Fear Gives Way to Faith April 12, 2021 Weekly Update Print Please note: This update was prepared on Friday, April 9, 2021, before the market’s close. In 1933, in the depths of the Great Depression, President Franklin Delano Roosevelt famously told Americans: “The only thing we have to fear is fear itself.” He then went on to initiate one of the largest public works projects the U.S. has ever seen. Almost 90 years later, another public works project is “in the works” and fear is on the wane, both on Wall Street and on Main Street, as faith in growth seems to have been restored. With a quarter of Americans fully vaccinated and more than 3 million doses being administered daily, reopening momentum continues to build in the U.S. economy—much to Wall Street’s delight. Add the latest $1.9 trillion stimulus, a possible multi-trillion dollar infrastructure package, and the Federal Reserve’s lower-for-longer (interest rates) pledge, and you’ve got a potent mix pushing stocks higher. Investor fear has dissipated. The VIX (the CBOE Volatility Index), known as Wall Street’s “fear gauge,” is at its lowest level since February 2020. The bond market stabilized this week and mega-sized tech stocks once again took the market lead. Tech’s April rally pushed the S&P 500 to its 19th record close of the year on Thursday, while major stock indexes have already earned an average full-year’s-worth of returns. Mid- and small-cap stocks are up even more. On a total return basis, the Dow is up 10.0% for the year through Thursday, while the broader S&P index has gained 9.5%. The MSCI EAFE index, a measure of developed international stock markets, has returned 6.1%. The Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.54%, up from 1.12% at the end of 2020. The U.S. bond market has declined 2.8% this year. Economic Indicators Point to Growth … The economy isn’t firing on all cylinders just yet, but much of the economic data from this week is undeniably positive. Though there are some 8 million fewer jobs today in the U.S. compared to pre-pandemic times, prospects are looking up. Job openings in February reached a two-year high, with the largest gains coming in the industries hardest hit by the pandemic, and employers added 916,000 new positions in March. More good news: American business leaders are as sanguine as they’ve been in generations. The Institute for Supply Management (ISM) surveys on manufacturing and the service sector revealed some head-turning momentum in March. With industry running at full capacity to meet pent-up demand for goods, factory activity jumped to its highest level since December 1983. The service sector set a record as well, with all 18 industries in the survey reporting gains (led by entertainment and recreation). As in-person businesses increasingly reopen, stimulus checks keep hitting bank accounts and vaccination eligibility expands, the stage is set for what could be a massive hiring boom as spring turns to summer. The only cold water we can throw on these ISM reports is that they are “sentiment” surveys—they reveal how purchasing managers are answering survey questions. These are not hard-and-fast numbers on purchases, sales or production. Still, the direction of the numbers and pace of gains are noteworthy and point to increased economic activity now and in the future. … But Perspective Is Warranted As economic activity picks up, be prepared for what we expect will be several months of distorted data. In the past, we’ve pointed out how one-year stock returns are skewed by last March’s COVID-induced decline and the 12-month bounce that followed. The same applies to the economic data. Consider car sales. With car lots generally open at full capacity and consumers flush with stimulus checks, March was a solid month for new car purchases. On an annualized basis, some 16.8 million vehicles rolled off of lots, about the same as the pre-pandemic level. Sales could’ve been even higher if not for supply shortages of semiconductors and seat foam. The distortion comes when we compare the recent number of car sales to the depressed numbers from March 2020. Auto and light-truck (think SUVs) sales jumped 56% compared to a year ago. Truck sales rose a whopping 64%. Those are eye-popping year-over-year numbers, but they look better than they actually are due to March 2020’s near total shutdown. The same goes for inflation. You may recall our warning that headline inflation numbers would be rising even if price hikes remained mild. Well, this morning’s report on producer prices, the PPI, showed a jump of 4.3% over last year’s number—a big inflation hike. But again, the comparison to last March’s deflationary response to the pandemic lockdown distorts the big picture, a theme we’ll see more of over the next few weeks and months. Podcast: 5 Tax Deductions You Need to Know With the delayed federal filing deadline of May 17, tax season has been extended an extra month—plenty of time to capitalize on recent developments from the American Rescue Plan, the CARES Act and others. In our latest podcast, members of our financial planning team offer their advice and break down everything you should know to ease this year’s tax burden, including: Tax advantages for charitable contributions The child tax credit and child/dependent care credit How unemployment benefits are taxed The nuances of home office deductions Taxes are always a moving target as laws change—and this lively episode tells you what you need to know to take advantage of all the latest breaks available to you. Click here to listen now! And for additional information about contribution limits, tax brackets and more, please refer to our Key Financial & Tax Planning Data reference guide (please note it does not reflect the recently announced federal income tax extension deadline of May 17, 2021). ***** Financial Planning Focus 5 Financial Habits to Break In sports, even the flashiest moves or the cleverest strategies won’t help you win if you haven’t taken the time to master the fundamentals. Likewise, even savvy investors fall victim to certain pitfalls when it comes to managing their finances. Addressing these bad habits can help you build a stronger financial foundation: Not budgeting. Many people have a clear picture of major monthly expenses, like their mortgage and car payments, but are surprised to find how big a bite all the “little things” take out of their wallet. For example, spending $15 on lunch at work every day will cost you about $3,900 a year. Creating a budget helps you develop a clear picture of your cash flow and prevent overspending. (Click here to read more on budgeting and download a copy of our Budget Worksheet to help you get started.) Not saving for emergencies. Fender benders, basement floods, the odd root canal—such unpleasantries happen to us all eventually, but many of us aren’t financially prepared for them. We recommend keeping three to six months of living expenses in savings to help cushion the blow of a lost job or major medical emergency. Not paying off your credit cards. If you don’t have a clear picture of your cash flow, it can be all too tempting to simply carry over your credit card balance to the next month rather than risk an empty checking account. Keeping credit card balances with high interest rates can cost thousands in fees over time. Spending according to your budget, lowering your balances over time (once you have an emergency fund) and working toward paying your cards in full each month will boost your credit score, allow you to take advantage of credit card incentives and ultimately save you money. Not having a financial plan. A budget on its own isn’t enough to help you achieve your financial objectives. A financial plan serves as a roadmap, helping you pinpoint your goals, get the most from your assets and identify gaps and weaknesses. You can’t put a price on knowing where you want to get in life and having a clear path to get there—a good financial plan can help bring you that peace of mind. Not talking about your finances. Finances can be a difficult topic to broach with loved ones; making sure you and your partner are on the same page about types of debt, spending habits, current assets and financial goals is important. ***** 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 Sold iShares North American Tech-Multimedia Networking ETF (IGN). Bought VanEck Vectors Semiconductor ETF (SMH). 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 You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade talked about potential tailwinds for investors in President Biden’s infrastructure proposal, while Vice President Steve Johnson discussed the factors behind the bull market for stocks and what he’s looking for in the weeks ahead. Looking Ahead Next week, first-quarter corporate earnings season kicks off with the country’s leading banks reporting on how they’ve done and what they’re seeing for the months and quarters ahead. We’ll also get key reads on consumer sentiment, small-business confidence, retail sales, manufacturing and industrial production, building permits and housing starts, and the Federal Reserve’s “Beige Book” of anecdotal economic reports from around the country. 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, and have more than 3,500 clients across the country and over $7 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. Our minimum account size is $350,000. 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. Please note: This update was prepared on Friday, April 9, 2021, before the market’s close. This material is distributed for informational purposes only. 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