Please note: This update was prepared on Friday, October 16, 2020, before the market’s close.
A spike in global COVID-19 cases and the continuing stimulus stalemate left investors wary for most of this week, with the major stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. indices ending down for a third consecutive day on Thursday.
Meanwhile, after two high-profile, late-stage clinical trials were put on pause because of possible safety concerns, Pfizer announced today that it might apply for emergency Food and Drug Administration approval of its coronavirus vaccine by late November. The news sent stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. higher.
Economic data has been mixed, at best. The jobs market is still challenged. More people filed anew for unemployment benefits last week, 898,000, than had in the prior six weeks.
Meanwhile, retail sales, a measure of spending at stores, restaurants and online venues, rose 1.9% in September, coming in above analyst expectations. Several big banks, including Goldman Sachs and JPMorgan Chase, also announced better-than-expected early earnings reports.
Through Thursday, the Dow Jones Industrial Average has returned 1.7% for the year, while the broader S&P 500 index, boosted by a handful of mega-sized technology companies, was up 9.4%. The MSCI EAFE index, a measure of developed international stock markets, is down 6.3% for the year. As of Thursday, the Bloomberg Barclays U.S. Aggregate BondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. index’s yieldYield is a measure of the income on an investment in relation to the price. There are several ways to measure yield. The current yield of a security is the income over the past year (either dividends or coupon payments) divided by the current price. stood at 1.19%, down from 2.31% at the end of 2019. On a total return basis, the U.S. bondA financial instrument representing an IOU from the borrower to the lender. Bond issuers promise to pay bond holders a given amount of interest for a pre-determined amount of time until the loan is repaid in full (otherwise known as the maturity date). Bonds can have a fixed or floating interest rate. Fixed-rate bonds pay out a pre-determined amount of interest each year, while floating-rate bonds can pay higher or lower interest each year depending on prevailing market interest rates. market has gained 6.8% this year.
Second Wave of COVID-19 Creates a Ripple Effect
Our economy is in recovery mode, but that recovery is tenuous. Policymakers at the Federal Reserve and their global counterparts continue to call for additional stimulus—and that should tell you much of what you need to know about where our economy and others stand today: In COVID-19’s sway.
This week, we saw the first nervous ripples of a second wave of the pandemic: France imposed new restrictions in Paris in a return to this spring’s pattern of curfews, closures and lockdowns, and other European cities may follow suit.
Case counts are on the rise again across America as well, with 21 states reporting a record seven-day average of new infections. As cold weather (and closed windows) take effect, and a rush of college students return home for break in mid-November, it’s not hard to see that an elevated case count might lead to renewed closures across the U.S. In fact, a big wave of COVID-19 kicking in during flu season has been a constant concern of the Centers for Disease Control and Prevention (the CDC), even if investors shrugged it off.
We’ve seen since the recovery first started in late March that the pandemic has led to a bifurcation in the economy and markets. Rising coronavirus cases resulting in shutdowns could once again lead to more consumer spending on technology, consumer discretionary and staples products—and after this spring’s experience, the prospect of a “stay-at-home” Christmas lockdown may put toilet paper and canned corn at the top of everyone’s holiday shopping list, while airline tickets and hotel rooms languish.
Split Picture on Inflation
With the Federal Reserve pulling out all the stops to support the economy and keep markets functioning—not to mention the $3 trillion the federal government has allotted to stave off the effects of the pandemic—many investors are worried that inflation could spike in the coming months.
But a closer look at the numbers shows a more complicated picture. While headlines report inflation picking up a bit in recent weeks, climbing to 1.4% year-over-year in September from 1.3% in August, data indicates that the speed with which prices are rising is dramatically split.
Rent inflation is falling rapidly (down 2.7% in September). So-called “food at home” inflation is also falling as the bottlenecks we saw early in the pandemic have been resolved. Clothing prices overall—and men’s suits and outerwear prices in particular—are on the decline. As you’d expect, airfare and hotel room rates are way down as well.
In contrast, fast food prices are going up as seating in traditional restaurants remains limited; and used-car prices are rocketing—up 10.3% in September—as people move to the suburbs and find they need at least one, maybe two and sometimes three cars, depending on the size of their families. We see rising inflation in wireless phone services as well, with increasing demand for more bandwidth or bigger data plans from people continuing to work from home.
Note: Chart shows year-over-year change in the Consumer Price Index on a monthly basis from September 2019 through September 2020.
Source: U.S. Bureau of Labor Statistics.
How will the outcome of the 2020 election affect financial markets? Should you adjust your investment strategy based on the election results?
In our last podcast before Election Day, Director of Research Jeff DeMaso and Vice President Steve Johnson talk through the possible post-election scenarios and take a research-based approach to get to the truth about this timely topic. They discuss:
• Does the winner of the White House really matter when it comes to long-term investment success?
• How to bypass an emotional response to political news in order to focus on what matters in the market
• Which political party has presided over higher (and lower) market gains over time?
With the 2020 election only weeks away, you can expect to be inundated with doom and gloom predictions about the results. This candid conversation will give you peace of mind and provide you with the knowledge you need to get through the election feeling financially secure. Please click here to tune in now!
Financial Planning Focus
Planning in Your 60s: The ABCs of Medicare
Last week, we wrote about Medicare’s open enrollment period. Since the program’s creation in the 1960s, it’s been expanded and amended several times, leaving participants facing a confusing hodgepodge of rules and terminology. This week, we’ll sort through the alphabet soup of Medicare coverage and spell out what you’ll need to know to get started.
Regardless of which coverage options you choose, you need to sign up on time. Your “initial enrollment window” starts roughly three months before your 65th birthday and extends for about three months after—failing to sign up during that period can lead to higher premiums.
There is one exception: You can delay Medicare enrollment if you’re still working at age 65 and receive health care through your employer. In this case, we recommend enrolling a month before you retire to avoid gaps in coverage.
Let’s break down Medicare’s benefits by the letter:
- Medicare Parts A and B. Medicare Part A covers hospital care and Medicare Part B covers doctor’s visits. Sometimes referred to as “Original Medicare,” everyone who signs up for Medicare receives these two basic types of coverage. And we do mean basic: Many common health care expenses are not fully covered by Parts A and B. If you require frequent hospital stays or doctor’s visits, the deductibles can be confusing and expensive. As a result, many people choose to supplement or replace Parts A and B with additional insurance.
- Medicare Part C. More commonly known as Medicare Advantage, Medicare Part C consists of the private insurance plans that can be used as alternatives to Medicare Parts A and B. Most Medicare Advantage plans offer more comprehensive coverage than Parts A and B and may include things like glasses and contact lenses, as well as dental care and prescriptions. Premiums for Medicare Advantage are generally more costly than for Parts A and B, and benefits and availability vary by geographic area.
- Medicare Part D. Medicare Part D is supplemental insurance that covers prescription costs.
- Medigap (Plans A through N). Like Medicare Advantage, Medigap plans help bridge the gaps in Medicare Parts A and B. Medigap plans use letters to delineate themselves—ranging from Plan A to Plan N, with Plan G being the most comprehensive. In general, Medigap plans offer less coverage and are less expensive than Medicare Advantage plans. However, Medigap plans don’t include prescription coverage; if you opt for one, you’ll also need to get a separate Part D prescription plan.
How do you know which plans to choose? Check out Medicare.gov to see the Medicare Advantage plans available in your area. If you don’t find the coverage you want, explore a Medigap and Part D prescription plan. Still confused? Listen to our “Medicare Made Simple” podcast to learn more about your options.
Adviser Investments’ Market Takeaways
Calm and clarity have been sorely lacking when it comes to market news recently—that’s why we’ve begun providing Today’s Market Takeaways, short videos in which a member of our investment team analyzes what the market’s telling us.
You can find two new Market Takeaways videos on our website. Research Analyst Liz Laprade outlined how Apple’s latest phone launch will impact its bottom line and Vice President Steve Johnson shared advice on understanding the difference between your emotional risk tolerance and your financial risk tolerance.
Next week offers a plethora of data on the housing market, with reads on permits, starts, existing home sales and builder’s sentiment. Additionally, we’ll get reports on the manufacturing and service sectors, jobless claims and leading economic indicators as well as the Fed’s Beige Book.
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.
Please note: This update was prepared on Friday, October 16, 2020, 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.
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.
Third-party publications referenced in this article (e.g. CityWire, Barron’s, InvestmentNews, CNBC, etc.) are independent of Adviser Investments. Readers should note, that to the extent any third-party publication linked to in this piece also contains reference to any of the newsletters written by Dan Wiener or Jim Lowell, such references only pertain to the respective newsletter(s) and are not reflective of Adviser Investments’ investment recommendations or portfolio performance. Newsletters are operated independently of Adviser Investments. Opinions and statements contained in third-party articles are for informational purposes only; they are not investment recommendations.
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.
© 2020 Adviser Investments, LLC. All Rights Reserved.