passion, and respect.
From using Radical Candor to foster trust and autonomy to creating opportunities for employee growth and innovation, this conversation provides valuable insights for any business leader or HR professional looking to strengthen their organizational culture.
Tune in below to learn more.
The Role of Core Values in Shaping a Thriving Work Environment
At Centura Wealth Advisory, core values play an essential role in creating an engaging and empowering workplace. Krystal, who oversees all things People and Culture, emphasized how the company’s values shape its workplace dynamic: “We have a set of core values that really define who we are as an organization. These values are the foundation of everything we do and the way we interact with our team members.”
The core values of Centura include transparency, excellence, integrity, passion, and respect—values that guide their day-to-day operations and contribute to a culture where employees feel supported and encouraged to reach their full potential.
The Power of Radical Candor in Building Trust and Autonomy
A standout aspect of Centura’s leadership approach is the use of Radical Candor. This method, popularized by Kim Scott, emphasizes clear and direct communication, while also showing care and respect for individuals. Krystal and Nicole discussed how Radical Candor helps create a culture of trust and autonomy, where employees feel empowered to share their opinions and take ownership of their work.
Krystal explained, “Radical Candor allows for open communication between all team members and helps us foster trust. It also gives our employees the autonomy to make decisions and innovate. When they feel trusted, they’re more likely to take ownership and contribute in meaningful ways.”
This trust-building approach encourages employees to take initiative, ask for feedback, and embrace opportunities for growth—ultimately contributing to the company’s success.
Executive Coaching and Leadership Development
One key element of Centura’s success is its investment in leadership development. Both Krystal and Nicole shared how the company emphasizes coaching and mentorship to foster leadership growth within the organization.
Nicole highlighted the value of executive coaching: “We believe in investing in our leaders. Whether they’re new to a leadership role or have been in the position for a while, we provide executive coaching to help them continue developing their leadership skills.”
This commitment to leadership development is crucial to creating an environment where managers and leaders can inspire their teams and lead with confidence.
Open Communication and Social Events for Team Bonding
Building trust and transparency extends beyond formal leadership training. At Centura, open communication is encouraged at every level of the organization. This commitment to communication is not just about talking—it’s about listening and making space for honest feedback. As Krystal explained, “We value open and honest communication, and we always try to create opportunities for our employees to have their voices heard.”
In addition to open communication, Centura fosters strong relationships through social events and team-building activities. These events allow employees to connect on a personal level and strengthen bonds within the team. Nicole shared how social events help reinforce trust and create a sense of community: “We have regular social events and activities that help strengthen relationships within the team. It’s all about creating a sense of belonging and camaraderie, which ultimately drives engagement.”
Hiring for Culture Fit: Aligning Talent with Company Values
One of the most important aspects of Centura’s culture-building approach is identifying and hiring talent that aligns with the company’s core values. Nicole, who plays a key role in talent acquisition, discussed how she ensures that candidates align with Centura’s culture during the hiring process: “When we hire, we’re not just looking for skills—we’re looking for people who will embody our core values. It’s about finding talent that’s a good fit for the culture, which is critical to maintaining a positive work environment.”
By ensuring that new hires are a strong cultural fit, Centura sets the stage for long-term success and fosters a cohesive, collaborative workforce.
Encouraging Employee Autonomy and Innovation
A key part of Centura’s culture is empowering employees with the autonomy to make decisions and take initiative. By creating an environment where employees are encouraged to think creatively and innovate, Centura fosters a sense of ownership and responsibility.
Krystal shared how the company gives employees the freedom to grow and take risks: “We encourage autonomy because we believe that when employees have the freedom to make decisions and explore new ideas, it leads to greater innovation and productivity. It also helps them develop a sense of ownership in their work.”
This approach not only leads to higher levels of engagement but also drives innovation within the company, enabling Centura to continuously improve and adapt to changing market conditions.
The Diamond Team Model: Enhancing Collaboration and Career Development
Centura’s Diamond Team model plays a significant role in enhancing collaboration, knowledge sharing, and career development. Krystal explained: “The Diamond Team model encourages cross-functional collaboration and allows employees to work on diverse projects. It’s a great way for individuals to learn new skills, share knowledge, and grow their careers within the company.”
This model promotes a collaborative environment where employees from different departments can come together, share ideas, and contribute to the company’s success. It also supports career growth by providing employees with opportunities to gain experience in different areas of the business.
Upcoming Team Events and Celebrations
To further strengthen employee engagement and appreciation, Centura regularly organizes team events and celebrations. These events give employees a chance to relax, bond, and celebrate their achievements together. Krystal and Nicole shared some of the upcoming events planned to show appreciation for the team: “We always look for ways to celebrate our team. Whether it’s a holiday party or a team-building retreat, we want to make sure that everyone feels appreciated and valued.”
These events help reinforce the company’s commitment to creating an engaging and supportive workplace where employees feel recognized for their contributions.
Key Takeaways:
Centura Wealth Advisory’s success is driven by a commitment to core values, a leadership approach rooted in trust, and a focus on employee empowerment. By fostering open communication, encouraging autonomy, and investing in leadership development, Centura has created a culture where employees are engaged, motivated, and passionate about their work. Whether you’re a business leader or an HR professional, the insights shared by Krystal and Nicole provide a roadmap for building a thriving organizational culture that drives success.
Connect With Centura
At Centura Wealth Advisory, we go beyond a traditional multi-family office wealth management firm to offer advanced tax and estate planning solutions which traditional wealth managers often lack in expertise, knowledge, or resources to offer their clients.
We invest heavily into technology and systems to provide our clients with fully transparent reporting and tools to make informed decisions around their wealth plan.
Centura Wealth does not make any representations as to the accuracy, timeliness, suitability, or completeness of any information prepared by any unaffiliated third party, whether linked to or incorporated herein. All such information is provided solely for convenience purposes and all users thereof should be guided accordingly.
We are neither your attorneys nor your accountants and no portion of this material should be interpreted by you as legal, accounting, or tax advice. We recommend that you seek the advice of a qualified attorney and accountant.
For additional information about Centura, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). Please read the disclosure statement carefully before you engage our firm for advisory services.
Markets in the summer months are historically sleepy as individuals go on vacation and gear up for a new school year, but the third quarter brought anything but sleep to investors worldwide. Equities were marred with bouts of negative activity throughout the quarter – markets experienced a historic 180% surge in the VIX to an intraday high of 65.7 on August 5, yet, despite the volatility, both stocks and bonds pushed higher to end Q3. The market’s resilience caused the month of September to post its first gain in five years. While initially overreacting to adverse events, markets quickly put them in the rearview mirror as the S&P 500 witnessed the best nine-month start to a year since 1997, which also coincided with the best start to an election year ever, all while registering its 42nd all-time high of the year. The busy quarter witnessed the following:
Yen Carry Trade – On the heels of the Bank of Japan’s rate increase announcement, global hedge funds that capitalized on the arbitrage opportunity presented by zero long-term rates in Japan for years, realized the music was about to stop in early August. Quickly unwinding their trades, Japan’s Nikkei stock market experienced the largest single day loss dating back to “Black Monday” in 1987, resulting in a single-day decline of 12.4% on August 5.
Softening Labor Market – The Bureau of Labor Statistics announced an 818,000 revision lower for the prior 12-months jobs added through March of 2024. The labor reports for June, July, and August confirmed softening with the revised additions of 118,000, 61,000, and 142,000, respectively. Every month in the quarter came in below expectations, as the unemployment rate continued to rise – ending at 4.2% through August.
Assassination Attempts – Former President Trump survived two assassination attempts in the quarter as the Presidential race picks up steam, further adding to the market’s anxiety amid election uncertainty.
Candidate Swap – President Biden dropped out of the Presidential race, paving the way for Vice President Kamala Harris to grab his bid. Since Harris’s party nomination, Democrats have seen a sharp reversal of fortunes, and now hold a slight advantage in the polls as of 10/1.
Fed Rate Cut– In line with traders’ expectations — though surprising to many economists and investors — the Fed aggressively cut rates in September for the first time since 2019, front-loading their easing cycle with a 0.50% reduction in their overnight borrowing rate. This led many to question the Fed’s perception of the economy and whether the central bank could manufacture a soft landing and avoid a recession.
Port Strike– As of 12:01 am Eastern Standard Time on October 1, a union labor strike forced ports on the Eastern US and Gulf Coasts to shut down, threatening the economy. JPMorgan Chase & Co. anticipate the closures will result in economic losses between $3.8 billion to $4.5 billion per day, and will likely cause supply chain disruptions and perhaps transitory inflation. Oxford Economics projects a week-long strike would take about a month to clear the shipping congestion.
Israel-Iran – Iran fired nearly 200 missiles into Israel escalating tensions in the Middle East. Israel cited it would retaliate, and this pledge caused Gold (GLD) prices to reach record highs, a U.S. stock market sell off, losses in Crude oil (USO), and a gain in defense sectors.
In face of the strife and a broadening out in earnings growth, the Fed signaled the start of its easing cycle in July, pointing markets to their first rate cut at the September FOMC meeting. While markets experienced hurdles throughout the quarter, economic growth, fueled by resilient consumer spending, continued to surprise to the upside, and investors chose to focus on these positives, causing both the S&P 500 and bonds, as measured by the Bloomberg U.S. Aggregate Index, to advance more than 5% over the quarter. This solid performance in the face of market angst and during a historically slow period demonstrated that investors’ animal spirits are alive and well.
Market Recap
Equities – After contracting 3.62% in the second quarter, rate cut speculation supported higher returns among the profit-hungry and interest-rate sensitive small caps. The Russell 2000 led the way, up 9.27% in 3Q. Lagging their small cap counterparts, the S&P 500 witnessed a broadening out of market participation away from the Magnificent Seven on its way to a 5.89% return for the quarter, and a 22.08% advancement for the year.
Bonds – Amidst moderating yet conflicting economic growth signals, bond yields fell aggressively during the quarter in anticipation of the first Fed rate cut. Entering July, the yield on the 10-year U.S. Treasury dropped sharply from 4.48% to 3.66%, leading up to the looming rate cut in mid-September. Generating fewer headlines over the quarter, the Treasury market continued to grapple with robust U.S. debt issuance and weakening demand for U.S. Treasury securities. We believe supply absorption concerns will likely continue to apply upward pressure on yields, illustrated by yields slightly reversing course to close the month of September. The 10-Year U.S. Treasury closed the quarter at 3.81%. The Bloomberg U.S. Aggregate Bond Index rose 5.20% in the quarter, erasing the negative 0.71% return in the first half of 2024, finishing up 4.45% through September 30.
Source: YCharts. The Bloomberg US Aggregate Index was used as a proxy for Bonds; the Bloomberg US High Yield 2% Issuer Capped Index was used as a proxy for High Yield Bonds; the Russell 2000 Index was used as a proxy for Small Cap Equities; and the MSCI ACWI Ex USA Index was used as a proxy for Foreign Equities. All returns are based on total return levels as of 09/30/2024.
Economic data remains mixed, and base case expectations still call for the Fed to successfully achieve a ‘soft landing’ and avoid recession. However, as the Federal Reserve’s attention shifts from price to job stability, the path of monetary policy will likely be driven by the health of the labor market.
Economy: The Consumer Surprises
In contrast with the nation’s revised first quarter GDP growth of 1.6%, which was held down by softer consumer spending of 1.9%, the second quarter surprised to the upside. A lift in personal income fueled a resurgence of consumers’ penchant to spend, as spending jumped to a 2.8% pace, and an 8.3% increase in business investment helped push U.S. growth higher at a 3% annualized pace. Building on the first two quarters of 2024, as of September 27, 2024, the Atlanta Fed’s GDPNow model for Q3 has been revised from 2.9% to 3.1%, indicating a stable, albeit moderating economic growth engine. This revision reflects the sustained trends of a resilient consumer and further business investment, though an economy hindered by negative residential investment.
August’s Labor Market Report registered the 44th consecutive month of job gains. Estimates called for 161,000 jobs in August, and the market once again surprised to the downside with the addition of 142,000 jobs and further downward revisions to June and July’s reports to 118,000 and 61,000, respectively. Conversely, the unemployment rate retraced slightly to 4.2%, which is still nearly 1% higher than the 55-year low of 3.4% in April 2023. The deterioration of the labor market has quickly grabbed the attention of the Fed, as softness became evident across several pockets of the economy.
The Bureau of Labor Statistics announced an 818,000 revision lower for the prior 12-months jobs added, through March of 2024, reflecting weaker job growth than anticipated. Since peaking in 2022, job openings (JOLTs) have continued to trend lower, bouncing around from month-to-month. For example, job openings fell to their lowest level since January of 2021 to 7.71 million in July, only to reverse course back above eight million in August, bringing the ratio of job openings to those unemployed down to 1.13:1. While the ratio of 1.13:1 is above historical levels, the ratio has fallen significantly from nearly two job openings for every job opening in 2022, indicating the labor market is showing signs of tightening. Over the course of the year, the number of open jobs has trended lower, while the number of unemployed job seekers has trended higher, as evidenced by the additional 991,000 unemployed persons from January to August.
Since the Fed embarked on its tightening journey and increased rates, the strength and resiliency of the labor market gave them confidence to keep rates higher for longer. Ultimately, the Fed would like to see wage growth continue to trend lower from its current, elevated level of 3.83%. Given the slowing pace of hiring and the increase in unemployment figures, labor market stability has become a primary concern for the Fed. Fears surrounding further labor market weakening cast doubt on the Fed’s ability to avoid a recession and produce a soft landing. The surge in late July Unemployment Claims helped fuel the market selloff in early August that witnessed the S&P 500 enter a nearly 10% correction, although claims have since retraced. Unemployment Claims (both Initial and Continuing) are released weekly and provide the most up to date insight on the health of the labor market. As mentioned, Initial Claims have fallen from 250,000 on July 27 to 218,000 on September 21, while Continuing Claims have been range-bound between 1.73 million and 1.87 million since the start of the year. Both of these levels are nowhere near levels seen in prior periods leading up to a recession, though remain important to monitor.
Inflation
The Fed appears to be in a position to win the war on inflation. However, we would not be surprised to see a few battles lost from month-to-month as pricing pressure moves towards the Fed’s 2% target. All inflation measures are below wage growth of 3.8%, with both of the Fed’s preferred inflation measures (PCE) coming in at 2.7% or lower. Core inflation, as measured by CPI and PCE, remains stickier: core CPI stayed at 3.2% year-over-year, while core PCE saw a slight uptick in August to 2.7%.
Further evidence of falling price pressures should provide Federal Reserve Chair Jerome Powell the confidence to continue down the path of monetary easing, supporting further rate cuts. Threatening the falling trend in inflation measures are the recent port closures across the Eastern seaboard and the Gulf. We are paying close attention to these closures and hoping for a quick resolution. A prolonged strike could result in serious supply chain constraints, potential price increases for goods, and a slowing in economic output.
Fed Starts Strong Out of the Gate
The Federal Open Market Committee (FOMC) elected to lower rates by 0.50% (50 bps) at their September meeting, while leaving the size of future rate cuts open. The Fed’s decision to cut rates was largely expected. The surprise centered around the size of the Fed’s cut and the subsequent updates to their Summary of Economic Projections (SEP). This surprise was best illustrated by the Fed’s updated median projection for total rate cuts in 2024, which increased from a mere 0.25% of cuts projected in the June SEP to a total of 1.00% worth of cuts in the September SEP, signaling to markets that interest rates would be cut at a more accelerated pace than initially expected.
Many expected the Fed to start slow with rate reductions, pointing to the health of the overall economy. A larger cut can indicate the Fed believes the economy is deteriorating quickly and that they waited too long to cut rates; however, the Fed has downplayed this rhetoric, stating that a 50 bps cut was warranted due to the strength the economy has exhibited.
The Committee held its projection for 2025 at 1.00% (100 bps) of cuts, indicating a slower pace of change as the Fed adopts a more patient data-dependent position after front-loading their easing in the final four months of 2024. Barring any exogenous event or resurgence of inflation, we believe Powell’s plan is to settle into a predictable cadence in terms of size and timing as we transition into 2025. We believe the Federal Reserve will align further rate reductions with their quarterly meetings and updated Summary of Economic Projections to the tune of more traditional 0.25% policy changes. We fully anticipate the Fed will hit its policy target for 2024 with 100 bps of cuts. However, the question remains whether they will do so in the form of one more 0.50% or elect a more traditional policy change and reduce the terminal rate by 0.25% in November and December: we are in the latter camp.
Centura’s Outlook
The Fed’s goal to lower inflation to its 2% mandate and avoid recession is still our base expected outcome. However, the Fed will need to monitor the state of the labor market deterioration closely if they are to fully avoid an economic contraction.
Successfully delivering lower inflation and monetary policy normalization should bode well for equities and bonds, however, as always, there are several potential risks looming and investors should proceed carefully.
By most measures, the S&P 500 is overvalued. According to FactSet, as of September 27, the forward 12-month Price-to-Earnings Ratio (P/E) is 21.6x, which is higher than both the 5-year and 10-year averages of 19.5x and 18.0x, respectively. Current valuations pose a risk to the market, as negative sentiment can lead to sharper selloffs. Also posing a risk to the overall market is the concentration of the Top 10 largest stocks in the S&P 500. According to JPMorgan Asset Management, the 10 largest constituents represent 35.8% of the index, as of August 31, while contributing to 28.1% of the earnings. Concentrations of this magnitude make the index vulnerable to significant changes stemming from those underlying companies, which is one of several reasons we favor global diversification across a multitude of asset classes – both public and private.
In the face of higher borrowing costs, corporate profits remain resilient, illustrated by the fourth consecutive quarter of positive earnings growth by the S&P 500, rising 5.1% in the second quarter. As of September 27, FactSet estimates third-quarter earnings to expand at a slower pace, only advancing 4.6% year-over-year. We are encouraged by the positive earnings growth trends, though the second quarter saw investors punish negative earnings surprises more than they rewarded positive beats. Relative to the five-year average, stocks that beat earnings guidance in 2Q rose less (0.9% vs. 1.0%), while those companies that missed guidance fell nearly double the 5-year average (-4.3% vs. -2.3%), indicating the market appears overvalued, and investors are overreacting to news and resetting expectations.
Since 2023, the Magnificent Seven have been responsible for most of the market’s earnings growth, increasing 31%, versus the 4% contraction of the remaining 493 companies’ earnings in the S&P 500 last year. While third quarter earnings for the 493 companies are expected to be flat for 3Q, we remain optimistic by the fact that JPMorgan is expecting the remaining companies outside the Magnificent Seven to catch up and accelerate earnings throughout the remainder of the year. Both the Magnificent Seven and the S&P 500 ex-Mag Seven are expected to experience double-digit year-over-year earnings growth in the fourth quarter of 21% and 13%, respectively. A broadening of earnings growth should bode well for increased market breadth and carve a path for higher broad-based returns on equities, outside of the Magnificent Seven.
Persistent, elevated rates will continue to cause issues for certain companies, such as small caps, though earnings are expected to grow broadly through the remainder of 2024 and 2025; the Fed’s pivot to lowering rates should alleviate some of the pressure on company financials.
While equities generally produce positive returns during election years, we expect volatility will likely increase as we approach the election through October and early November. The recent political turmoil has created a great deal of market uncertainty, particularly given the differing policy initiatives of both candidates. In the face of uncertainty, we generally avoid making changes to investment portfolios in advance of an election, as the policy expectations could change greatly. Markets tend to rally once the election has concluded. We encourage clients to avoid making rash decisions and stay invested, as we are strong believers that long-term investment outcomes are improved by time in the market, rather than timing the market. We suggest investors concerned with historical market behavior leading up to, and after an election, listen to the podcast we recorded with Michael Townsend, Managing Director, Legislative and Regulatory Affairs at Charles Schwab & Company.
The stock market’s resilient momentum, a more favorable rate environment, a potential post-election rally, and expected earnings growth all serve as potential tailwinds to push equities to further highs. However, a fair amount of uncertainty and risks pose headwinds for markets. Outside of further labor market deterioration or a resurgence of inflation leading to a Fed policy misstep, significant geopolitical risks are present and could result in additional volatility, especially if there are escalations in the Middle East, Eastern Europe, or China. For instance, on October 1, Iran fired nearly 200 missiles into Israel escalating tensions in the Middle East. Israel cited it would retaliate, and, as a result, Gold (GLD) prices reached record highs, U.S. stocks sold off, Crude oil (USO) experienced losses, and investors flocked to safe haven investments and sectors.
Real estate tends to be an interest rate-sensitive asset class; as rates continue to move lower, we anticipate a pick-up in activity and a subsequent reversal of valuations over the next several years. We may not have found the bottom of the real estate market cycle quite yet, though based on improving fundamentals and discussions with our real estate partners, we may be bouncing off the bottom, from a valuation adjustment perspective. Access to nearly-free credit post-pandemic resulted in record numbers of new construction, particularly in commercial real estate sectors like multifamily and industrials. As a result of the Fed’s rate hiking cycle, those new constructions screeched to a halt as the cost to borrow and build has been unfeasible. However, 2024 is still expected to deliver more than 650,000 multifamily units, the most since 1974. Like most goods, price is determined by supply and demand, and real estate is no different. Currently, demand, or absorption, is failing to keep pace in multifamily, applying downward pressure on rents. Furthermore, new higher-quality inventory generally attracts higher rents, forcing older vintage properties to offer rent concessions to remain competitive and applying downward pressure on net operating income (NOI). On the opposite side of the ledger, expenses have outpaced income, particularly the cost of insurance and labor.
We believe we are approaching the light at the end of the tunnel. While valuations may trend sideways over the next 12-18 months, we are optimistic that increased activity resulting from lower interest rates, combined with supply concerns evaporating as we enter 2026 and few-to no new construction starts, should bode well for private real estate in the long-term, with 2024 and 2025 vintages potentially producing strong results at disposition. We continue to remain extremely cautious and selective, focusing on select submarkets, signs of possible distress, and attractive risk-adjusted returns.
Private equity, particularly lower middle market buyouts, appears to have stabilized, potentially presenting attractive investment opportunities relative to public market alternatives. Current yield levels still present challenges for private equity valuations, though, like real estate, lower rates should lead to increased exit activity and higher valuations moving forward. With limited private equity exit opportunities since mid-2022 and our expectation for increased activity, we favor managers specializing in co-investments, GP-led secondaries, and late-stage primaries that offer the potential for superior risk-adjusted returns in this environment, a potentially quicker return of capital, and generally lower fee structures.
Private credit is predominantly floating and tied to a base rate such as the Secured Overnight Financing Rate (SOFR) and closely linked to the Fed Funds overnight rate, as such the asset class has benefited from the Fed’s restrictive monetary policy, though we believe the asset class remains attractive. However, yields on private credit will start to come down as the Fed continues to cut rates, though with a lag to the Fed’s timing as the floating rate on private loans does not adjust immediately. Rather, there is a delay before the loan terms reset lower. Should our Fed rate path expectations prove accurate, we expect private credit to continue to produce a high level of income, particularly on a relative basis.
While the third quarter brought both hurdles and strong market performance, we remain laser-focused on long-term objectives and minimizing volatility in the short-term amidst this data-dependent backdrop.
Thank you for your continued confidence and support. If you have questions or concerns, please contact your Centura Wealth advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
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Centura Wealth Advisory is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Centura Wealth Advisory and its representatives are properly licensed or exempt from licensure. 12255 El Camino Real, St. 125, San Diego, CA 92130.
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