Will the Omicron Grinch Spoil Holiday Cheer?

Despite skyrocketing cases of the omicron COVID-19 variant, Wall Street traders entered the final session ahead of the Christmas holiday feeling merry and bright.

The S&P 500 index ended Wednesday fractionally below a record high after pulling a U-turn from last week’s declines. Debate over whether President Biden’s $2 trillion education, health care and climate package will be passed in some shape or form (or not) caused Goldman Sachs to cut its estimates for first-quarter 2022 GDP by a full percentage point. Nonetheless, stocks are on course to rise for the third day in a row.

Omicron news has weighed on minds as holiday travel and get-togethers ramp up. Despite the challenges to come in the weeks ahead, businesses and schools are taking precautions and remaining open, using lessons learned from last year’s economic shutdown to map a path forward. We do not believe we will experience a repeat of the 2020 lockdowns here at home, though consumers may pull back spending on services. We’ll have to see how this plays out.

A cautious-but-open approach looks to be supported by the latest medical data, which suggests that the variant may spread faster but causes less severe illness compared to other COVID-19 strains (particularly for those who are vaccinated). Yesterday, the FDA approved an at-home Pfizer treatment that has successfully prevented hospitalizations of newly infected patients; today, a similar pill from Merck was also cleared for high-risk adults. Previously hard-hit industries like retail, hospitality and manufacturing have learned to adapt to the “new normal.” Companies in every sector have enacted long-overdue efficiencies or accelerated improvements thought to be years away, with record profit margins to show for it.

The Washington wrangling over the Build Back Better bill’s popular provisions and very real omicron concerns have overshadowed evidence of what is otherwise a resilient and robust economic comeback. Heading into 2022, while the world gets better at coping with COVID-19, the fundamentals that really matter for investment returns—earnings and interest rates, most importantly—give reasons for hope this holiday weekend.

Consumers Power Robust Retail Recovery

Early-pandemic predictions about retail and the U.S. consumer were understandably dire. As it turned out, 2021 was a pretty remarkable year—at least for the biggest players. Retail chains with at least 50 stores added 4,000 locations this year and closed 3,500, resulting in the first net increase for brick-and-mortar outposts since 2017. In-person visits were up this November at Target, BJ’s Wholesale Club, Costco, HomeGoods and TJ Maxx compared to the same month in 2019.

The robust demand for all manner of goods has created nearly 20% more container volume at U.S. ports compared to 2019—hence the unloading bottlenecks that piled up over the summer and fall that are now clearing up. You may recall that supply chain kinks were a big concern heading into the holiday season, but a combination of earlier shopping and advanced planning on the part of delivery services has meant 99% of packages shipped with UPS and the U.S. postal service arrived on time from Nov. 14 through Dec. 11.

Consumers are also increasingly active in the housing market, where low mortgage rates remain an attractive catalyst for shoppers. Sales of existing homes (a market that’s almost nine times the size of the one for new homes) rose for the third straight month in November; closings hit their fastest monthly pace since January.

After a slow third quarter, estimates that the U.S. economy will have grown by 7% over the final three months of the year suggest that there’s been no bigger economic winner coming out of the pandemic thus far than America, fueled by consumer spending and federal stimulus. Recent analysis from Deutsche Bank held that this kind of economic momentum could send the country’s unemployment rate to the lowest level in nearly 70 years by 2023.

Is Crypto Really Currency?

This week’s reader question is about digital money:

Will cryptocurrency ever overtake the dollar as the reigning currency in the U.S.? 

Research Analyst Liz Laprade had this to say:

The global pandemic that took hold of our lives almost two years ago has altered our interactions. It’s forced us to rethink the ways we work, shop, travel and, yes, pay for goods and services. The quest for contact-free transactions has created an opening for cryptocurrency to rise to the forefront again—and it has.

As “contactless currency,” bitcoin and other crypto “coins” are still not ideal as bona fide currencies when you look beyond their virtual qualities.

Today, various cryptocurrencies are accepted as payment for everything from cars and groceries to solar panels and online gaming. In fact, a crypto debit card allows you to spend cryptocurrency on anything because retailers are ultimately paid in traditional tender.

That said, it’s unlikely that cryptocurrency will be as ubiquitous as the U.S. dollar for a very long time, if ever. And it’s hard to imagine it replacing hard currency entirely. A few reasons come to mind.

First, cryptocurrency prices (I’m hesitant to say “values”) are extraordinarily volatile. Bitcoin is the most obvious example; its price has risen 556% over the last two years. But along the way, it plummeted 61% from its 2019 high to a pandemic low in March 2020. It traded within a 20% price range for much of the spring but followed that up with a drawdown of 53% from its mid-April high to its July low. And the price fell about 20% in just one weekend three weeks ago. Needless to say, it’s difficult to count on bitcoin as a currency for selling, buying and running a business when its value changes dramatically at the drop of a hat. El Salvador found this out the hard way.

The other major obstacle keeping crypto from becoming a functioning currency is regulation—or lack thereof. Decentralization and anonymity are part of crypto’s appeal. But without a central governing body monitoring transactions and markets, there is no way to safeguard the asset class. Cryptocurrencies’ characteristics may smooth access and increase transaction speed, but they also leave a lot of room for fraud and theft.

Until there is broader acceptance of cryptocurrency from financial governing bodies and established regulation (elements that stand at odds with crypto-enthusiasts’ core philosophy), it is near impossible to expect it to become anything like a fiat currency.

Where does that leave bitcoin and other cryptocurrencies? As a speculative investment rather than a global or national currency of substance. Whether you have it in your portfolio, your digital wallet or both, our advice is the same—don’t put more into it than you can afford to lose.

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 Investments’ experts will answer it in a future edition of The Week in Review. CLICK HERE NOW TO POSE YOUR QUERY.

Chart of the Week: Will These Giants Stay Evergreen?

We monitor a wide range of data to form our outlook on the market and the broader economy—here’s one indicator our analysts have found enlightening or curious.

By Director of Research Jeff DeMaso

The big just keep getting mind-bogglingly bigger. The six largest companies in the U.S.—Apple, Microsoft, Alphabet (Google), Amazon, Tesla and Facebook (now Meta)—make up more than a quarter of the stock market’s size. Since the low point of the pandemic market shock in March 2020, these companies have seen their collective capitalization go from a little over $4 trillion to more than $10 trillion. (Market capitalization, or “market cap” for short, is the value of all publicly traded shares of a company.) The surge has been a gift to tech-centric investors, but keep in mind that trees, even Christmas trees, don’t grow to the sky.

Financial Planning Friday
Four Tips for Year-End Tax-Planning

Mistletoe and merrymaking mean the year is nearly over. With that in mind, we have four last-minute tax tips for you to consider before the ball dips and the calendar flips to 2022.

1. Take advantage of charitable deductions: If you’re looking for ways to lower your 2021 tax bill, charitable contributions are a popular choice for stacking up deductions. Click here for our podcast on the topic, and read our discussions on “bunching” contributions as well as other more advanced charitable giving strategies.  And remember that a gift of appreciated stock or fund shares goes further (for you) than cash.
2. “Harvest” your losses: Losing money is never fun, but there’s a silver lining when you can sell an investment for less than you paid for it—a lower tax bill. You can use the losses to offset the gains you’d otherwise owe taxes on from other parts of your portfolio. And if your overall losses are greater than your gains, you can apply up to $3,000 against your ordinary income for the year. If you have losses beyond that, they will be carried forward to future years. Plus, if you wait 30 days, you can choose to buy back the investment you sold at a loss.
3. Contribute to retirement accounts: Review what you’ve contributed to your retirement accounts this year—think 401(k)s, traditional IRAs, Roth IRAs, SEP IRAs and health savings accounts (HSAs). If you haven’t hit your limits and have cash available, now is your chance to potentially minimize your tax bill while investing for your retirement. Use our handy reference guide on 2021 contribution limits (and a bevy of other key financial data) to inform your year-end financial plans.
4. Use your flexible spending account (FSA): If you have one, check the balance of your FSA. Pre-tax dollars contributed for health care expenses do not roll over every year—use it or lose it. Confirm your deadline for spending and start strategizing how to use that cash. What medical supplies can you stock up on? Do you have any receipts from doctor appointments that you can submit for reimbursement?

Tax-planning varies from situation to situation—and it’s cloaked in jargon and acronyms—so be sure to talk with your Adviser Investments wealth management team if you have questions. As The Planner You Can Talk To, we’re here for you.

Adviser Investments in the Media

This week, Chairman Dan Wiener appeared in Ignites to explain why fees fell on 17 Vanguard funds.

Chief Investment Officer Jim Lowell stopped by CNBC World, where he discussed why this is a good time for investors to be selective and cautioned against buying whole baskets of passive investments.

In this week’s Market Takeaways, Research Analyst Liz Laprade spoke about what the recent stock sell-off portends for portfolios.

Looking Ahead

Markets and Adviser Investments offices are closed Friday for the Christmas holiday. We’ll be back at our desks bright and early Monday morning. The final week of 2021 offers relatively little in the way of meaningful data, though we’ll still get useful reads on home prices, pending home sales, jobless claims and manufacturing. And of course we’ll be monitoring the latest epidemiological trends.

As always, please visit www.adviserinvestments.com for our timely and ongoing investment commentary. In the meantime, all of us at Adviser Investments wish a merry Christmas to everyone celebrating and a safe, sound and prosperous investment future to all of you.

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, trusts, 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, ETFs, 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.