Stock Gains Slow in New Year January 19, 2021 Weekly Update Print Please note: This update was prepared on Friday, January 15, 2021, before the market’s close. After a robust start to the year, traders have been pulling back a bit and stocks have retraced some of their early gains. We don’t think there’s any cause for concern, as a pause may be just what’s needed before stocks can move measurably higher. Frankly, a breather and even some declines would temper over-optimistic expectations fueled by last year’s remarkable returns in the bond and stock markets both here and abroad. The new year has been met with the proverbial yin and yang of market-moving news. A recent surge in coronavirus case counts and a flawed vaccine rollout, along with another jump in the number of people filing for unemployment benefits for the first time, means the economy is still under siege. Another worrisome data point this week was a further decline in U.S. retail sales, which account for one-third of consumer spending in our economy. Over the three months ending in December, retail sales were down at an 8.3% annualized rate. We think this number should be taken with a grain of salt though, as December’s sales were still 2.9% higher than year-ago numbers. Again, a bit of yin and yang. We are both long-term investors and optimists. Our view when we look out over the next quarter or two is that the rollout of vaccines and additional fiscal stimulus from the incoming Biden administration will help put our economy back more solidly on its feet. We remain cautiously optimistic about 2021’s prospects for health and prosperity. On a total return basis, the Dow Jones Industrial Average is up 1.3% for the year, while the broader S&P 500 index is up 1.1% through Thursday. The MSCI EAFE index, a measure of developed international stock markets, has gained 2.9%. At Thursday’s close, the Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.21%, up from 1.12% at the end of 2020. The U.S. bond market has returned a negative 0.9% this year. Unemployment Surprise Offset by Entrepreneurship Experts and analysts were nonplussed this week when data showed first-time unemployment claims moving decidedly in the wrong direction. Not since the March highs, when new claims topped a record 6.8 million, have we seen a larger jump in a single week. Source: The U.S. Labor Department. The job market is unlikely to see a rapid recovery before vaccinations are widespread. In the meantime, where are new jobs and income going to emerge? One answer that might come as a surprise—newly incorporated companies. In 2020’s third quarter alone, entrepreneurs filed paperwork for more than 1.5 million new businesses. That’s nearly double the number in a typical pre-COVID quarter. It’s also not what we typically see during a recession. In 2008–2009, the number of new businesses declined by some 10% per quarter—it took about five years to reach pre-recession levels of business creation. Source: U.S. Census Bureau Business Formation Statistics. Of course, many of these businesses were started out of necessity as people lost their jobs—and as the statistics around small businesses have shown, many of these ventures won’t succeed. Still, it’s when we face challenges that the seeds of future success, growth and innovation are planted. Biden Unveils Pricey Pandemic Relief Package President-elect Joe Biden put a $1.9 trillion pandemic relief plan on the table on Thursday and hinted at an infrastructure and job-creation proposal waiting in the wings. The proposal includes $1,400 checks for Americans below a certain income threshold, $400 in weekly unemployment benefits and an increase in the minimum wage to $15 an hour. The payments are intended as a bridge until vaccines are broadly available and the economy can reopen more completely, allowing people to keep spending and spurring faster growth when normalcy returns. The plan also calls for $170 billion to help elementary schools safely reopen and $160 billion toward a national vaccination and COVID-19 testing program. The proposal is ambitious, aggressive and expensive. Whether it can be passed through a bitterly divided Senate remains to be seen. Fed Reasserts Supportive Stance Even before Thursday’s jobs numbers were released, employment remained front-of-mind for monetary policymakers. In a virtual speech at Princeton University this week, Federal Reserve Chair Jerome Powell noted, with wry understatement, that “we are a long way from maximum unemployment” and that “now is not the time to be talking about exit” from its bond-purchasing stimulus effort. (In short, they’ll be sustaining “easy money,” as it’s known on Wall Street, for borrowing and investing.) As a refresher, the Fed’s mandate is pursuit of a 2% inflation target and a labor market at “full employment,” meaning everyone who wants a job can find one (not necessarily a 0% unemployment rate). With nearly 10 million fewer Americans employed today than before the pandemic hit—the worst year for job losses since 1939—economists see a full-employment scenario at least two years away at best. Monetary policy was a major tailwind behind last year’s stock market gains—and Powell & Co. have been clear that they’re not cutting off their support any time soon. What does it all mean for investors? As the old investing saw goes, “Don’t fight the Fed.” Podcast: Dan Wiener and Jim Lowell—Investing in 2021 The turbulence of 2020 hasn’t settled down in 2021—and it’s more important than ever to look forward when considering both obstacles and opportunities. In this week’s podcast, Adviser Investments Chairman Dan Wiener and Chief Investment Officer Jim Lowell provide a bird’s-eye view of the trends and themes they see shaping the investment landscape in 2021. This discussion covers a range of big-picture concerns and questions, including: Will the economy finally move past COVID-19 in 2021? Is the market in a bubble—or just bitcoin? Income generation in a low-yield environment The state of the U.S.–China relationship and the global economy Has the time finally come for value stocks to shine? Click here to listen now! And be sure to tune in next time for a drilled-down discussion with our research team about how they see these trends playing out in the areas they focus on—and how they are influencing our investment recommendations. ***** Financial Planning Focus: Review Your 2021 Spending Plan With the new year comes new resolutions. While we think this is an opportune time to reassess your financial goals and aspirations, we also understand that the start of the calendar year creates a deluge of tasks, so we’ll keep our advice brief and to the point. Are you planning any major expenses this year? A home renovation or purchasing a vacation house, the start of college tuition or planning for travel once the pandemic is under control? Are you concerned that your cash balance or income won’t meet your needs? (You can use our Budget Worksheet to help figure out where you stand.) If your answer to any of these questions is “yes,” call your wealth management team to review your spending plan for 2021. Even if your answer is “no,” if you haven’t talked with your team recently, we encourage you to do so to either put a sound financial plan in motion or refine your existing one as needed. After all, it pays to plan your spending and savings in advance. Take the time today to evaluate your cash reserves and expected income over the next year. ***** 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 Reduced NextEra Energy (NEE). Added to Accenture (ACN) and Visa (V). AIQ Tactical Global Growth Sell iShares US Aerospace & Defense ETF (ITA). Buy Fidelity MSCI Materials Index ETF (FMAT). AIQ Tactical Defensive Growth No trades this week. AIQ Tactical High Income No trades this week. AIQ Tactical Multi-Asset Income Sold Fidelity Corporate Bond ETF (FCOR). Bought iShares National Muni Bond ETF (MUB). Adviser Investments’ Market Takeaways You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade reviewed four potential policies that may result from Democratic control of Congress and the West Wing. Vice President Steve Johnson explained the letter of the week on Wall Street: “B” for Biden, billions, bonds, bitcoin and bubbles. Looking Ahead Markets (and Adviser Investments’ offices) will be closed on Monday in observance of Martin Luther King Jr. Day. We’ll be back at our posts on Tuesday morning. As with this week, next week will bring a light slate of new economic data, though we’ll be looking closely at reads on housing, manufacturing and the service sector. 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 15, 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. 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