September Swoons Amid Stubborn Challenges

Please note: This update was prepared on Friday, September 25, 2020, before the market’s close.

This week marks six months since the March 23 coronavirus-induced market bottom, with recent volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. and uncertainty taking stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. down from the high set at the beginning of the month.

September—historically, the worst month for stocks—has played to type, with the broad S&P 500 index down 7.1% month-to-date through Thursday’s close. After setting a record on September 2, the S&P 500 briefly fell into correction territory (a 10% drop from its high) Thursday before eking out a positive finish to close 9.2% below its peak.

We expect more swings ahead as investors continue to react to an avalanche of issues, including rising coronavirus infections, the availability and safety of a vaccine, a contentious battle to fill the late Ruth Bader Ginsburg’s Supreme Court seat and, of course, the rising vitriol of one of the most contentious election battles we’ve ever witnessed. With a looming election day that almost certainly promises to deliver little political clarity, we think investment markets could face further fear-driven selling in the weeks and months to come. Also, the lack of a second large stimulus package could lead to further job losses and, we fear, evictions, as the holiday season approaches.

Despite the growing uncertainty, we remain disciplined in our approach and confident in our belief that diversified portfolios are the best way to build and preserve wealth in the investment markets. We have invested through volatile market cycles in the past, and know that investors, rather than traders, must take the long view while attempting to shut out the short-term noise that drives day-to-day gains and losses.

September’s market declines have reduced year-to-date returns dramatically, though, given the year’s events, we think any gains should be appreciated. Through Thursday, the Dow Jones Industrial Average was down 4.4% for the year, while the broader S&P 500 index was up just 1.9%. The MSCI EAFE index, a measure of developed international stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. markets, has declined 8.5% for the year. As of Thursday, the Bloomberg Barclays U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index’s yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. stood at 1.18%, down from 2.31% at year end. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market has returned 6.9% this year.

Stimulus Talks Set to Resume

In testimony this week on Capitol Hill, Federal Reserve Chair Jerome Powell assured Congress that the Fed remains committed to using the “full range of tools to support the economy for as long as is needed” and went on to remind lawmakers of their own role in helping to keep the recovery on track, including “policy actions taken at all levels of government.”

Testifying alongside Powell, Treasury Secretary Steven Mnuchin told the Senate Banking Committee that the Trump administration has resumed talks with House Speaker Nancy Pelosi, whose committee chairs are working on a $2.2 trillion relief package seeking to shore up unemployment insurance, provide direct payments and renew the Paycheck Protection Program’s small-business loans, among other provisions.

While a new relief bill is unlikely to pass prior to the election, the Fed’s ongoing support in concert with the type of fiscal assistance from Capitol Hill that helped avert the worst-case scenario this spring would provide a much-needed safety net for millions of individuals and the broader U.S. economy as the job market continues to founder.

Slow-Growth Silver Linings

Data released this week showed the U.S. economy exhibiting some signs of life even as the V-shaped recovery is slowing. The Chicago Fed’s broad gauge of U.S. economic growth fell to 0.79 in August from July’s 2.54 and June’s record 5.84 mark (anything north of zero means the economy is expanding faster than its historic rate). Both the service and manufacturing sectors continued to show increasing activity over the last two months, though it came at a slowing pace.

As we have noted before, if there is one area of the economy that is truly bounding higher, it’s the housing sector. The combination of low, low mortgage rates and a reset of buyers’ demands, spurred in part by the new work-from-home regimen, has pushed prices and sales to recent highs.

Overall, the recent pullback in the stock market seems reasonable given the fact that Wall Street’s pervasive glass-half-full optimism extinguished the briefest bear marketA period in which stock prices decline significantly from recent highs and remain below previous high marks for weeks or months. Generally, a decline of at least 20% in stock prices is considered the threshold marking the start of a bear market. in U.S. history. Absent a safe and efficacious vaccine and its deployment nationwide, the COVID-19 pandemic will continue to have an enormous impact on economic activity and corporate earnings, which, alongside interest rates, typically drive stock and bond markets.

Podcast: Time to Ditch Your 401(k)? No Way

We’ve been surprised by a number of recent articles criticizing 401(k) plansA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn., the centerpiece of many workers’ retirement savings. Is it time to reconsider using the 401(k) as a key tool to deliver financial peace of mind? Not in the least.

Join Adviser Investments’ wealth management and financial planning experts for this engaging conversation on why the tax-advantaged benefits of 401(k) plans remain a must-have for most retirement savers. Tune in as we debunk costly misconceptions and provide clear advice to help you make the most of your 401(k) planA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn., including:

• Understanding your plan’s rules and what’s included
• How and why to automate savings
• Mastering withdrawals and after-tax savings
• Keeping an eye on fees
• How to avoid rolloverThe process of transferring funds from one retirement account to another, typically without incurring a tax. pitfalls
• …and much more!

We’re big believers in 401(k)s as workplace savings plans—we have one at Adviser Investments and encourage all of our employees to take full advantage of it. This illuminating discussion explains why we put such stock in them. Click here to listen now!

And click here for a copy of the Key Financial & Tax Planning Data sheet referenced in the podcast.

Financial Planning Focus
When Should You File for Social Security?

Social Security is a hot topic in our frequent conversations with clients. While it’s a complex issue, one of the questions we field most commonly is: “When should I file for Social Security benefits?” To help break it down, here are four key factors to consider as you make this critical decision.

1. Your Full Retirement Age (FRA). Your FRA—the age when you are eligible to receive your full Social Security benefits—is determined by your birth year.

• If you were born between 1943 and 1954, your FRA is 66
• If you were born between 1955 and 1959, your FRA increases from 66 by two months per year (so for someone born in 1956, the FRA is 66 and four months) up to age 67
• If you were born in 1960 or after, your FRA is 67

It’s important to know that your benefits are reduced or increased if you file before or after reaching your FRA. Age 62 is the earliest you can file, and benefits top out at age 70, so there is no advantage to filing after that. If you file before your FRA, your benefits will be permanently reduced by 8% per year. Whereas, every year you wait to file beyond your FRA results in an increased benefit of 8% per year up to age 70—and that amount is locked in for the rest of your life and that of a surviving spouse. (Use this tool to determine your FRA and this one to calculate your benefits based on when you elect to receive them.)

2. Your Benefits. The Social Security Administration (SSA) mails estimated monthly benefits statements to all workers three months prior to their 60th birthday. You can also create an account at ssa.gov to review your benefits at your convenience. We suggest taking this step sooner rather than later to help you with your retirement-income planning.
3. Your Career Plans. If you file for benefits while you are still working, you may see those benefits reduced, particularly if you haven’t reached your FRA. Believe it or not, they could be cut by as much as $1 for every $2 you earn above $18,240 per year. So, if you plan to continue working and you haven’t hit your FRA, you may want to hold off on claiming benefits for now.
4. Your Family Health History. Life expectancy should play a part in calculating your optimal filing time. While you get an 8% increase in benefits for every year you delay filing after your FRA, the sum of all benefits received by waiting until age 70 often won’t exceed what you’d tally by filing earlier unless you live into your late 70s or early 80s. However, delaying benefits to lock in that yearly increase can provide a form of longevity insurance for those who anticipate a lengthy, healthy retirement.

You’ll see much more on Social Security in future Financial Planning Friday posts. You can also read our special report, Social Security’s Role in Your Retirement, and listen to our “When Should You File for Social Security?” podcast episode for a deeper dive on deciding when to file.

Adviser Investments’ Market Takeaways

Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’ve begun providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market’s telling us.

You can find two new Market Takeaways videos on our website. EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Kate Austin spoke about historical slumps for high-flying tech companies and Vice President Steve Johnson discussed the current economic outlook and finding value alongside market volatility.

Looking Ahead

Next week brings a bounty of meaningful and potentially market moving data, including:

• August reads on personal income, spending and savings, construction spending, inflation and pending home sales
• September data on consumer confidence and sentiment, car sales, manufacturing, the service sector and jobs

In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future and g’mar chatima tovah to those who are observing Yom Kippur.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.