Bob’s Journal 4/24

International Stocks Surge Ahead Again

Following a brief pause, non-U.S. stocks are back to handily outperforming U.S. equities in 2025.

After years of lagging, international stocks began 2025 by delivering significantly higher returns than U.S. stocks. The superior returns were broad-based.

For example, iShares MSCI EAFE (EFA) had a total return in the first quarter of 8.09%. The S&P 500 (SPY) lost 4.27% over the same period.

Both exchange-traded funds (ETFs) tumbled after President Trump announced broad-based tariffs in early April, an event he  characterized as “Liberation Day.”

But EFA hit bottom after seven days and began recovering. The bounce back has brought EFA’s share price close to its pre-Liberation Day level. The S&P 500 is above its April low but still is well below the Liberation Day level, which is well below its high for the year.

In the seven days through Tuesday’s close, SPY is down 6.51% while EFA is up 2.22%.

Global investors aren’t simply selling U.S. stocks and buying non-U.S. stocks. There are indications that many global investors want to reduce their overall exposure to the United States and to the dollar.

The dollar, as measured by the ETF Invesco DB U.S. Dollar Bullish (UUP), is down 4.60% in the last four weeks, 7.49% over the last three months, and 7.58% so far in 2025. It was down 2.99% in the first quarter, so a significant portion of the losses came after the tariff announcements.

Investors should recognize that a major move in global capital probably is underway. Many investors no longer consider U.S. assets or the dollar to be safe havens. They’re reducing exposure to the United States.

More Changes in Prescription Drugs Are on the Way

President Trump recently signed a new executive order that’s intended to reduce prescription drug prices for most Americans, including Medicare beneficiaries.

The order contains a range of directives. Some of the policies were implemented during the president’s first term but rescinded by his successor. Other policy directives are new.

The Order seeks to reduce the volatility of Part D prescription drug insurance premiums, which I documented over the last year or so.

A group of administration officials is charged with developing within 180 days a plan “to stabilize and reduce Medicare Part D premiums.” That timing should allow the changes to be incorporated into the 2026 Part D insurance policies that will be available during this fall’s Medicare Open Enrollment.

The Executive Order also states that Medicare payments for prescription drugs should be standardized. Some medications, such as cancer treatments, have one price when delivered in a hospital setting and another price when delivered outside a hospital, such as in a doctor’s office. That is supposed to change.

Medicare also is directed to pay the same amount for certain medications that hospitals do. Currently, hospitals pay up to 35% less than Medicare does.

A resurrected policy from President Trump’s first term mandates that community health centers provide insulin and injectable epinephrine to uninsured and some low-income patients either free or at significantly reduced costs.

Another part of the Order seeks to change the role of middlemen, such as pharmacy benefit managers (PBM), by increasing disclosure of their fees and prices. It also tasks HHS with reducing the influence of PBMs and making prescription drug markets more competitive.

HHS and the Food and Drug Administration (FDA) also are directed to increase the availability of low-cost generics and biosimilars by accelerating the approval process for those medications and changing the process by which drugs are reclassified as over-the-counter medications.

The Executive Order also instructs HHS to reconsider how it negotiates with pharmaceutical companies over the prices of certain drugs.

The Inflation Reduction Act, enacted in 2022, requires manufacturers and HHS to negotiate the prices Medicare will pay for drugs that meet certain specifications, including how many years have passed since a patent was awarded.

Drug manufacturers complain that the law requires negotiation of drugs delivered in pill form years earlier than injectable drugs. The order instructs the Secretray of HHS to work with Congress to treat pills and injectable drugs the same.

The Executive Order also addresses the importation of medications.

President Trump’s first administration allowed states to import medications under certain circumstances, including receiving approval of an importation program from the Food and Drug Administration (FDA).

Since then, only Florida has received FDA approval of a drug importation program. Other states have submitted proposals but are awaiting approval. The FDA is ordered to streamline its approval process.

Another Way to Exploit a Falling Market

Two weeks ago in the April 10 issue of Bob’s Journal, I described several “Financial Moves That Ease the Pain of Market Declines.”

This week, I add to the list.

The decline in asset prices creates an estate planning opportunity. The more wealth you have, and the more of it that is invested in assets with falling prices, the bigger the opportunity you have to transfer significant wealth to future generations at a lower tax cost.

Gifts of property are a longstanding estate planning strategy. While prices are down, consider implementing or accelerating gifts of assets.

When prices are down, you can transfer more assets at the same tax cost.

Everyone can use the annual gift tax exclusion to transfer up to $19,000 of cash or property to any other person without either incurring gift taxes or using part of the lifetime estate and gift tax exclusion. You can make these $19,000 tax-free gifts to as many people as you want.

Now, you can give more shares of stock or mutual funds without exceeding the $19,000 limit than you could have a few months ago.

You can move additional assets out of your estate tax free by giving more than $19,000 to a person. The excess gift reduces your lifetime estate and gift tax exemption, which is $13.99 million in 2025. You can give more assets now and use less of the lifetime exemption.

A premise of making gifts of assets while prices are down is that the prices will recover over time. The recovered value will be out of your estate and in the estates of your children or other gift recipients.

As I’ve stated in the past, you might not want to make gifts of property that has appreciated a lot since you acquired it, even if the value is below its recent peak.

When someone receives a gift of appreciated property, they take the same tax basis you had. When they sell the property, they’ll owe capital gains taxes on the appreciation that occurred while you owned it.

It might be better to hold highly appreciated property for the rest of your life. Then, those who inherit it increase the basis to its current fair market value. There are no capital gains taxes on the appreciation that occurred during your holding period.

Also, don’t give property in which you have a loss. Recipients of such a gift reduce the tax basis to its fair market value on the date of the gift. When you have a loss in the assets, it’s best for you to sell it and deduct the loss.

A market decline is a good time to make gifts of property, but selecting the property to give is a balancing act.

You want to give property that’s appreciated while you owned it, but you might not want to give property that’s appreciated significantly.

The Data

The Leading Economic Index from The Conference Board fell 0.7% in March to 100.5. It had declined 0.2% in February.

The March index is based on data from before the big tariff announcements. The Conference Board indicated the data do not indicate a recession is imminent, but they did cause the group to reduce its forecast of 2025 economic growth to 1.6% from above 2.0% previously.

The PMI Services Flash Index through mid-April was 51.4, down from 54.4 at the end of March.

The PMI Manufacturing Flash Index through mid-April rose to 50.7 from 50.2 at the end of March.

The PMI Composite Flash Index through mid-April fell to 51.2 from 53.5 at the end of March.

The Philadelphia Fed Manufacturing Index plunged to negative 26.4 in April from positive 12.5 in March. That brought the index to its lowest level since April 2023 and second-lowest level since the pandemic.

The Richmond Fed Manufacturing Index was negative 13 in April, down from negative 4 in March. The monthly decline is the biggest since November.

Housing starts tumbled 11.4% in March after rising 9.8% in February. The level of starts in March was the lowest in four months, and the percentage decline for the month was the biggest in 12 months.

The entire decline was in single-family home starts, which fell 14.2% in March. Multi-family home starts were unchanged.

New home sales jumped 7.4% higher in March, the highest increase in six months, following a 3.8% rise in February.

New unemployment claims fell by 9,000 to 215,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.885 million from 1.844 million.

The Markets

The S&P 500 lost 1.93% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 2.88%. The Russell 2000 gained 0.38%. The All-Country World Index (excluding U.S. stocks) added 1.91%. Emerging market equities advanced 1.07%.

Long-term treasuries lost 1.53% for the week. Investment-grade bonds lost 0.55%. Treasury Inflation-Protected Securities (TIPS) added 0.36%. High-yield bonds gained 0.36%.

In the currency arena, the U.S. dollar declined 1.16%.

Energy-based commodities increased 2.37%. Broader-based commodities rose 1.60%. Gold gained 4.46%.

Bob’s News & Updates

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