Stocks Choppy as Delta Concerns Surge - Adviser Investments

Stocks Choppy as Delta Concerns Surge

July 12, 2021

Please note: This update was prepared on Friday, July 9, 2021, before the market’s close.

After the S&P 500 index set new records seven days running, stocks turned choppy this week. Concerns about the spread of COVID-19’s Delta variant planted doubts about the future pace of economic recovery in the U.S. and abroad.

The Dow Jones Industrial Average, the S&P and the tech-heavy NASDAQ Composite each tumbled more than 1% on Thursday before clawing back most of those losses later in the day day and closing at all-time highs today.

Meanwhile, inflation fears have apparently moved to the back burner. Prices on government bonds have been on the ascent, with an eight-day rally sending the yield on 10-year Treasury bonds to 1.29% on Thursday—its lowest close since mid-February. Yields drop when prices rise, and if investors and traders were worried about inflation, they’d demand more, not less, income from their bonds.

Yesterday’s declines barely dented 2021’s strong returns for stocks. The Dow is up 13.6% for the year through Thursday, while the broader S&P 500 has gained 15.9% on a total return basis. The MSCI EAFE index, a measure of developed international stock markets, has returned 8.5% through Thursday. The Bloomberg Barclays U.S. Aggregate Bond index’s yield stood at 1.40%, up from 1.12% at the end of 2020. Overall, the U.S. bond market has declined 0.8% year-to-date.

Is a Correction Coming?

Thursday’s stock market blip broke a streak of eight record closes over the previous nine sessions through Wednesday for the S&P 500. The index, which has nearly doubled since the March 23, 2020 pandemic low, hasn’t experienced a drawdown of even 5% over the past eight months—the longest period of calm since 2018.

We can’t predict when, but the market’s current bull run will eventually take a breather. When an index like the S&P 500 is at an all-time high, there are only two directions it can go—to a new record, or lower. How high or how low remains to be seen. We don’t view market drops as something to fear, though. Declines are a regular feature—not a bug—when investing in the stock market.

What Bonds Tell Us About Growth

As noted, inflation handwringing has been a hallmark of the current stage of the recovery.

We think there’s been a rethink, though. The numbers don’t add up. Treasury bonds play an important role in the economy, impacting the costs of everything from consumer mortgages to corporate borrowing. Given the size and breadth of the government debt market, they also serve as a canary in the inflation coal mine. The benchmark 10-year Treasury’s yield, currently a meager 1.35%, suggests that sustained inflation isn’t a concern and the economy is on a slow-growth course rather than one of rapid expansion.

We think there’s reason to believe that growth could still be strong while inflation remains transitory.

This week’s data showed an economy that continues to recover. Despite the nagging challenges presented by the Delta variant of COVID-19, Americans are out and about. Restaurant and hotel sales have returned to 2019 levels. Oil prices are climbing amid record-high demand for fuel as drivers gas up and hit the road. And travelers have been taking flight. The Transportation Security Administration (TSA) screened 2.2 million passengers last Friday, a pandemic-era record surpassing the number of flyers on the same day in 2019.

The biggest hurdles to further and faster recovery are what we call “growth problems”—shortages of labor and supplies that make it difficult to meet demand, sending prices higher and hobbling expansion potential.

Short-term hiccups aside, we see expanding earnings, positive economic trends and interest rates under control. That’s typically a recipe for growth.

Financial Planning Focus

Roth IRA Conversions: Quick Tips

Roth IRAs are a powerful and popular retirement savings vehicle—but should you trade in your traditional IRA for one?

The answer comes down to taxes. Money placed in a Roth IRA can grow tax-free and be withdrawn tax-free in retirement. Contributions to a traditional IRA also grow tax-free, but you pay taxes on the money you withdraw during retirement—and you are required to take the money out at some point.

As great as tax-free growth and tax-free withdrawals are, Roth IRAs aren’t a free lunch. If you want to convert a traditional IRA into a Roth, you have to pay income taxes on the amount you move over.

This means that timing and tax rates are crucial factors in deciding whether a conversion makes sense for you. Generally, if you have a low-income year due to early retirement or other reasons, it may make sense to take the opportunity to convert. This strategy can be especially effective if you’ve elected to defer Social Security benefits to age 70, dropping your tax rate even further.

That doesn’t mean you must wait until you’re poised to retire to make the switch. Tax rates are currently at historic lows. If they rise in the future, converting now may look like a smart decision.

Here are five things to consider if you’re thinking of converting traditional IRA assets to a Roth:

  1. Time Frame. The longer you have before you need the money, the more sense it makes to convert assets to a Roth. Once you convert, qualified withdrawals will never be taxed. Leaving those assets untouched for as long as possible allows them to grow tax-free over time. This will squeeze the most juice out of the conversion.
  2. Paying for the Conversion. If taxes on the conversion are paid from IRA money, less is left in the Roth to grow, eroding the benefit of the conversion. The best practice is to cover the tax bill from cash on hand or taxable investments. If you can’t cover the taxes with other money, a conversion might not be wise.
  3. Required Minimum Distributions (RMDs). You are required to withdraw money from traditional IRA accounts starting at age 72 (70½ for those who reached that age before Jan. 1, 2020). But you are not required to take money out of your Roth. If you don’t need to tap into IRA funds to cover living expenses, a Roth gives you the freedom to choose when or if you take withdrawals over your lifetime.
  4. Roths are a better asset to pass on to your heirs. Traditional IRAs create taxable income, but heirs don’t pay tax on Roths and they have several choices of how they want to draw the account down over time. In other words, your heirs will thank you if you convert to a Roth.
  5. Where You’ll Live in Retirement. Individual states tax retirement income differently. If you plan to move to another state in retirement, check to see whether required distributions from IRAs are excluded from your state income tax. If so, you may save more on taxes by sticking with a traditional IRA than you would converting to a Roth.

Roth conversions can have many benefits—but figuring out whether one’s best for you can be tricky. Talk to an adviser if you have questions about Roths.


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 VanEck Vectors Semiconductor ETF (SMH). Bought iShares Expanded Tech-Software Sector ETF (IGV).

AIQ Tactical Defensive Growth

No trades this week.

AIQ Tactical Multi-Asset Income

Sold iShares iBoxx USD High Yield Corporate Bond ETF  (HYG). Bought VanEck Vectors Fallen Angel High Yield Bond ETF (ANGL).

AIQ Tactical High Income

No trades this week.

Adviser Investments’ Market Takeaways

In this week’s Market Takeaways, Vice President Steve Johnson reported from Philadelphia on what we learned from the 10-year Treasury’s falling yield.

Looking Ahead

Next week brings reads on small business confidence, inflation, regional manufacturing, consumer sentiment and retail sales as well as the Federal Reserve’s Beige Book—an anecdotal survey of business leaders.

As always, you can visit 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 managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 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. To see a full list of our awards and recognitions, click here, and for more information, please visit or call 800-492-6868.

Please note: This update was prepared on Friday, July 9, 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. Securities are listed for informational purposes and are not intended as recommendations. Existing investor accounts may not participate in all transactions listed above due to each account’s particular circumstances.

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.

The Adviser You Can Talk To Podcast is a registered trademark of Adviser Investments, LLC.

For a summary of Adviser Investments’ advisory services and fiduciary responsibilities to our clients, please review our Form CRS here.

© 2021 Adviser Investments, LLC. All Rights Reserved.

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