Wall Street Eager for October Stimulus October 12, 2020 Weekly Update Print Please note: This update was prepared on Friday, October 9, 2020, before the market’s close. Expectations for some form of additional fiscal stimulus boosted stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company. for much of the past week. Edging higher on Friday, the S&P 500 index was on track to deliver its best weekly gain since early this summer. Yet an agreement on aid is far from assured, as on-again, off-again interest from President Trump and discord around the scale and scope of a possible plan make the outcome of this latest attempt at bipartisanship anyone’s guess. As we were writing this note, rumors of a $1.8 trillion proposal from the White House buoyed stocks. Despite the strong recent gains, we’re preparing ourselves for further stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. market 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. over the next several weeks and a possible pullback of 10% or so if the political contest gets uglier. A clear-cut victory by either candidate would function as a release valve on the pressures caused by political uncertainty and would likely calm the market’s waters a bit. Through Thursday, the Dow Jones Industrial Average was up 1.4% for the year, while the broader S&P 500 index, continuing to be driven by a handful of mega-sized technology companies, was up 8.3%. The MSCI EAFE index, a measure of developed international stock markets, is down 5.0%. 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 1.20%, down from 2.31% at year-end. 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 6.6% this year. Fed Chief Renews Call for Relief We don’t think the government can wait and believe there is growing need for additional economic relief if the U.S. is to avoid dipping into a deeper and more prolonged recession. The Labor Department reported this week that first-time unemployment claims were virtually unchanged at 840,000—multiples higher than the pre-pandemic peak—indicating that the labor market recovery is stalling. What’s more, some economists believe many of the jobs lost to the pandemic won’t return until 2023 at the earliest. We aren’t the only ones who think another federal stimulus package is needed. In a speech before the National Association for Business Economics, Federal Reserve Chairman Jerome Powell urged fast action on Capitol Hill. “A long period of unnecessarily slow progress could continue to exacerbate existing disparities in our economy,” he said, later noting that, “The recovery will be stronger and move faster if monetary policy and fiscal policy continue to work side-by-side to provide support.” Powell went on to argue that Congress should err on the side of more, rather than less, stimulus. “While additional government spending would add to an already astronomical federal budget, lawmakers should act,” Powell said. “The U.S. federal budget is on an unsustainable path, has been for some time [but] this is not the time to give priority to those concerns.” Unless negotiators can find common ground soon, we think it’s more likely that major stimulus will be put off until after the election, and possibly well into 2021—a scenario we hope does not come to pass. Let’s Keep Recovery Expectations in Check On October 29, just a few days before the election, we’ll see a first estimate of how much the economy grew during the third quarter. And while the numbers may be eye-popping, perspective is warranted. We’ve looked at estimates from five reputable sources—they range from 14% to 35% growth. Now, remember, those are annualized rates of growth; it goes without saying that you’re not going to see the economy grow 35% in a single quarter (or, really, even in four). Note: Chart shows real GDP growth plus estimated growth rates for the third quarter of 2020 from the sources listed.Sources: The Wall Street Journal, Federal Reserve Bank of Atlanta, Federal Reserve Bank of New York, Moody’s, JPMorgan, Adviser Investments. But say the economy did grow at a 35% annualized rate in the third quarter (or nearly 8% growth from the previous quarter); that would still leave the economy 3% smaller than it was at the end of 2019 and 5% below where it would have been had we simply grown at the 2% annualized growth rate we witnessed through much of last year. We’re confident that recovery and earnings growth will come, though it may take quite a bit longer than the most optimistic pundits would have you believe. We’d recommend avoiding the day-to-day rhetoric of the TV talking heads. In the meantime, we promise to maintain our bedrock tactical investment discipline and a perspective that looks beyond the next week or month. We advise you to do the same. Financial Planning Focus Planning in Your 60s: Fine-Tuning Your Medicare Coverage Medicare—federal health insurance coverage for people 65 and older—is a pivotal part of your retirement plan. With the Annual Election Period (AEP) approaching (it runs from October 15 through December 7), Medicare recipients must decide whether to make changes to their plan or not. But consumer beware: The devil is in the details. Here are four key things to know about Medicare’s Annual Election Period: AEP Basics. This two-month window enables anyone already enrolled in Medicare to change their supplemental coverage. While the term “open enrollment” indicates that this period is “open” to anyone who’s eligible for Medicare, that’s not the case. If you’ve just turned 65 and are ready to sign up for coverage, there is a separate process called the Initial Enrollment Period (IEP), which we’ll cover in a future post. Understand Your Current Coverage. It is important to know a little bit about your existing benefits before considering a switch. For instance, Medicare Parts A and B—commonly referred to as “Original Medicare”—offer basic coverage that is the same for everyone. (Broadly speaking, Part A covers hospitalization and Part B covers outpatient costs.) After that, you’ll need supplemental coverage to ensure you have adequate health care throughout your retirement. You can bridge the gaps in Original Medicare by enrolling in a Part C, also called Medicare Advantage, or a “Medigap,” both of which are supplemental plans administered by private insurance companies. You can also opt to access Part D, the Medicare prescription drug benefit. The AEP allows you to choose these supplemental coverage options as your health needs change. What You Can (and Can’t) Change. The AEP allows you to: Switch from Original Medicare to Medicare Advantage Switch from Medicare Advantage to Original Medicare Switch from one Medicare Advantage plan to another Enroll in Part D prescription coverage or change or drop your prescription plan If you move to Original Medicare from a Medicare Advantage plan, you will also be eligible to enroll in a Medigap plan. However, be aware that you won’t have guaranteed entry into Medigap when you switch from Medicare Advantage—you may need to apply through a traditional insurance underwriting process and/or accept a higher premium based on your health status. Consider Your Options. To make fully informed decisions about supplemental Medicare plans, you need to objectively assess your needs. The costs for Medicare Advantage and Part D plans often change annually, so it pays to maintain a list of your regular prescriptions to make comparison-shopping easier. If you can, project what your medical costs might look like over the next year to decide if you should switch plans. We’ll have upcoming posts to assist as you navigate the often-confusing Medicare journey. You can also check out Adviser Investments’ reference guide or our podcast on the topic. 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. We’ve posted two new Market Takeaways videos on our website. Research Analyst Liz Laprade spoke about where the job market stands at this point in the recovery, and Vice President Steve Johnson reflected on the market’s rally this week. Looking Ahead Next week, in addition to the latest medical and election data, we’ll be looking closely at reads on small-business confidence, inflation, manufacturing, retail sales and consumer sentiment. 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, 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). 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