V-Shaped Economic Bounce Slows September 21, 2020 Weekly Update Print Please note: This update was prepared on Friday, September 18, 2020, before the market’s close. For most of the summer, the stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market seemed to be going only in one direction, higher. With the changing of the season, that rebound off of the March lows has stalled out—at least temporarily. The culprit: Investor uncertainty. A weak job market that seems to be in stasis and Congress’ inability to pass a fresh support package are giving investors jitters, particularly as a heated and contentious election looms. And that’s before we even consider the pandemic itself. For months, we’ve been saying that medical data would drive the pace of economic recovery with a knock-on impact on the stock market. Sure enough, the renewed volatilityA measure of how large the changes in an asset’s price are. The more volatile an asset, the more likely that its price will experience sharp rises and steep drops over time. The more volatile an asset is, the riskier it is to invest in. we’ve seen this week came amid conflicting messages from the White House, the Centers for Disease Control and Prevention (CDC), epidemiologists and leading-edge biotechnology companies about the timeline for a coronavirus vaccine. Through Thursday, the Dow Jones Industrial Average was down 0.5%, while the broader S&P 500 index was up 5.3% for the year. The MSCI EAFE index, a measure of developed international stock markets, is down 4.5%. As of Thursday, 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 1.17%, up from 1.15% last week. 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 returned 7.0% this year. Sluggish Recovery Needs a Booster Shot As we head deeper into the pandemic’s sixth full month in the U.S., the economy’s recovery from the early COVID-19 shutdowns seems to be slowing. Some of the recent data has been positive: The Empire State index of economic activity (a regional gauge from the Federal Reserve Bank of New York) rose meaningfully in the first half of September. Retail sales climbed for the third consecutive month, in part due to back-to-school shopping. And builders’ confidence continues to be boosted by strong demand for new and existing homes, a trend that seems likely to last given the availability of exceedingly low mortgage rates. Yet, industrial production is slowing dramatically from its initial V-shaped rebound. And, as mentioned, the jobs market remains muted as more than 800,000 new people filed for unemployment for the third week in a row. The chart below shows the trend. The Conference Board’s Leading Economic Index, which tracks a range of 10 factors (including jobless claims, stock prices, interest rates, manufacturing activity and consumer confidence) to determine the direction of the U.S. economy, has been rising over the last few months. But the index is still below its pre-pandemic levels and its rebound is losing steam. Note: Chart shows index value and month-to-month percentage change in The Conference Board’s Leading Economic Index from Dec. 2018 through Aug. 2020.Source: The Conference Board. Put it all together and our view is of an economy that’s still headed in the right direction but at a slowing pace. Still, a slow recovery is better than no recovery. A viable and distributable COVID-19 vaccine would, clearly, be a catalyst to accelerate the U.S. and global economy’s rebound. The U.S. government says it has systems in place and is building stores of vaccines on the chance that they are found to be efficacious, but there may be less here than meets the eye. According to a senior executive at one of the largest companies making group purchases for hospitals and health providers, the government’s plan is lacking in the substantive details necessary for both delivery and tracking of vaccinations. The devil, as they often say, is in the details. Our research team is keeping a sharp focus on news of vaccine trials, approvals and distribution plans as they progress. Zero May Be Here to Stay The Federal Reserve’s Open Market Committee met this week and, as expected, the nation’s central bankers left benchmark interest rates hovering near zero. In the subsequent press conference, Chairman Powell confirmed what most of Wall Street had already concluded: There is little chance that policymakers will raise rates before the end of 2023. Of course, a lot can and will change over the next three years, and the Fed always reserves the right to adjust course in response to changing economic conditions. But we expect it will take much better news on jobs and much higher inflation before the Fed, as its chairman has said, even thinks of thinking about a rate hike. Traders and investors may be waking up to the fact that the central bank and its global equivalents see no easy economic fix in the near and intermediate term. The last time the Fed lowered interest rates this far was during the Financial Crisis of 2008; they then kept rates there for seven years. Podcast: Are We in a Market Bubble? Even with the recent pullback, the stock market’s bounce off the March low has been extraordinary, with tech and consumer discretionary stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. leading the charge. But are stocks in a bubble and destined to “pop?” In the latest episode of The Adviser You Can Talk To Podcast, Adviser Investments’ Chairman Dan Wiener and Chief Investment Officer Jim Lowell discuss what constitutes a bubble as well as whether they think we are experiencing one now, the factors that could cause a pullback in markets today and some of the biggest opportunities they see for investors going forward. Tune in to hear where Dan and Jim think risksThe probability that an investment will decline in value in the short term, along with the magnitude of that decline. Stocks are often considered riskier than bonds because they have a higher probability of losing money, and they tend to lose more than bonds when they do decline. lie for investors in 2020 and if the bubbly stock market is for real or just more media hype. Please click here to listen today! Financial Planning Focus Planning in Your 50s: Streamline Your Finances From your first checking account to your current 401(k) planA 401(k) plan is a retirement account that a company sets up on behalf of its employees. Both the participant and the employer can contribute to the account. There are two types of 401(k)s, traditional and Roth. Income invested in traditional 401(k)s isn’t taxed while it’s invested, but is taxed when it’s withdrawn. Income invested in a Roth 401(k) is taxed before it’s invested, but no tax is paid when it is withdrawn., by the time you reach your 50s you may have opened accounts with dozens of financial institutions. But if you’re like most people, you may not have closed nearly as many. When we begin the financial planning process for our clients and see an excessive number of account statements from a plethora of financial firms, one of the first steps we recommend is consolidation. Streamlining can help improve your investment returns, reduce fees and, most importantly, give you a clearer picture of your financial situation—a crucial step when preparing for retirement. Here are five ways to simplify your financial life: Use Fewer Custodians. Trying to maintain a cohesive portfolio strategy with multiple accounts at different institutions is sure to create confusion. The best fix is to decrease the number of accounts you manage, making it easier to grasp the overall state of your finances and remain on track with your goals. This will be even simpler if you can consolidate with a single custodian. Reduce Excess Cash. Your emergency fund is the foundation of your financial plan. We recommend keeping enough cash to cover three to six months of expenses. But after years of asset accumulation, you may find that you have more cash on hand than you need, scattered among multiple accounts. As a result, you’re likely missing out on years of compound growth. Consolidate Retirement Savings. Odds are you haven’t spent your entire career with one firm—meaning you may have retirement funds stashed in several 401(k) or retirement accounts. Leaving funds to languish in forgotten accounts often means they’re part of a stale investment strategy that’s no longer suitable for your goals. In some cases, rolling the funds into an IRA might lower your costs and improve your returns; in others, it may be preferable to stick with a 401(k). Put Your Estate in Order. Having accounts that are streamlined, with beneficiaries listed, will help ensure that your assets pass to heirs in accordance with your wishes. It will also make it easier for your beneficiaries to settle your estate after you pass away. Avoid Tax Penalties. Under current law, required minimum distributionsA required minimum distribution is the amount of money that must be withdrawn each year from tax-deferred retirement accounts once the beneficiary reaches retirement age (72, according to IRS rules). (RMDs) from your retirement accounts begin at age 72. Consolidating your retirement accounts where possible will make RMD management easier, helping you avoid tax penalties. While consolidation has many advantages, remember that seeking professional investment management for an account will likely come with a management fee. In many instances, the advantages will justify the cost. 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 also find two new Market Takeaways videos on our website. EquityThe amount of money that would be returned to shareholders if a company’s assets were sold off and all its debt repaid. Research Analyst Kate Austin spoke about how news of vaccine progress is impacting health care sector stocks and Vice President Steve Johnson discussed the contrast between technology stocks’ and materials stocks’ performance this week. Looking Ahead Next week, we will be watching for new and existing home sales, household debt, manufacturing and service sector gauges, and durable goods orders. In the meantime, all of us at Adviser Investments wish you a safe, sound and prosperous investment future. Shana Tovah to everyone celebrating Rosh Hashanah this weekend! 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, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., 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, September 18, 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. 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