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2023 is almost at an end. This month, along with last-minute holiday shopping, investors will be looking at their portfolios to see if there are any rebalancing or tax-loss harvesting opportunities.

And, if you haven’t looked at your cryptocurrency investments in a while, it’s worth checking on those, too — you might find a pleasant holiday surprise.

In this issue

• - Why crypto is up big this year — and what’s next for crypto
• ETFs.
• - Tax-loss harvesting: how to turn struggling investments into deductions.
• - Fed releases, earnings and other key December dates.



A new bull market in cryptocurrency?




Here’s something you might have missed in 2023 if you weren’t a committed crypto investor: The price of Bitcoin (BTC) is up more than 110% year-to-date. Bitcoin Cash (BCC) is up more than 120%. And Ethereum (ETH) is up more than 60%.




What’s behind the crypto rally this year?




According to Peter Eberle, the chief investment officer of California-based crypto investment firm Castle Funds, much of this year’s rally is actually a recovery from last year’s crypto crash.




“Considering the massive fraud orchestrated by FTX and Sam Bankman-Fried, the collapse of the so-called stablecoin Terra and the downfall of multiple overleveraged crypto funds in 2022, it surprised some people that the bear market was not worse. The recovery in price of Bitcoin and ETH proves that these assets are resilient,” Eberle said in an email interview.




But there’s another factor that may be contributing to crypto’s comeback this year — the possibility that new crypto exchange-traded funds (ETFs) could hit the market soon.




What’s up with those new crypto ETFs?




In the last year, several fund providers, including Fidelity and Blackrock, have filed forms with the Securities and Exchange Commission (SEC) to launch ETFs that track the spot prices of Bitcoin and Ethereum by investing directly in those cryptocurrencies.




(Several cryptocurrency ETFs are already available that track crypto stocks or crypto futures contracts, but none invest directly in cryptocurrencies themselves.)




“At this point the question is when, not if, the SEC will approve a spot ETF. Rather than outright rejecting the recent applications, the SEC seems to be giving some constructive feedback on the structure of these products,” Eberle said.




Eberle said the short-term impact these fund launches could have on crypto markets might be fairly limited. But he said that in the long-term, they could open up crypto investing to more people.




“For example, it is currently difficult for 401(k) investors to get exposure to crypto. An ETF would make that easier,” he said.




Should crypto be in your portfolio?




Eberle recognizes that crypto’s volatility makes it a tricky thing to justify for some investors.




“If you have limited savings, then that volatility might be too dangerous,” he said.




However, Eberle said he’s bullish on crypto for the long term — in part, he said, because artificial intelligence (AI) technology pairs well with crypto and crypto-based smart contracts.




“As AI does more programming, it will be given the authority to spend a budgeted amount of money for outside services which it requires. ETH and BTC are ideal for some of these applications,” he said.




And increased adoption could be very lucrative for crypto investors.




“With the acceleration of adoption and investment by institutions, we believe that BTC will approach the market cap of gold within the next 10 years,” Eberle said. He said that a Bitcoin price of $500,000 — and an Ethereum price of $20,000 to $40,000 — is possible in a decade.




Term of the month: Tax-loss harvesting




Crypto may be making a comeback, but some crypto investors — such as those who bought Bitcoin in late 2021 — are still sitting on losses, as are some investors in tech stocks. Before the year ends, they may want to consider turning some of those losses into tax deductions via tax-loss harvesting.




What is tax-loss harvesting?




“Tax-loss harvesting is a way to take advantage of losses in securities that you have throughout the year, to offset gains, or offset a certain amount of ordinary income,” says Jeff Weber, a certified financial planner with Nevada-based registered investment advisor The Wealth Consulting Group.

Investors can deduct up to $3,000 worth of taxable losses (that is, losses in a taxable brokerage account) each year. If they have more losses than that, they can carry the remainder forward to deduct in future years.




The wash-sale rule, and other tax-loss harvesting tips




If you’re just learning about tax-loss harvesting, you might be tempted to sell all of your investments that aren’t currently profitable, claim the losses, and then immediately repurchase them. But the IRS has thought of this, and prohibits it with something called the wash-sale rule.




“You’re not allowed to sell an investment for a loss and replace it with a same or substantially identical investment within 30 days before or after the sale,” Weber says.




Selling an S&P 500 index fund and then immediately buying a different S&P 500 index fund, for example, would violate the wash-sale rule because the two funds are substantially identical in the eyes of the IRS.




With this in mind, Weber says that investors need to consider whether the deduction generated by harvesting a particular tax loss is big enough to justify potentially missing out on that investment’s gains over the next 30 days.




However, there are workarounds, says Ryan Balderian, a chartered financial analyst with California-based registered investment advisor Quantum Financial Advisors. You can’t buy a substantially identical investment immediately after selling, but you can buy what Balderian calls a “proxy” — a different investment that moves in a similar way.




Selling an S&P 500 index fund and then immediately buying a Dow Jones Industrial Average index fund, for example, would likely be permissible, although it’s always a good idea to consult a tax professional like a certified public accountant to make sure.




What losses are investors harvesting this year?




Weber says that the recent downturn in bonds caused by rising interest rates has created tax-loss harvesting opportunities.




“This year and last year in particular, when bond funds were going down considerably, we did a lot of tax-loss harvesting in that space,” Weber says.




“So earlier this year, when most bond funds had gone down in value, we would look at selling some of the funds that had gone down, locking in that loss, and then replacing it with another bond fund which isn’t considered substantially identical,” he says.




Balderian says he’s also done a lot of tax-loss harvesting in real estate investments this year — another asset class that has been hit hard by rising interest rates.




Dates that could move markets this month




Economic events


- The Bureau of Labor Statistics (BLS) will release its monthly employment situation summary Dec. 8.
- The BLS will also release its monthly consumer price index (CPI) report Dec. 12.
- The Federal Reserve Board of Governors will meet Dec. 12 and Dec. 13 to determine the new level of the federal funds rate. It will also release a new summary of economic projections.
- The Federal Reserve Bank of New York will release its latest dynamic stochastic general equilibrium (DSGE) model on Dec. 15 — an influential quarterly forecast of GDP growth, inflation and interest rates over the next three years.
- The Federal Reserve Bank of New York will also release its survey of consumer expectations (SCE) labor market survey on Dec. 18.



Earnings


- Broadcom (AVGO) will report earnings Dec. 7.
- Oracle (ORCL) will report Dec. 11.
- Adobe (ADBE) will report Dec. 13.
- Costco (COST) will report Dec. 14.
- Accenture (ACN) and Nike (NKE) will report Dec. 19.

Thanksgiving is just around the corner, and NVIDIA (NVDA) shareholders certainly have a lot to be thankful for this year. Will the company’s upcoming earnings report keep the stock’s momentum going?

The computer hardware manufacturer is just one of several big tech stocks that are due to report earnings in November. It’s also going to be a big earnings month for the oil and gas industry.

Must read: The rise of NVIDIA

NVIDIA has been around for more than 30 years, but until recently, it was a fairly obscure company outside of the PC gaming and computer engineering worlds.

That’s no longer the case today, because NVIDIA’s graphics processing units (GPUs) have found themselves at the center of several major technology trends, and the company is battling with Meta to be the best-performing stock in the S&P 500 in terms of one-year return.

Lately, NVIDIA has seen a rush of artificial intelligence (AI)-related interest in its products — and its share price has more than tripled over the last year. Some investors might be wondering whether all that hype is really deserved, especially ahead of NVIDIA’s upcoming earnings report on Nov. 21.

Why is NVIDIA stock up more than 200% this year?

Despite their name, GPUs are used in a lot more than just graphics processing. They’ve become the go-to hardware for just about any kind of high-performance computing, such as bitcoin mining or, more recently, AI.

NVIDIA was an early pioneer of non-gaming applications for GPUs and has developed lines of GPUs that are specialized for data centers, such as those that power AI. Today, data centers account for most of NVIDIA’s revenue, and the company controls more than 80% of the global GPU market.

NVIDIA’s market cap first crossed the $1 trillion line back in June, and it has generally stayed above that level since then, buoyed by three strong earnings reports this year in which the company’s earnings per share (EPS) and revenue beat Wall Street expectations. In the most recent quarter, data center revenue rose 171% year-over-year.

So in short, NVIDIA’s rapid stock price gains are largely due to its revenue growth — but another factor, according to one financial advisor, is NVIDIA’s reputation as the dominant provider of AI hardware.

“If you take the Wall Street analyst consensus view that Nvidia is two years ahead of any competitors when it comes to developing chips, that has to be worth something,” Malcolm Ethridge, a Washington, D.C.-area certified financial planner with CIC Wealth Management, said in an email interview.

Is NVIDIA valued properly?

NVIDIA’s steep rise in share price over the last year has given the company a dizzying valuation. Its price-to-earnings (PE) ratio — a relative measure of share price as a multiple of profits — is about 100 at the time of writing.

That’s considerably higher than other trillion-dollar tech companies like Alphabet (GOOG), whose PE ratio is about 24, and Microsoft (MSFT), which has a PE ratio around 33.

A high PE ratio doesn’t necessarily mean that the stock is overvalued, but it does mean that NVIDIA is under a lot of pressure to deliver on shareholders’ lofty expectations.

“I think NVIDIA bulls should also be taking into account whether NVIDIA can actually produce enough chips fast enough to meet all of the demand that is out there and fill all of the orders they're currently receiving,” Ethridge said.

“If the answer to that question is no, then I think it's fair to call the stock overvalued,” he said.

Term of the month: Moving averages

Investors trading individual, highly volatile stocks rely on various technical indicators to inform their decisions. In this month’s issue, we’re looking at one stock analysis tool some traders use to try to optimize their timing: moving averages.

What are moving averages?

A security’s moving average is its mean price over a particular period of time. For example, a stock’s 50-day moving average is its mean price over the last 50 days, while its 200-day moving average is its mean price over the last 200 days.

Moving averages come in a few different flavors. Simple moving averages (SMAs) just use the calculation above — the average price over a set period of time. Exponential moving averages (EMAs), on the other hand, change more rapidly in response to recent price changes because they use a weighted average formula that emphasizes more recent prices.

Moving averages change every day, hence the “moving” part. A stock’s 50-day SMA as of yesterday is its mean price over the 50 days before yesterday, while its SMA as of today is its mean price over the 50 days before today. As a result, moving averages can be drawn as lines on stock charts, and some traders look to them for buying and selling signals.

How do you use moving averages?

One of the simplest ways to use moving averages is to look for points where a short-term moving average intersects with a long-term moving average.

For example, if a stock’s 50-day moving average rises above its 200-day moving average, that’s called a “golden cross” and is generally considered a positive signal for the stock’s future price. You can see a golden cross on the chart above, in which Apple’s 50-day SMA crossed above its 200-day SMA in late March. The stock price rose significantly in the months after that cross.

Conversely, a “death cross” is when a stock’s 50-day moving average falls below its 200-day moving average, and it’s generally considered a negative signal for the stock moving forward.

Ethridge said that this kind of strategy can be useful for deciding when to get in and out of a stock you’ve already decided you want to buy or sell — but not for initially picking stocks.

“Technical patterns such as these are better used as a way to confirm your thesis after you've already decided a stock is a buy or sell,” he said.

Dates that could move markets this month

Economic events

Earnings

Spooky season is upon us and thrill-seekers around the country will be crowding into horror movies and haunted houses throughout October.

But for investors, there are other — potentially more lucrative — ways to find some excitement this month. October 2023 is shaping up to be a make-or-break earnings season for tech stocks, and it’s also seeing unprecedented volatility in Treasury bond markets.

Must-read: Big Tech earnings season in focus

When we talk about “Big Tech,” we’re talking about a handful of publicly traded companies with market capitalizations in the hundreds of billions or trillions of dollars. Almost all of these companies will report earnings in the next month:

What do experts expect from the Big Tech earnings season?

Todd Walsh, the CEO and chief technical analyst of Irvine, California-based registered investment advisor Alpha Cubed Investments, says that he expects these companies to report earnings and future guidance that is in line with investor expectations.

Part of the reason he expects a positive outcome from this Big Tech earnings season is because companies like Microsoft, Alphabet, Meta and Amazon have become important artificial intelligence stocks.

"We think they will deliver on earnings. These are companies that are at the epicenter of the AI ecosystem, which is a real phenomenon — similar to the PC revolution in the late '70s and the internet," Walsh says.

What does it mean for the stock market as a whole?

Walsh says that Big Tech earnings could be important to more than just Big Tech. "This is probably the most critical earnings season we’ve seen in quite a while," Walsh says.

"You’re talking about the companies that have been carrying the entire market return this year," he says — noting that the non-Big-Tech portions of the S&P 500 index have largely been stagnant in 2023.

"If those companies don’t meet expectations and then set guidance that meets expectations, as a group, we’re going to be in a lot of trouble here," Walsh says.

Term of the month: 10-year Treasury yield

In late September, the yield on the 10-year Treasury note rose above 4.5%, hitting its highest level since before the Great Recession — and it remains above 4.5% at the time of writing.

That presents an opportunity for investors who are interested in bond trading.

High yields mean low prices

A key principle of bond markets is that prices go down when interest rates go up, and vice versa.

All bonds have a “coupon rate,” which is equal to the bond’s annual interest payments divided by its face value. (The face value is the principal amount of the bond, which is paid back when the bond matures. It's often $1,000). A bond’s face value and coupon rate are set in stone, no matter what the market does.

Bonds also have a “yield,” which is equal to the bond’s annual interest payments divided by the price the investor paid for the bond. Bond prices — and yields — are subject to market fluctuations.

When market interest rates go up — as they have recently due to Federal Reserve policy and other factors — investors aren’t willing to pay face value for an old bond with a coupon rate lower than the market interest rate. They expect a discount on the price of the bond, so its yield is in line with market interest rates.

That means that the rapid rise in interest rates over the last two years has caused a rapid drop in bond prices.

Bond trading 101

Satoru Asato, a Bloomington, Minnesota-based certified financial planner and former bond trader, said in an email interview that bond day trading may not be appropriate for nonprofessional investors due to its high bid-ask trading spreads, mathematical complexity and the need for access to real-time options data, futures data and news.

However, Asato acknowledged that some investors might be tempted to buy bonds during the current period of high yields and low prices, “with the hope of riding the future interest rate cut scenario,” in other words, in anticipation of a future rise in bond prices.

In that scenario, a portfolio that blends different kinds of fixed-income investments could benefit from an eventual rise in bond prices, he says.

For example, that might mean splitting bond allocations between various bond products, such as money market funds, short-term and floating-rate notes, and intermediate and long-term bonds.

Asato noted that interest rates aren’t the only risk factor bond traders need to keep track of — they also should monitor the creditworthiness of the companies or government entities that issue bonds, as well as the risk that their buy or sell orders will be executed at subpar prices due to the high spreads.

Dates that could move markets this month

Earnings

Economic events