Home Guides & Resources chevron_right Weekly Update Election Relief Sparks Stock Rally November 9, 2020 Table of Contents The Bifurcated, K-Shaped Economy Fed Repeats Call for Fiscal Stimulus Advanced Charitable Giving Adviser Investments’ Market Takeaways Looking Ahead Please note: This update was prepared on Friday, November 6, 2020, before the market’s close. With bleary-eyed ballot counters tabulating votes following a historic turnout in this week’s national elections, stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. rallied on relief and belief: Relief that the election is almost behind us. And belief that a split government may mean continued low tax rates, light regulation and other business-friendly policies. Regardless of how long (or short) it lasts, the rally itself has been nothing less than historic. Thursday’s 1.9% rise by both the Dow and S&P 500 marked a fourth consecutive day where both indexes advanced by more than 1%—something that hasn’t happened since October 1982. The week’s exuberance doesn’t diminish the ongoing divergence between the leading market benchmarks. Through Thursday, the Dow Jones Industrial Average is back in positive territory for the year, having returned 1.4%, while the broader S&P 500 is up 10.3%. 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, is down 4.0% for the year. As of Thursday, the 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. on 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 stood at 1.17%, down from 2.31% at the end of 2019. 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 gained 7.0% this year. The Bifurcated, K-Shaped Economy If election relief was the catalyst for this week’s rally, the key driver of October’s losses was the latest wave of COVID-19 infections. And that resurgence, like the underlying virus, doesn’t care what political party is in power. The new case count continues to rise, with Thursday’s total—107,872—the most in any single day since the start of the outbreak. We are confident that the economy will recover from the pandemic. How quickly and broadly depends on economic stimulus and a safe and effective vaccine. In the meantime, we expect to continue to slowly regain the economic ground we’ve lost. But it’s going to take time, exacerbating the bifurcation in this K-shaped rebound. Take the latest figures from the Institute for Supply Management (ISM): Its survey of manufacturing activity for October showed widespread expansion, with new orders jumping to a near-17-year high, demonstrating that manufacturing is benefitting from pandemic demand for durable goods such as home appliances, electronics and automobiles. In contrast, the ISM’s survey of the service sector showed signs of slippage even as it remains in growth mode. Businesses reliant on in-person interaction will naturally be slower to bounce back in a lockdown environment. Considering that the manufacturing side of the economy is multitudes smaller than the service side, it’s pretty clear that the overall picture isn’t going to get better in a hurry, raising the question of whether the recovery’s momentum can be sustained or if we are headed for much slower growth ahead. Fed Repeats Call for Fiscal Stimulus Lower interest rates are not enough, according to Federal Reserve Chair Jerome Powell and his colleagues. Policymakers made no changes to their near-zero interest-rate stance during its meeting this week. “We’ve gotten through the first five to six months of the expansion better than expected,” Powell said in his press conference, while noting that the path of the economy will depend significantly on the course of the virus. Powell continued to press federal legislators to do more and on a bigger scale, post-haste, in order to help the economy rebound from the worst economic downturn since the Great Depression. Many consumers have benefitted from the Fed’s efforts to keep interest rates low for the foreseeable future. Mortgage refinancings have soared, for example. But the Fed’s powerful arsenal can’t replace the many millions of missing paychecks and revenues for service-sector companies barely staying afloat in industries from retail to hospitality; for that, Congress needs to step up. Financial Planning Focus Advanced Charitable Giving Strategies Charitable giving not only reduces your taxable income but also allows you to have an impact on the world. Of course, not all giving approaches have equal effect. Here are some advanced strategies that can pay dividendsA cash payment to investors who own stock in the company. to you, your charity and your heirs. Charitable Bequests. The most direct way to donate is through a charitable bequest—that is, donating a cash amount or antiques and artwork to a charity, school, private foundation or donor-advised fund via your will or a revocable trustA 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.. Whatever your donation, your taxable estate will be reduced by the value of the gift. Even better: There’s no limit to the deduction. Charitable bequests allow you to maintain control of your assets for the duration of your life and only pass them on once your estate is settled. Of course, to avoid any protracted legal wrangling, it’s vital to communicate your intentions clearly to your estate planning attorney, your loved ones and the recipient of these gifts. Charitable Remainder TrustA 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. (CRT). Charitable bequests can reduce your taxable estate, but what if you need the tax deduction now? Enter the CRT. A charitable remainder trust (CRT) is an irrevocable trust that potentially reduces your taxable assets and generates a predefined income stream for the donor or other beneficiaries, with the remainder of the donated assets going to your favorite charity at a specified time in the future. When you transfer cash or other assets into a CRT, you receive an immediate income tax charitable deduction based on the present value amount in the trust that will ultimately go to the named charity. Some things to keep in mind: First, a CRT is irrevocable: You permanently relinquish control of the assets. Next, you’ll need to work with your adviser and estate planning attorney to determine what type of income stream will come from the trust. Most grantorsThe creator of a trust who owns the assets to be transferred. choose either an annuityA financial instrument that pays the holder a guaranteed stream of payments. The annuity is funded by either a lump sum (one-time) or a series of deposits. Once funded, the sum is invested by the insurance company who sold the annuity (the accumulations phase). After a certain trigger (for example, the holder’s retirement or reaching a certain age) payments begin to be issued to the holder (annuitization phase). Annuity payments may be fixed or variable in both amount and in length (some pay out for a designated span of years, others until the holder’s death). (a fixed annual amount) or a unitrust (a fixed percentage; say, for example, 5% of the trust’s value at each year-end). The best choice depends on your income needs going forward—but remember that the income you receive is taxable. A final consideration is how you’ll fund a CRT. Real estate is a good option; rare antiques are less relevant due to the lack of liquidityThe ease with which an asset can be bought or sold. Assets for which there are many buyers and sellers at any given time are highly liquid (for example, a stock which trades on a public exchange). Assets which trade rarely are illiquid (for example, a Picasso painting or a high-end home).. Highly appreciated securities or a closely held stock can be even better, as gifting them helps reduce capital gains taxes. Charitable Lead Trust (CLT). If reducing income taxes is a main driver for CRTs, a CLT reduces gift and estate CLTs are also irrevocable, but instead of the grantorThe creator of a trust who owns the assets to be transferred. receiving income during the term of the trust, the charity does. Another important difference between the two is that the assets inside a CLT are taxed to the grantor. As with a CRT, it’s crucial to have a conversation with your adviser about how to minimize the tax burden of the income stream that’s created, and you will likewise decide between an annuity or unitrust payment and receive a charitable deduction against your income when you fund the trust. A key distinction is that growth on CLT assets (above the Section 7520 interest rate) passes to the beneficiary estate- and gift-tax free. Thus, with careful planning, you can give generously to your heirs and support a cause. All of these options require careful planning and may incur an expense—especially when you factor in the administrative cost of maintaining 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.. Our estate, tax and financial planning professionals can help you determine the best charitable vehicle for your goals. Adviser Investments’ Market Takeaways You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade looked at how the stock market has historically performed in the three months following a presidential election and Vice President Steve Johnson talked about some of the factors behind this week’s market rally. Looking Ahead After this blockbuster week of reports, news and events, there’s a relatively light slate of data to dig into next week. We’ll be looking closely at reads on small business confidence, job openings, inflation and consumer sentiment. As always, you can visit www.adviserinvestments.com 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 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. 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