Welcome to September’s FAQs and RAQs!
Here we address client questions—some Frequently Asked, and others Rarely Asked.
FAQ: Is the U.S. stock market expensive?
Yes, at least compared to its history since World War 2.
But we believe today’s market deserves its premium. Corporate America has progressed on many fronts. Here are some examples:
- CEOs Know Their Assignment—Today’s companies are engineered to maximize not only profits, but shareholder value.
- Auto-Investing—Millions of Americans auto-invest through their 401(k)s, creating a consistent source of demand for stocks.
- The Subscription Economy – Big Tech’s subscription-based business models create steady revenues, making these companies less vulnerable to the booms and busts that plagued “old economy” stocks.
- Activist Investors— Cheap stocks often don’t stay cheap for long. Activists either push for improvements or take underperformers private, removing them from the index.
- Innovative Financing—Innovations in lending have made it easier for companies get a lifeline during tough times, reducing risks.
- Fed to the Rescue—The Fed’s willingness to step in during a crisis boosts investor confidence.
Does this mean that “anything goes” in terms of valuations? Of course not! But we don’t think today’s levels should alarm investors.
FAQ: What’s the stock outlook for the remainder of the year?
A good question!
Predicting the market’s short-term direction is notoriously difficult.
Even so, we think two factors will play an important role: the Federal Reserve and demand for Artificial Intelligence technology.
Here’s how it could play out:
RAQ: How are dividends taxed on mutual funds that own foreign stocks?
Generally, similarly to dividends on funds that own U.S. stocks. But it depends!
If the U.S. has a tax treaty with the country where the fund invests, you typically get the “qualified dividend” tax rate. Without a treaty, you could face higher ordinary income taxes on those dividends. In those instances, you may be able to claim a foreign tax credit to help offset any taxes paid abroad.
In our experience, most of the income generated by overseas mutual funds has been subject to qualified rates.
As always, please consult your tax preparer for additional details.
Have a question? Drop us a line at carlsongroup@rwbaird.com. We’d love to hear from you!
Baird does not provide tax advice. All investments carry a level of risk, including loss of principal. PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS.