Delta Days of Summer - Adviser Investments

Delta Days of Summer

August 9, 2021

Please note: This update was prepared on Friday, August 6, 2021, before the market’s close.

The temperatures have been temperate at our Boston-area headquarters the past week, but plenty of sweat has been wrung from traders’ brows as they’ve pondered whether the delta variant of the coronavirus will throw a wrench into the works driving the global economy.

We’re certainly concerned about the increasing illness and deaths, and about the burden and burnout our health care system and its workers may face if this wave of infections continues into flu season.

But after a year-plus of adapting to the pandemic, we’re less worried that the human toll will derail the stock market’s upward trajectory. Primarily, this is because the delta variant is a known risk. We know it’s out there, we see where it might be going and, in many cases, we know how the economy and consumers will react to and combat it.

For now, the ball is back in the growth stock court versus value stock, and strong earnings are continuing to boost market returns. With today’s optimistic jobs report (more on this below), stock markets seem set to close out the week with modest gains and at or near record highs. On a total return basis, the Dow Jones Industrial Average is up 15.7% for the year through Thursday, while the broader S&P 500 has gained 18.9%. The MSCI EAFE index, a measure of developed international stock markets, has returned 11.4% through Thursday. The Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.38%, down from 1.12% at the end of 2020. Overall, the U.S. bond market has declined 0.5% year-to-date.

Good News on Jobs

Though the stock market has steadily advanced and businesses have reported eye-popping earnings (helped, as we’ve mentioned, by the base effect), the fly in our recovery’s ointment has been employment. The head-scratching and persistent disconnect between employers who say they are desperate to hire and jobseekers who seem unable to find suitable work has been a lingering theme.

This morning’s report on July payrolls goes some way toward resolving that gap. U.S. employers added 943,000 non-farm payroll jobs last month according to the Department of Labor. Moreover, figures for May and June were revised higher, and the jobless rate also fell to its lowest level since March 2020, with unemployment improving to 5.4% from 5.9% in June. And the broader unemployment rate, which includes those who say they’d like to work but have stopped looking for work for one reason or another? It fell even faster, from 9.8% to 9.2%.

To be clear, we’re not out of the woods yet. Even with July’s solid report, this measure shows that 5.7 million fewer people are employed today than pre-pandemic, with the biggest shortfall to be found in the still-recovering leisure and hospitality sectors.

But combined with other positive economic signals, a strong jobs report could be the last piece of the puzzle needed to put our recovery on a firmer footing. If, that is, a fresh wave of lockdowns doesn’t trip us up in the coming months.

Bulls Dashing Out of China’s Shop

The Chinese government has been cracking down hard on some of its biggest and best-known firms in recent weeks.

Among the major names suffering blows are some high-flying tech companies. Ant Group’s IPO was derailed, online retailer Alibaba got hit with a $2.8 billion antitrust sanction and a Tencent merger deal was blocked.

But tech firms aren’t alone. China’s antitrust regulator announced a $1 billion fine on food delivery giant Meituan just this morning.

The government also made sweeping changes affecting the education industry. Firms offering teaching or tutoring for school curriculums are no longer allowed to raise capital, go public or operate for profit at all. The stocks of some Chinese educational firms dropped more than 25% upon this news, and a broadening sell-off has knocked the country’s market for a loop.

In recent months, there have also been signs that unfettered growth may be increasing social inequality within China—a friction point that its government fears could lead to social unrest. Last month, the Chinese government announced it would further relax its restrictions designed to discourage families from having multiple children, adopting a “three-child policy” and removing penalties for parents who exceed that number. That switch is an effort to bolster the country’s declining birth rate, which dropped last year to 1.3 children over a woman’s lifetime—well below the “replacement” level of 2.1.

But surveys of Chinese parents suggest that the policy switch may not have much impact, as rapidly increasing costs for childcare, education and housing have left many reluctant to have multiple children. The strains on Chinese wallets and the stagnating growth of its middle class gives some context to the government’s decision to kneecap a nascent for-profit tutoring industry rather than let an educational arms race develop.

On the tech front, China is focused on data security and keeping proprietary information safe and close to home. To do that, it’s using regulatory muscle to restrict what big tech firms can do, and to nudge the technology sector away from e-commerce and the cloud toward manufacturing—especially of semiconductors, batteries and biotech.

These moves may seem counterproductive, even irrational. For several decades, the Chinese government did all it could to boost the prospects of its country’s companies in its bid to become a global superpower. Why undermine that now?

The reality is that China is still an authoritarian state. While the government wants China to be a powerful global player, disorder or a lack of control at home would be too high a price to pay for that goal.

What does this mean for investors? Well, we certainly view it as a sharp reminder that there are risks to investing in China, including political hazards that don’t exist in many other global markets.

But while those factors are something to be wary of, we don’t see them as a reason to withdraw entirely. China’s economy is already the second largest in the world, and over the span of this century, it could take the top spot from the U.S. For long-term investors like us, that alone is reason enough to want some exposure to the country’s best companies, its economy and its massive population. What becomes even more crucial in such an environment is finding managers who are savvy about those risks, attuned to the market and able to find companies that will not only survive but thrive long term.


Financial Planning Focus

Rent or Buy?

“Should I rent or should I buy?”

With home prices across the country hovering at historic highs and rents spiking as we come out of the pandemic, this question is more complex than ever.

Whether you are thinking about trading up from a starter home, looking for a vacation property or downsizing into retirement, here are four financial questions to consider as you navigate this complex (and pricey) housing market.

1. What’s my time frame? The longer you plan to hold on to the home or vacation destination, the more financial sense it makes to buy. If you don’t see yourself keeping a house for at least three years, it may not appreciate enough to justify the transaction costs of buying and selling. In this case, renting may make more sense.

2. What’s the true cost of ownership—and can I afford it? You have to build more than just the principal and interest payments on your mortgage into your budget; there are also property taxes and insurance. And plan to spend 1% of the home’s total value annually on maintenance.

The question becomes: Can I afford to buy? A simple rule of thumb is to add up the monthly principal, interest, taxes and insurance payments, then divide by your monthly gross income. If your total housing costs are greater than 28% of your income, you may be stretched too thin—renting (or buying a less expensive home) is the safer call.

3. Will I save on taxes? A mortgage interest deduction is often touted as a reason to buy. But keep this in mind: Before tax laws changed in late 2017, homeowners could deduct interest on mortgages worth up to $1,000,000 (people with mortgages issued before year-end 2017 can continue deducting up to that amount on their taxes). Now that’s down to $750,000 for newly issued loans. What’s more, you must itemize your taxes to take advantage of any mortgage interest deductions. Due to those same 2017 tax-law changes, many owners don’t see any benefit to itemizing because of the increase in the standard deduction to $12,550 for single filers and $25,100 for spouses filing jointly in 2021.

4. What are my opportunity costs? This question is one you may not think to ask yourself, but it’s how financial planners analyze decisions like these: If you invest your down payment in the stock market instead of using it to buy a house, what rate of return could you reasonably expect? Or, what if you simply deposit that money in the highest-yielding savings account you can find? Likewise, if you could rent a similar property for less per month than your total monthly costs of ownership, how much would you gain by investing the excess savings every month? It pays to do your homework and look at home ownership through an investment lens.

Click here for a rent-versus-buy calculator.

Of course, the rent or buy question goes beyond just the financials. Some people value the flexibility that comes with renting. Others feel more connected to their community when they own their home. We’ve focused on the financial side of renting versus buying, but don’t discount the emotional aspects of this decision.

If you have any questions about what’s best in your specific situation, please contact your wealth management team. As The Planner You Can Talk To, we are happy to help.


Strategy Activity Update

Please see below for a summary of the trades we executed over the week through Thursday and our current tactical strategy allocations.

Dividend Income

No trades this week.

AIQ Tactical Global Growth

No trades this week.

AIQ Tactical Defensive Growth

No trades this week.

AIQ Tactical Multi-Asset Income

No trades this week.

AIQ Tactical High Income

No trades this week.

Adviser Investments’ Market Takeaways

In this week’s Market Takeaways, Research Analyst Liz Laprade discussed whether the delta resurgence will spark a market panic, while Steve Johnson dived deep into the market impact of today’s jobs report.

Looking Ahead

A wave of data breaks next week, with reports on construction spending, factory orders, wholesale inventories, manufacturing and service sector indicators, several jobs market reads, and, last but not least, an update on the trade deficit.

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

About Adviser Investments

Adviser Investments is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged 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 or call 800-492-6868.

Please note: This update was prepared on Friday, August 6, 2021, before the market’s close.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

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