Investors See Through Capitol Chaos January 11, 2021 Weekly Update Print Please note: This update was prepared on Friday, January 8, 2021, before the market’s close. Wednesday’s violence in the Capitol building left many Americans disgusted and bereft, with scores of questions left unanswered and a White House in tatters as senior staff and Cabinet members began submitting their resignations ahead of the transfer of power on January 20. Much remains to reflect on, discuss and work to change before we can move past the events of this week. President Trump’s concession speech last night was a tiny step in the right direction. While our democracy held, it felt as though it was by only the barest of threads. Mayhem Versus Markets On Thursday, one day after the insurrection and chaos in the Capitol, it seemed almost surreal that stocks rose to record highs. Why? The claims of voter fraud and a tainted election have been put to rest, former Vice President Joe Biden’s election win has been certified by Congress, and with both the House and Senate holding Democratic majorities, however slim, it is almost a certainty that increased economic stimulus and infrastructure spending is at hand. Plus, a more coherent vaccine rollout should help heal the nation. No matter which way your politics swing, that’s good medicine for the markets. The current stimulus “down payment” of $600 checks approved by lawmakers in December have arrived in consumers’ bank accounts. So far, it appears that money is being saved rather than spent. As the economy loosens up, however, and with it many now-limited forms of commerce, expect a significant rebound in economic activity. Further stimulus in the form of (job-creating) infrastructure spending on roads, bridges, sewers, the power grid and the information highway will also be a boon. That spending could enable our economy (and the global one) to not just stand on its own again but begin to grow at a good clip. Anticipating this growth and the possibility of somewhat higher (but still low) inflation, Treasury bond prices have fallen a bit and the yield on the benchmark 10-year Treasury crossed 1.0% for the first time since March 2020. On a total return basis, the Dow Jones Industrial Average is up 1.5% for the year, while the broader S&P 500 index is up 1.3% through Thursday. The MSCI EAFE index, a measure of developed international stock markets, has gained 2.1%. At Thursday’s close, the Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.22%, up from 1.12% at the end of 2020. The U.S. bond market has returned a negative 0.8% this year. Factors We’re Following in 2021 A number of questions dominate our thinking at the moment as we look to what 2021 may bring. One is whether investors’ recent preference for value stocks over growth stocks will continue. Will stocks in the financial, energy and real estate sectors take the lead from technology and consumer stocks? Another is whether foreign stocks will outperform U.S. equities going forward. Last year, the declining dollar was a tailwind for foreign stocks. If interest rates are on the rise in the U.S., will this underpin the dollar’s value? We mentioned inflation. Will the vast pandemic-inspired stimulus spending lead to inflation, and if so, how much? Currently, expectations are that inflation could rise from a bit more than 1% to about 2%, which would hardly be bearish. Finally, with Democratic control of Congress, we are keeping our eyes peeled for changes in the tax code, both for corporations and high-earners. If and when tax changes take place, a reassessment of both your income desires and means of obtaining them may be in order. ***** Financial Planning Focus Consolidated Appropriations Act: What It Means for You After months of handwringing, Congress finally passed a second stimulus bill on December 21, 2020—the Consolidated Appropriations Act. Here are the main provisions that might have an impact on your finances: Stimulus Checks. Congress authorized one-time, non-taxable payments of up to $600 per qualifying individual (or $1,200) per couple plus $600 per child. Of course, “qualifying” is the operative word here. Similar to the first round of stimulus checks, there are income limits where payments begin to phase out. Taxpayers whose adjusted gross income (AGI) in 2019 was less than $75,000 for single filers, $112,500 for heads of households or $150,000 for married couples filing jointly will be entitled to the full benefit. Payment amounts are gradually reduced at higher levels of income until they are cut off altogether. If you earn more than $87,000 as a single filer (or $174,000 as a couple), you won’t be receiving a check. As for children, that $600 only applies to those who were claimed as dependents aged 16 or younger on your 2019 tax return. The Return of RMDs. Congress did not extend the temporary waiver of required minimum distributions (RMDs) into 2021. As a result, we will resume normal RMD procedures for all of our clients who qualify. If you’d like to review your RMD requirements, please call us. Personal Income Tax Changes. The Consolidated Appropriations Act brings a handful of updates on the income-tax front—we will mention two of them here. First, the threshold to claim an itemized medical expense deduction was permanently lowered to 7.5% of AGI, a victory for folks with high health care expenses. (It had been scheduled to increase to 10% this year.) Second, the act extends some of the charitable contribution benefits put in place by the 2020 CARES Act: Taxpayers can continue to take an above-the-line deduction of $300 (or $600 if you file jointly with a spouse) for cash contributions to charitable organizations in 2021. Taxpayers can also continue to deduct up to 100% of their AGI for cash contributions to qualifying charities. Extended Federal Unemployment Benefits. The CARES Act introduced a host of measures to help the unemployed get through the economic crisis. The Consolidated Appropriations Act extends regular unemployment benefits for 11 additional weeks and increases the dollar amount by $300 per week. This extension also applies to self-employed workers. Note that this is a step down from the $600 weekly increase introduced by the CARES Act. PPP Round 2. The return of the Paycheck Protection Program, version 2.0, brings myriad questions but the bottom line is this: Congress expanded and streamlined PPP to be more robust in an attempt to help as many businesses as much as possible. Businesses that did not receive a loan under the original PPP will be eligible to apply for financing. Businesses that already acquired and spent loans during the first round of PPP funding may be eligible to collect additional financing. However, this second round of PPP is harder to qualify for. This list is far from exhaustive but it provides a good overview of what’s in the bill. If you have any questions regarding how the Consolidated Appropriations Act might affect you, please contact your wealth management team. 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 Sold iShares MSCI Eurozone ETF (EZU). Bought iShares Core MSCI Emerging Markets ETF (IEMG). AIQ Tactical Defensive Growth No trades this week. AIQ Tactical High Income No trades this week. AIQ Tactical Multi-Asset Income No trades this week. Adviser Investments’ Market Takeaways You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade spoke about trends to watch for in 2021 and Vice President Steve Johnson shared some reasons for optimism in the year ahead despite the terrible news this week. Looking Ahead Next week brings a number of important reports, with reads on small-business sentiment, inflation, retail sales, the Fed’s “Beige Book” of anecdotal evidence of nationwide economic activity, business inventories and the federal budget. 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, January 8, 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. Purchases and sales of securities listed above represent all securities bought and sold in each strategy during the period stated. Each strategy’s portfolio generally includes more holdings in addition to the transactions listed above and in some cases the securities listed above may only represent a small portion of the particular strategy’s complete portfolio. 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