US Stock Indexes Break Losing Streak | Adviser Investments

Inflation Hawks on the Warpath

Major U.S. stock indexes broke a brutal three-week losing streak with a sharp rally on Wednesday. The day’s turn pivoted on falling oil prices and hints of continued growth in the service sector, the largest portion of our economy.

The big unknown, of course, remains inflation, and worries over its trajectory have been driving most of the market’s movements this week:

  • Central bankers are working hard to show they’re serious about fighting inflation, with several Federal Reserve Bank governors hitting the stump and Chair Jerome Powell repeating the pledge in a speech this morning. Their message to markets: Interest-rate hikes will keep coming until inflation eases. Traders have already priced in a hefty 0.75% rate hike in anticipation of the Fed’s Sept. 20–21 policy meeting.
  • Inflation hawks are circling in Europe as well, with the European Central Bank announcing its largest hike since 1999, bumping interest rates up by 0.75%, despite increasing recession risks on the continent.
  • Energy’s contribution to higher inflation may be losing steam. Oil prices fell to an eight-month low this week due to worries about a global economic slowdown (despite an announcement that OPEC would cut production). And U.S. gasoline prices seem set for further declines as the summer driving season winds down; national averages have fallen to $3.75 according to AAA. Still, record-high electricity demand on the West Coast and fresh threats that Russia will continue to deprive Europe of energy supplies suggest that costs will batter pocketbooks across the globe as the Northern Hemisphere heads into winter.


Chart of the Week: Service Sector Sails Along

By Charlie Toole, Vice President, Portfolio Manager 

The folks who run service businesses around the U.S. aren’t buying the recession story. Instead, according to surveys conducted by the Institute for Supply Management (ISM), they’re saying the economy continues to expand.

Every month, the ISM surveys over 300 purchasing managers and executives from 60-plus industries to get a read on the health of the service sector. This includes everything from restaurants and wealth advisers to health care providers and hotels—in all, more than 70% of our economy.

This week, the ISM service sector survey surprised to the upside, showing economic activity expanded in August for the second month in a row.

A leading indicator of future business is the new orders component of the ISM services survey, which I’ve charted. After declining at the start of the year and bouncing around throughout the spring, new orders picked up in July and hit a 2022 high in August. This influx of new business demand shows that a major portion of the U.S. economy has wind in its sails heading into the fall.

Note: Chart shows monthly level of the ISM Services New Orders index from September 2017 through August 2022. Sources: Institute for Supply Management, FactSet.

HSA Spells Tax-Free Investing

By Diana Linn, Account Executive and Financial Planner

It might seem like the holy grail every investor is looking for: A way to shelter a portion of your income for spending later in life—without having to pay taxes on it, unlike with an IRA. What’s the vehicle that can make this a reality? A health savings account (HSA). If you qualify, HSAs are worth a look.

Health savings accounts are one of the most tax-efficient savings vehicles around, offering triple tax benefits:

  • You contribute pretax dollars
  • You pay no taxes on the earnings
  • And, if used for medical expenses, you withdraw the money tax-free

Many of us treat HSAs like flexible spending accounts (FSAs). We tap into them to pay for qualified medical expenses as they arise. But this powerful savings tool can be much more if you let your account build value over time.

Unlike an FSA, the money in an HSA is yours forever. There’s no “use it or lose it” constraint. And unlike your IRA or 401(k), where withdrawals are taxed as ordinary income, withdrawals from an HSA for qualified medical expenses are income-tax-free (nonqualified expenses are subject to a 20% penalty and income taxes).

And there’s a bonus: After age 65, HSAs can also be used to pay for nonqualified expenses penalty-free (though not tax-free). So, an HSA can be employed as a traditional IRA without required minimum distributions (RMDs).

As good as all that sounds, there are important limits and caveats. According to federal guidelines, you can contribute to an HSA only if you are covered by a qualified high-deductible health plan (HDHP). And you can’t be covered by Medicare, Medicaid or a spouse’s health plan that is not HSA-qualified. Nor can you generally contribute to an FSA and HSA in the same year.

Also, maximizing your HSA requires patience, in part due to the annual contribution limits. If possible, you want to save HSA funds for retirement. The goal is to acquire a large tax-free account to pay for late-life medical expenses.

The rules are simple: Contributions to HSAs are tax-deductible through Medicare age (65). Anyone can contribute to your HSA (employers, relatives, yourself) so long as you stay within the annual contribution limits ($3,650 for an individual and $7,300 for a family in tax year 2022).

As the HSA builds in value, there is no requirement that you use it. You can continue to pay medical expenses with other funds. Much later in life, though, after your account has had time to grow and compound in value, you can reimburse yourself, tax-free, from the HSA for all those expenses you paid years before, so long as you keep meticulous records of your spending.

HSAs pack a powerful, tax-free investing punch if you bide your time. Call us anytime you are interested in learning more. As always, we’re here to help you.

Podcast: Fighting Inflation With Dividends

How do you turn your portfolio into a paycheck? That’s the question most retirees face, and dividends can be an important part of the answer. In this week’s Adviser podcast, Portfolio Managers Charlie Toole and Steve Johnson are joined by Manager of Financial Planning Andrew Busa to talk about the challenges of generating a stable, income-producing portfolio in an inflationary environment and how you can manage those challenges, including:

  • Why dividend growth is such a powerful indicator of a company’s health
  • When, how and how much you can rely on stocks to produce income
  • What it means to have a “battleship balance sheet”
  • …and why it’s more important than ever in this economy

Dividend-producing stocks can be a useful part of your portfolio whether you’re in retirement, about to be, or still saving—if you use them right. Listen now!

Ask Us a Question!

We’re always interested in the topics or concerns you might like us to comment on. As much as we try to cover the investment and economic fields every week, we know there’s still more that you might want to hear about. Ask us a question about investing, the markets or financial planning and one of Adviser’s experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Adviser in the Media

Portfolio Manager Adam Johnson visited Fox Business to talk about integrity and resolve from the Fed. And in this week’s Adviser Takeaways, Senior Research Analyst Liz Laprade talked about the latest twist in the Musk-Twitter tangle, while Account Executive and Financial Planner Diana Linn discussed the advantages of HSAs.

Looking Ahead

Next week, we’ll get looks at retail sales, inventories, jobless claims, manufacturing reads, and most importantly, consumer sentiment and inflation.

As always, please visit for our timely and ongoing investment commentary. In the meantime, all of us at Adviser wish you a safe, sound and prosperous investment future.

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Please note: This update was prepared on Thursday, September 8, 2022, prior to the market’s close.

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