What the Weak Jobs Report Really Shows October 11, 2021 Weekly Update Print Please note: This update was prepared on Friday, October 8, 2021, prior to the market’s close. Merry-go-round markets were up and down all week. While a disastrous day for Facebook catalyzed a sell-off on Monday, a temporary truce in D.C.’s debt-ceiling debate helped return them to near record highs midweek. That optimism was tempered by a surprising report on the U.S. job market this morning. Between private businesses, schools and other government entities, the U.S. added just 194,000 jobs in September, according to the Labor Department. A half million more had been forecast. The consensus is that the delta surge of COVID-19 infections proved a far bigger drag on job growth in September than schools reopening and the end of federal jobless benefits could overcome. Hiring in leisure and hospitality, one of the sectors hardest-hit by the pandemic, was flat last month after averaging more than 350,000 new hires a month over the last six. So far, market reaction to the disappointing jobs report has been muted. It may be that traders are taking solace in the expectation that the bad jobs news will give the Federal Reserve cover to delay its plans to wind down its bond purchases and continue to prop up the economy. Stormy Autumn for Markets We knew it couldn’t last, and it didn’t. The stock market’s remarkably smooth and steady climb over the first eight months of the year has gotten a lot rockier in recent weeks. Monday’s loss finally drove the S&P 500 to its first 5% drawdown of 2021, off 5.1% (dividends included) from its Sept. 2 high. Outrage over (and the outage of) Facebook caused tech stocks to lead the way lower. With volatility clearly on the upswing, investors may need to buckle their seatbelts as we head into the year’s final quarter. So far in 2021, there have been 71 days when the S&P 500 swung up or down by more than 1% during the trading day; 20% of those days occurred in the last five weeks alone, including four out of the five most recent trading days (another concentration of volatility can be found early in the year, following January’s Capitol insurrection and its aftermath). Note: Chart shows the intraday high-low range for the S&P 500 index as a percentage of the prior day’s close from 12/30/2020 through 10/6/2021. Sources: Adviser Investments, S&P Global. Though we may be in for a bumpier ride, we don’t believe that the return of volatility indicates we’re headed off the market’s rails. Rather, this is just business as usual for stocks. As investors, we know stocks don’t just go up—though that may be a lesson newbie traders are now absorbing the hard way. A Q3 Downside Surprise? The herky-jerky market moves are a reflection of the uneven global economic recovery. The delta variant was a setback for the reconnecting of supply chains, which remain hampered by their weakest global links. Though consumer demand is strong, strained suppliers are having trouble keeping up, as has been seen in the prices of lumber, new and used cars, oil, computer chips and other goods. Recently, economists have been walking back their optimistic projections for economic growth in the just-ended quarter. Consensus estimates have declined from annualized growth at a 6.8% rate to just 3.4%. And some have gone even further: In July, the Federal Reserve Bank of Atlanta estimated that the economy would grow at a 6.1% pace during the third quarter. As of this week, they’d chopped that estimate to 1.3%. Meanwhile, the Federal Reserve Bank of New York has stopped releasing GDP estimates at all due, they say, to “uncertainties.” If the third quarter’s economic growth is indeed as poor as these estimates suggest, that doesn’t necessarily spell doom for the recovery. It may just be a setback. A report last Friday showed consumers spending more, in part because of inflated prices, while income and savings are at reasonably good levels. And early signs for the holiday shopping season indicate strong demand (this may be a good year to get your shopping done early due to the aforementioned supply chain constraints). With the worst of the delta wave of COVID-19 infections seemingly (and hopefully) behind us, we may yet see stronger growth as the year winds down. Financial Planning Friday: 5 Smart Year-End Strategies Crisp autumn mornings serve as a reminder that now is the time to begin preparing financially for 2022. Last week, we looked at tax hikes that could be in this year’s mix. Today, we’ll build on that and identify five strategies to set you and your family up for success in 2022 and beyond. Begin with the basics. We’ve still got more than two months to review our financial accounts—focus on making sure you’ve named beneficiaries and ensure that those designations reflect your current wishes. An annual review of all of your estate-planning documents is another excellent year-end practice. Consider a “mega backdoor” Roth. Here’s how it works: In 2021, individuals can contribute up to $19,500 (or $26,000 if you are 50-plus years old) to a 401(k). But if your employer allows after-tax contributions to your 401(k), you can raise your contribution to $58,000 (or $64,500 for those who are 50-plus), then roll that excess into a Roth IRA. But you may need to act fast. As we mentioned last week, this strategy may be on the chopping block as part of proposed tax hikes. Defer tax losses and deductions. Year-end is a great time to harvest losses in your portfolio. When an investment position hasn’t performed well in the long term (from a tax-planning standpoint, “long term” is any position you’ve held for more than 12 months), you can deploy the losses against the highfliers to reduce your tax bill. But with tax rates potentially about to rise, the opposite can be true. Your losses might be more valuable next year to reduce income taxes at potentially higher capital gains rates.Deferring deductions can be another smart tax strategy when tax codes are changing. The Tax Cuts and Jobs Act of 2017 (TCJA) raised the standard deduction and capped the state and local tax (SALT) deduction at $10,000, which limited how many tax filers could itemize their deductions. A higher cap or return of that deduction in 2022 means that itemizing is back on the table for a greater number of people, so it may make sense to hold off on your charitable giving until we know more. Accelerate income. The opposite principle applies to income: Individuals in the highest tax brackets might consider pulling some of next year’s income into 2021 to capture the lower tax rate. Bonuses, vested but unexercised stock options (especially if you’re highly concentrated), or sales of real estate or a business are sources of income to potentially realize before Dec. 31, 2021. Make gifts to use up your exemption. Finally, if you’re considering making significant financial gifts to family members, now might be the time to pull the trigger. The annual exclusion gift remains at $15,000 and education gifts or direct payments of medical expenses should remain constant in the new tax environment. That said, the current estate-tax exemption (the amount you can pass to heirs without incurring a 40% estate tax) is $11.7 million per person under the TCJA—that’s way up from $5.49 million in 2017 and $2 million in 2007! If you were already planning a large gift for family above and beyond the $15,000 annual gifting exclusion, this might be a good time to use it for a down payment, an irrevocable trust or a direct cash gift. We will keep a watchful eye on Washington and report back with more strategies to manage through whatever new legislation comes to fruition. 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 Buy Cash reserves. Sell iShares U.S. Medical Devices ETF (IHI). AIQ Tactical Defensive Growth No trades this week. AIQ Tactical Multi-Asset Income Buy iShares Mortgage Real Estate ETF (REM). Sell Real Estate Select Sector SPDR Fund (XLRE). AIQ Tactical High Income No trades this week. Adviser Investments in the Media Chairman Dan Wiener spoke to The Philadelphia Inquirer about Vanguard’s recent spate of fund mergers. In this week’s Market Takeaways, Research Analyst Liz Laprade discussed Facebook’s very bad week, while Vice President Steve Johnson debunked a newly popular tech-stock narrative. And remember, you can always visit the Adviser in the Media section of our website for the Adviser Investments team’s informative views on the market and the economy. Looking Ahead Next week will bring insights on employment, retail sales and consumer sentiment, as well as updates on producer and consumer inflation. As always, please 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, October 8, 2021, prior to the market’s close. This material is distributed for informational purposes only. The investment ideas and opinions contained herein—including but not limited to the Your Question Answered section—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. Information regarding purchase and sale of specific strategy trades is for selected investment strategies managed by Adviser Capital, a division of Adviser Investments, LLC. 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