Please note: This update was prepared on Friday, November 19, 2021, prior to the market’s close.
Spiking COVID-19 cases in Europe—and a new round of lockdowns—sent jitters across Wall Street as a moderately bullish week came to a close.
While fresh pandemic fears spooked traders, the week’s economic news has been more upbeat. Home sales data and reports on builders’ confidence showed the housing market continuing to surge. Consumer spending and retail sales both rose, and major vendors reported having plenty of inventory on hand ahead of the holiday shopping season (more on that below).
Globally, the U.S. and China moved to reduce tensions and news of additional promising COVID-19 treatments (plus booster shots being made available for all adults in the U.S.) bolstered prospects for continued economic recovery.
While uncertainties abound, we see an economy that’s in better shape today than it was this time last year. With a little luck we’ll enter the holiday season with glad tidings as a greater sense of normalcy begins to take hold.
Inflation chatter remains high as strategists, portfolio managers, economists and consumers wonder how painful the pinch we’re feeling in our pocketbooks will be (and how long it will last). As we’ve discussed many times, much of today’s inflationary squeeze has been due to supply chain issues: The pandemic and its lockdowns caused lasting ripple effects that have made it hard for manufacturers and shippers to meet demand.
Just this week, however, there are some signs that those supply chain kinks may finally be working themselves out. U.S. manufacturing output rose in October to the highest level since March 2019. That rebound was led in part by motor vehicles and parts—a positive sign given that automotive was one of the industries hardest hit by semiconductor shortages.
Additionally, while ocean shipping costs are up over 200% from last year, they have begun to ease, with prices falling for eight straight weeks. And fewer container ships are lingering at the port of Los Angeles—the entry point for much of the trade between the U.S. and China.
What’s more, some of the nation’s largest retailers announced this week that they’ve been able to stockpile record inventories ahead of the holiday shopping season: Best Buy, Target and Walmart all reported inventory surging above last year’s numbers as well as pre-pandemic levels.
Best Buy, for example, has 55% more goods in stock compared to a year ago, and 23% more than it had in 2019. Walmart’s inventories are up 16% compared to 2020 and 8% compared to 2019.
Forecasters’ fears of a hampered holiday spending season may be unfounded. Consumer spending has rebounded, and if supply chain constraints continue to ease, inflation should start to slow. We don’t think we are back to “economic normal,” but we could be a lot closer than anticipated even a few months ago.
Stress-Test Your Financial Plan
This week’s reader question is about preparing for rising prices: How can I make sure my financial plan and portfolio are inflation-ready?
It’s an excellent question and one that is front of mind for us.
Federal Reserve Chair Jerome Powell believes inflation will let up later in 2022 once pandemic-related labor shortages and supply chain problems get sorted and the economy settles into a post-COVID normal. We’ll see how that hypothesis plays out. Until then, rising prices at the gas station and grocery store, not to mention monthly housing and heating bills, are leading to some serious sticker shock. What can you do to mitigate the sting?
First, you can revisit your financial plan or work with us to create one if you haven’t already done so. Drilling down, we can stress-test your budget by identifying the line items that leave you the most exposed in 2022: Heating costs, upcoming medical expenses, rent or mortgage obligations and weekly groceries. We can help you project how inflation might affect your personal balance sheet and ability to meet near-term financial goals.
Second, we highly recommend that you not make dramatic changes to the asset allocation in your portfolio without talking to an adviser. Yes, some research has shown that so-called value stocks, which tend to trade at a lower price relative to their fundamentals, have done well during inflationary periods. But everyone’s risk profile is different. The rule of thumb for most long-term investors? A well-diversified portfolio is the best hedge in any market environment.
Finally, if you are thinking about borrowing to buy a house or car, go with a fixed-rate loan. Wages (and often the value of your portfolio) tend to rise with inflation. So, while your fixed payments will remain the same, you can expect to earn more money over time while spending a smaller percentage of your paycheck as each year goes by.
While inflation is largely out of your control, your financial game plan is not.
Chart of the Week: The State of Foreign Stocks
We monitor a wide range of data to form our outlook on the market and the broader economy—here’s one indicator our analysts have found informative.
“Why own foreign stocks?” It’s a question I’m hearing more and more these days. I get it. Over the past decade-plus, U.S. equities have dominated foreign stocks. But that hasn’t always been the case. Foreign stocks will come back in favor… Just don’t ask me when! (For more on the diversification benefits of foreign stocks, check out this week’s podcast below.)
Podcast: The S&P 500 Index—Is It All Investors Need?
One index fund to rule them all: Can investing really be so simple? In the latest episode of The Adviser You Can Talk To Podcast, Chairman Dan Wiener and Director of Research Jeff DeMaso discuss the myths and realities of passive investing. Click here to listen now!
Financial Planning Focus Social Security FAQs
Social Security is a complex topic. While you may understand the basics (like when to file and what family benefits you’re entitled to), you might still wonder how to claim benefits, manage taxes associated with Social Security and more. At Adviser Investments, we field Social Security questions from clients daily. Here are some of those most frequently asked questions along with our answers.
How do I file for Social Security? You can apply online, via phone at (800) 772-1213 or at the nearest Social Security office. If you prefer an in-person meeting, make an appointment beforehand to save time and frustration.
Do I have to pay taxes on my Social Security benefits? Generally, yes—but at a reduced rate. If your total income is between $25,000 and $34,000 (or $32,000 to $44,000 for a married couple filing jointly), then up to 50% of the benefits you receive from Social Security are taxable. If your total income falls below those levels, you do not pay taxes on your Social Security income. And if you are fortunate enough to surpass those thresholds, then 85% of your benefits are taxable. Note that this applies only to federal taxes—although 13 states apply their own taxes to Social Security benefits.
Does work overseas count toward my Social Security? In many cases, yes. More than two dozen countries (including the U.K., Australia and Japan) have agreements with the U.S. allowing you to accrue Social Security credits for your time working abroad. Additionally, these agreements prevent you from facing a potentially nasty double-taxation situation.
What are Supplemental Security Income (SSI) benefits and do I qualify for them? SSI is a separate program administered by the Social Security Administration that aids adults with disabilities and children with little to no income or assets. To qualify, you must be disabled, blind or at least 65 with limited (as determined by several different means tests) income and resources. If you or a loved one may be eligible for SSI, we often recommend setting up a special needs trust to set funds aside. These trusts are exempt from certain means tests and can allow the beneficiary to still receive federal aid like SSI.
What will my benefits be? The amount you’ll receive depends on your date of birth, earnings history and the age at which you apply for benefits. Start with this benefits calculator for a quick estimate. One thing we do know is that current Social Security and SSI beneficiaries will receive a 5.9% cost-of-living increase for 2022.
Social Security is a significant source of income for many Americans, and the rules governing it are confusing. We’re proud to say that we have some terrific expertise on the subject and are happy to share it. If you have questions about your specific situation, please contact your wealth management team to receive a personalized breakdown.
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.
And remember, you can always visit the Adviser in the Media section of our website for the Adviser Investments team’s informative views on the market and the economy.
The markets and our offices will be closed all day next Thursday for Thanksgiving and then again starting at 1 p.m. on Friday. We’ll get a cornucopia of reports ahead of the holiday—new and existing home sales, manufacturing and service sector activity gauges, a revision to Q3 GDP, minutes from the most recent Fed meeting, and personal income, savings, spending and sentiment reads.
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 and your loved ones a prosperous investment future and a happy and healthy Thanksgiving.
Please note: This update was prepared on Friday, November 19, 2021, prior to the market’s close.
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