One Year In, Signs of Hope Ahead March 15, 2021 Weekly Update Print Please note: This update was prepared on Friday, March 12, 2021, before the market’s close. One year after the World Health Organization declared COVID-19 a global pandemic, optimism reigned on Wall Street. The Dow Jones Industrial Average and the S&P 500 index, as well as the small-cap Russell 2000 index, each hit record highs on Thursday after President Biden signed an expansive new stimulus bill into law. The tech-heavy NASDAQ Composite also rallied through Thursday. The monetary and fiscal safety nets in place combined with an accelerating rollout of vaccines have so far been a boon to stock markets in 2021. On a total return basis, the Dow is up 6.6% for the year through Thursday, while the broader S&P 500 index has gained 5.2%. The MSCI EAFE index, a measure of developed international stock markets, has returned 3.7%. The Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.51%, up from 1.12% at the end of 2020. The U.S. bond market has declined 2.8% this year. Stimulus Bill Brings Cash Infusion Yesterday, the $1.9 trillion American Rescue Plan (ARP) became law. The relief legislation is intended to speed up the economic recovery and the distribution of vaccines. The new round of stimulus checks to working- and middle-class Americans have garnered most of the headlines—direct payments of $1,400 to individuals making under $75,000 a year and married couples bringing in $150,000 or less. The ARP also expands the child tax credit, extends unemployment insurance through early September and has provisions to make rent, food and health insurance more affordable for those in need. Over half the funding in the bill is aimed squarely at American households. Much of the remainder is earmarked for state and local governments, vaccination efforts and safely reopening schools. The massive cash infusion into the economy isn’t without critics, particularly those who see it as a gateway to higher inflation or are concerned about piling on additional debt. We take these concerns seriously. We’ve written about inflation recently in our weekly updates. In short, we expect to see a temporary uptick in the inflation rate in the coming months but don’t anticipate a lasting or dramatic rise. As for rising debt, yes, it will need to be paid down at a later point. But the economy (and world) was hit with a massive shock a year ago—one that threatened to send the global economy into a years-long recession. When that happens, the government and Federal Reserve are empowered to step in. As bad as the economic pain has been since March 2020, it could have been much worse had they sat back and done nothing. And while we think we see the light at the end of the tunnel, the economy still has a long way to go. For example, if you factor in the number of people who have left the workforce and are not actively looking for a new job (due to the pandemic or other factors), the employment picture is worse today than it was at the depth of the Great Recession. We see the stimulus as a net positive for investors, particularly for some of the sectors hardest-hit by lockdowns (hospitality, travel and other businesses reliant on in-person commerce). As the reality of the recovery begins to reveal itself—thanks to the stimulus and vaccine availability—we may see new wind in not just the economy’s sails but the market’s as well. Consumers Primed to Spend The consumer is the lifeblood of the American economy. And during this year of stubbornly high unemployment, we’ve seen how stimulus checks spur some people to spend. After the $600 payments from December’s legislation landed in bank accounts, consumer spending rose 2.4% in January—the steepest increase since June. But people aren’t just spending, they’re also saving. Households saved 20.5% of after-tax income in January, up from 13.4% the previous month—the highest rate since May 2020 (and pre-pandemic, the highest rate since World War II). Sure, some of that was belt-tightening after the holiday shopping season. And much of it came from households with the most discretionary income cutting back by cooking at home and canceling vacations. Yet it’s not just the well-to-do who have been saving. According to a JPMorgan study, through October 2020, the median checking account balance for families in the lowest 25% of incomes was up 50% from the same time in October 2019—a figure directly attributable to the first round of stimulus payments made in April 2020. With luck, the ARP is the final shot in the arm that gets our economy through the last of the severe COVID-19 restrictions. Consumers are more flush than we’ve seen in generations—and spending in the back half of the year could help create an economy that’s off to the races. Is the Stock Market Different This Time? With the rollercoaster of “meme” stocks like GameStop (GME), the rapid rotation from growth into value stocks and the big bitcoin surge, it can seem as if the market is behaving very differently than it has in the past. But is it? First, the stock market is a little more volatile than usual—but not in any way that’s out of the historical norm. One way to evaluate volatility is with standard deviation, which measures how far an investment’s price has moved above and below its average price over a given period of time. The higher the standard deviation, the higher the volatility. The standard deviation of Vanguard 500 Index fund’s daily moves over the 20 days through Wednesday was 18.1%. (The fund attempts to mimic the S&P 500, making it a good proxy for the stock market.) And the median 20-day standard deviation for the fund going back to 1983, when our data begins, is 12.5%. We’re higher now for sure, but, as the chart shows, in moments of crisis, volatility can exceed 40% and even rise upwards of 80% or more. We’re nowhere close to that. Sources: The Vanguard Group, Adviser Investments. Note: Chart shows rolling 20-day standard deviation of Vanguard 500 Index on a daily basis from 7/27/1983 to 3/10/2021. Despite the elevated volatility in energy and tech stocks of late, with Vanguard Energy ETF up 43.5% year-to-date and tech taking a breather after a red-hot 2020, the rest of the market’s sectors have demonstrated volatility well within the normal range. And it’s important to remember that in all markets—bull or bear, calm or stormy—we are regularly assessing the situation and constantly evaluating the market for risks as well as opportunities. Podcast: Making the Most of Equity Compensation Equity compensation is becoming a bigger part of people’s paychecks in many industries—but making the most of this important wealth-building tool can be fraught with complexity. Fortunately, Andrew Busa and JonPaul McBride from our financial planning team are here to demystify the ins and outs of equity comp, including: Key terms to understand when it comes to stock options Non-qualified stock options (NSOs) vs. incentive stock options (ISOs) How options are taxed—and how to decide when to exercise them Trading windows and blackout periods Click here to listen now and ensure you’re making the most of the investment opportunity equity compensation gives you. Please stay tuned for more podcast content from us on this timely topic—and consult our primer on equity compensation to learn more. ***** Financial Planning Focus 3 Savvy Budgeting Strategies Budgeting is something that many of us would rather avoid. But it’s an essential exercise—and often far easier than you think. In fact, investing time today will help you manage your money more efficiently and reach your goals faster. Let’s explore three common methods of budgeting and how they might work for you. The 50/30/20 Plan. The beauty of this approach is that it’s so straightforward. Simply group your expenses into three types: Needs, wants, and savings and debt. Specifically, earmark 50% of your income for necessary expenses (housing costs, utility bills, groceries, etc.). Then direct 30% toward discretionary items like entertainment or travel. Finally, dedicate the last 20% to savings and paying down debt.This method is ideal for beginners because it doesn’t require meticulous tracking of every dollar spent. The 50/30/20 proportions are guidelines that can shift a bit depending on your needs. But that’s also the strategy’s greatest weakness—the flexibility does less to instill discipline and create a routine compared to other approaches. To get started, we recommend automating the 20% (before paying expenses or spending on discretionary items) to make sure you meet your savings goals. Zero-Based Budgeting. Often called the “give every dollar a job” approach, the goal here is to ensure that your income minus your expenses equals zero. You shouldn’t have a spare dollar at the end of the month—they’re all accounted for. In this case, savings and debt payments are considered expenses. It’s a smart approach that works best when your monthly income is consistent and you have a tight handle on your expenses. If you can stick to this method, you’ll know exactly how your money is being spent. The Envelope Method. This classic strategy requires physical cash. (You know, those green pieces of paper we all used to carry around in our wallets?) To get started, make a list of your monthly expenses by category—groceries, dining out, utility bills, rent, etc. Remember to include infrequent outlays like gifts to friends and the occasional donation. From there, allocate one envelope per category and budget your cash accordingly. In this case, pulling cash from those envelopes is the only way you can spend. Of the three approaches, the envelope method requires the most discipline. When an envelope is empty, you can’t spend any more money in that particular category. From a practical standpoint, this method is difficult to sustain over the long-term, but it’s great for someone with a tendency to overspend using credit cards who wants to course correct. No matter which budgeting approach resonates with you, there is one common thread—financial awareness. It is impossible to create and maintain a budget without knowing your income and expenses. If you want to get started, you can click here for our Budget Worksheet, or click here for our podcast on the topic. ***** 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 Amplify Online Retail ETF (IBUY). Bought Invesco Dynamic Leisure and Entertainment ETF (PEJ). AIQ Tactical Defensive Growth Sell iShares Core S&P 500 ETF (IVV). Bought cash. AIQ Tactical Multi-Asset Income Sold SPDR Bloomberg Barclays Convertible Securities ETF (CWB). Bought Vanguard High Dividend Yield ETF (VYM). AIQ Tactical High Income No trades this week. Adviser Investments’ Market Takeaways You’ll find two new Market Takeaways videos on our website this week. Research Analyst Liz Laprade talked about electric-vehicle stocks and Vice President Steve Johnson reflected on what a difference a year makes. Looking Ahead Next week’s main event is the Federal Reserve’s two-day meeting, including Chair Jerome Powell’s press conference on Wednesday afternoon. We’ll also be looking closely at retail sales figures for February, some housing data (builders’ confidence, housing starts and building permits) and reads on manufacturing and leading indicators. 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, March 12, 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. Further, the securities listed above are not selected for listing based on their investment performance; thus it should not be assumed that any of the securities listed above were profitable or will be profitable, nor should it be assumed that future recommendations will be profitable. Clients and prospective clients should only make judgements about a strategy’s performance after reviewing the strategy’s composite performance information. There is no assurance that each security listed above will remain in the strategy’s portfolio by the time you have received or read this email. 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