Hopeful Signs Not a Cure-All - Adviser Investments

Hopeful Signs Not a Cure-All

June 1, 2020

Please note: This update was prepared on Friday, May 29, 2020, before the market’s close.

Vaccine hopes and states reopening helped buoy Wall Street in the first half of this holiday-shortened week. But geopolitics got in the way as the week ended. Stocks dropped on concerns that China’s move to exert more control over Hong Kong would increase tension with the U.S. and other trading partners.

Despite following up on April’s extreme bullishness with gains ranging from 4% to 7% for a host of U.S. stock indexes, the markets remain anywhere from 5% to 15% below the highs hit in mid-February. On a more positive note, the S&P 500 index, for one, is up 35% from its March low.

Through Thursday, the Dow Jones Industrial Average and the broader S&P 500 index were down 10.4% and 5.4% for the year, respectively, continuing to build off of the markets’ March lows. The MSCI EAFE index, a measure of developed international stock markets, is down 13.4%. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index was 1.40%, down from 2.31% at year end. On a total return basis, the U.S. bond market has gained 5.1% for the year.

Erring on the Side of Caution

Memorial Day scenes ranged from fully masked social distancers to elbow-room-only sunbathers flocking to reopened beaches. Both images project a growing sense that the pandemic’s worst times may be behind us rather than ahead. We’re not so sure.

Don’t get us wrong—we are seeing preliminary signs of our economy turning from the worst of times to times that are slightly less bad. Our overarching concern is that the markets have priced in a swifter, more robust economic rebound than is currently warranted. Knowing how difficult it is to change the narrative and people’s behavior around combating the virus, we’re skeptical the economy will see the smooth and steady return to normal we are all hoping for.

While we still think that the intermediate-term prospects for the economy should be measured against medical data—specifically, control of the pandemic outbreak and development of a vaccine that can be deployed in volume worldwide—Wall Street traders seem satisfied by increased restaurant reservations in reopened states in the South and a pickup in air travel. We’ll stick to our more disciplined, risk-aware approach and wait for further evidence signaling a solid path toward growth.

It’s Not All Virus News

For the past three months or so, COVID-19 has dominated our collective attention and airwaves. And it’s still eating up a lot of bandwidth. But the longer it goes on, the less it becomes “news” and the more it becomes part of life. This creates room for other factors to begin to enter the frame.

For example, tensions between the U.S. and China are coming to the fore, and it goes beyond just finger-pointing over the source of the coronavirus. China’s move to exert more control over Hong Kong has largely been condemned by the global community. Depending on how President Trump responds, the trade war between the U.S. and China, which was cooling down, could return to a boil.

In a normal election year, we’d be inundated with campaign rhetoric and spin. The virus put campaigns on hold, but it’s starting to ramp up. As Joe Biden begins to revive his campaign, President Trump and executives at his preferred communication platform, Twitter, have been feuding. Expect election volume to turn way up in the months ahead with concomitant short-term impacts on investment markets.

*****

Financial Planning Focus:

529 Accounts & Education Planning

Since it’s May 29, we thought we’d take the opportunity to discuss some of the benefits of 529 accounts (5/29, get it?). While colleges and universities ponder how, when and whether campuses will reopen in the fall, the one thing you can be sure of is that tuition discounts may be slow in coming, as institutes of learning are still trying to balance their costs with what residential students are willing to pay for an online learning experience if campuses remain closed this fall.

Here’s a quick overview on how you can better manage one of the smartest investments you can ever make:

  • The Basics: 529 plans are tax-advantaged accounts designed specifically for investors to save for tuition and expenses related to private K-12 and higher education. Anyone can open a 529 account for a designated beneficiary, and anyone is free to contribute to the plan once it’s open. Plans are state-sponsored, generally in partnership with a mutual fund company or institute of higher learning. However, you generally aren’t limited to selecting a school in the state your 529 is sponsored by.
  • Choosing a Plan: You have several key considerations in selecting a plan. First, evaluate the investment options available to you, as they are not uniform state-to-state. Second, you may be able to get a deduction on your contributions if you elect to use your home state’s plan, so be sure to explore that option if it’s available to you. (Read our exclusive special report for more details.) Plus, like other investment choices, fees vary.
  • Tax Benefits: Think of 529s like a Roth IRA, only for education savings rather than retirement. Contributions to the account are made with after-tax dollars, and growth of investments therein are tax-free. Plus, any withdrawals you make to pay for qualified education expenses are also untaxed. Withdrawals used to pay for expenses that aren’t qualified are subject to a stiff penalty, however—you will need to pay ordinary income tax plus a 10% penalty on any non-qualified plan withdrawal.
  • Special Considerations: 529s also work well as wealth-transfer and estate-planning vehicles. You can make a one-time contribution of up to $75,000 ($150,000 if married, filing jointly) for as many beneficiaries as you like and choose to treat the deposits as if they were made over a five-year period for gift-tax purposes. The benefit is two-fold: Move a big chunk of money out of your estate in one fell swoop and front-load the 529 plan with a large sum that can immediately begin compounding upon itself. And if a beneficiary decides they don’t want to go to college, the account owner can change the beneficiary to another qualified family member, penalty-free.

It’s easy to see why 529 accounts are such a popular method to save and invest for education expenses. If you are interested in learning more, click here to read our special report or listen to our podcast on 529s.

*****

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 also find two new Market Takeaways videos on our website, featuring Equity Research Analyst Kate Austin with a look at the slew of public companies that have filed for bankruptcy protection and Vice President Steve Johnson on the importance of separating investment decisions from events in the headlines.

Looking Ahead

Next week, we’ll get backward-looking reads from April on construction spending, car sales and factory orders, as well as May reads on manufacturing and the service sector. But the main focus will be on May jobs data, including last month’s unemployment figure.

You know our stance: May data matters much more than March or April data. June data will matter more than May data. July data may matter as much or more than June data. And medical data remains our foremost focus.

As always, please 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.


Please note: This update was prepared on Friday, May 29, 2020, 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.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

Third-party publications referenced in this article (e.g. CityWire, Barron’s, InvestmentNews, CNBC, etc.) are independent of Adviser Investments. Readers should note, that to the extent any third-party publication linked to in this piece also contains reference to any of the newsletters written by Dan Wiener or Jim Lowell, such references only pertain to the respective newsletter(s) and are not reflective of Adviser Investments’ investment recommendations or portfolio performance. Newsletters are operated independently of Adviser Investments. Opinions and statements contained in third-party articles are for informational purposes only; they are not investment recommendations.

© 2020 Adviser Investments, LLC. All Rights Reserved.

85 Wells Avenue, Suite 109
Newton, MA, 02459

info@adviserinvestments.com
1.800.492.6868

© 2020 Adviser Investments, LLC

Adviser Investments' logo is a registered trademark of Adviser Investments, LLC.