income

Let’s Get Ready to Rumble!

The beginning of an event or occasion brings high levels of anticipation and possibly anxiety.  This might include sporting events, movies, leaving on a trip, or starting a new job.  Beginning a new year is no different as there is much optimism for what lies ahead and perhaps some trepidation on how it may be different than the past.  Given the recent challenges faced, there should be more hope and less worry since everyone has been forced to face, overcome, and grow from adversity.  From these experiences we should all feel stronger and more confident in facing what lies ahead.  There are lessons learned from 2021 which we can carry into 2022; below are three we would like to share as the new year kicks off.  

Never take anything for granted. Being safe in place taught us to cherish time together and to appreciate ability to freely leave our homes, visit stores, and dine out. Access to supplies and cheap gasoline are no longer assumed as readily available. Our shortages draw no comparison to earlier generations’ food and energy demands. However, we will remember to bring gratitude for what we do have, even the basics often taken for granted.

History has a way of repeating itself. Oftentimes, we hear the phrase, “things are different now,” followed by why the world has changed (which it has) and closed with why the past will never happen again. Hearing this is especially true to talk on the stock market and economy. Proceed with caution when speaking of inflation. We’ve grown accustomed to low levels that leads to complacency toward spending and investing. This year brace for elevated inflation with experts drawing historic parallels to post-World War II and the 1970s. History repeats itself so apply lessons from the past. 

Be prepared but be adaptable. To work from home shows the marvels of modern technology and ability to pivot and adjust. The “Great Resignation” describes the multitudes leaving jobs to pursue other interests. Unfortunately, many involuntarily lost jobs as a result of shifts in the workforce. Regardless of why, if there is a career transition, have a plan in place should your circumstances change. Be adaptable. You never know where opportunities lie. 

Yes, Virginia, There is a Santa Claus

With the focus on the year ahead, it would not be difficult to overlook what has occurred in the stock market over the past couple of weeks.  But since this is likely to set the tone as we embark on the new year, it is worth mentioning.  The fourth quarter of 2021 was the best quarter of the year for the major stock market indices.  The year-end “Santa Claus” rally we all wished for came to fruition with the S&P 500 climbing about 5% from its short-term low point on December 20^th.  This may not be over yet, as this type of rally tends to extend into the first two trading sessions of the new year and bodes well for entire month of January since historically the markets have enjoyed strong performance when coming off solid year-end momentum.    

When the calendar flips over, the stock market does not start again at zero; it continues where it left off the previous year.  The same also goes for the economy and society in general.  We begin the year with the same concerns we had when 2021 came to an end, such as inflationary pressures, supply chain issues, and stretched stock price valuations. These will certainly change throughout the upcoming year, either better or worse.  But we also need to remember the positive factors in the market, including robust earnings outlooks, stable consumer spending, and still-accommodative monetary policy.  Our projection is that the positives will again outweigh the negatives in the market and we will see positive returns, albeit probably not to the same levels as we were able to enjoy the last two years.  

Looking Ahead 

The new year is going to bring new challenges and the markets will act differently than they have in the past couple of years.  We don’t know for certain what will happen over the next 365 days, but there are bound to be some surprises.  We can plan ahead with what we do know and expect, learning from past experiences.  For example, we expect the Federal Reserve to raise interest rates.  We also expect inflation to continue at higher levels than what we’ve faced in recent decades.  The challenge will be to position portfolios accordingly and take advantage of these opportunities.  

As the new year begins, we hope that you view it with anticipation and optimism.  Maybe you personally want to set a resolution to try something new or different.  Here at Secured Retirement, we look forward to providing you peace of mind for all life’s lessons. If any of these lessons spur a need for plan adjustments, let’s connect and chart a smooth course for the year ahead.  

Wishing you all a happy, healthful, and prosperous 2022!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

info@securedretirements.com
Office phone # (952) 460-3260

Party Like It’s…

Without a doubt the past two years have been challenging with many happy to bid adieu to 2021.  As we look ahead to 2022 there is optimism, but we would be remiss to not reflect on this last year before moving ahead.  Notwithstanding personal health issues or any negative impacts the pandemic may have had on loved ones, in most regards 2021 could be considered a decent year, especially when compared to a year ago.      

From the stock market point-of-view, 2021 was a decent year with the S&P 500 returning more than 25% year-to-date.  On a long-term historical, this benchmark returns on average somewhere between 8-10% annually making this year well above average.  In comparison, 2020 had the index returning over 18%, despite the nearly 35% nosedive experienced by the market when COVID first threw the world into unexpected chaos. 

The economy has stabilized and remains robust with unemployment levels falling dramatically throughout the past year and nearing some of the lowest levels in history. Personal incomes and average hourly earnings rose sharply and are at all-time highs.  The economy is now expanding on its own regardless of the government stimulus payments and pent-up demands.  Unfortunately, inflation is forecasted to be the highest this country has seen in decades.  Higher prices equate to a higher cost of living and when viewed in real-terms, income and wages do not stretch as far as they used to.  Generally higher prices occur due to economic growth, therefore not all inflation is negative.  However, when personal income is not aligned with inflation it creates a difficult environment for consumers and workers, as experienced now. 

This last week, the markets began with a sharply negative day attributed primarily to news that the Build Back Better (aka federal spending) bill does not have the support needed for passage. Goldman Sachs indicated that GDP growth in 2022 will be less than previous expectations due to the lack of passage of the over trillion-dollar spending bill.  While the individuals at Goldman Sacks may be very knowledgeable and intelligent, we somewhat disagree with their assessment.  Yes, some of the spending would go towards certain social programs that benefit the economy in the short-term, but the amount of spending proposed would add increased liquidity into the economy, further fueling inflation.  Further, not all the spending would contribute towards growth and the expenditures require further funding through the combination of tax hikes and debt, which would be a drag on future growth especially when looking out longer-term.

Also affecting the markets was further insight regarding shifts in monetary policy from the Federal Reserve, the increase in omicron COVID cases with the discussion of potential shutdowns, including soft lockdowns. Soft lockdowns are those driven by business reductions and closings due to the virus spread.  Tuesday’s quickrebound energized the market with continued gains throughout the rest of the week where we now again sit at all-time highs.  It

seems the Santa Claus rally we all hoped for came to fruition, especially if it continues this coming week to finish the year strong. 

Watching the Ball Drop

When we transition from year to year there is a distinct cut over on the calendar, but most other aspects of our lives do not change significantly as the ball drops in Times Square. This is also very true of the markets and economy.  As we enter 2022, it is highly likely inflation will continue to make headlines, but we also expect employment and consumer spending to remain strong.  Last week Personal Consumption Expenditures (PCE), which measures the change in prices of consumer goods and services, was reported as being 5.7% higher than a year ago.  This is the Fed’s preferred measure of inflation and well above their comfort zone of 2-3%.  Unless something dramatically changes, we expect this coming year for there to be a lot of activity from the Fed, such as adjusting interest rates. 

The newly released Consumer Confidence Index indicates continued optimism amongst consumers for income, business, and labor market conditions and setting the stage for continued growth as we enter the new year.  There could be headwinds to confidence and consumer spending from rising prices and an expected winter surge of the pandemic. Consumer spending looks to remain strong, especially for larger ticket items such as homes, appliances, automobiles, and vacations.  We will also be watching retail sales numbers reported for the holiday season determining how robust spending was and if there were any supply chain issues. 

Looking Ahead

As the yuletide cheer subsides and the holiday decorations are put away, let us not forget the memories created from the holiday seasons.  The same can be said of the markets – we learned valuable lessons from years past and the last two are certainly no exception.  We continuously use these learnings to position portfolios. 

We hope the momentum seen in the markets continues and the Santa Claus rally stays intact through the end of the year.  2021 remains a solid performance for the stock market where the party can last past New Year’s Eve.  We remain hopeful and optimistic for the year ahead but also feel investors will face different challenges than experienced in the recent past.  As we look ahead, please do not hesitate to contact us should you want to review your portfolio or discuss our views on what might occur in 2022. 

Wishing you all a very happy, healthy, and safe New Year!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

info@securedretirements.com
Office phone # (952) 460-3260

You’ll Shoot Your Eye Out

As you progress through life, the things you desire most will most likely change.  A child with few worries about the outside world may want nothing more than receiving a special toy as a gift.  Perhaps this toy would be a Red Ryder BB Gun, as was longed for by a young Ralphie Parker in the classic film, “A Christmas Story.”  When you get older into adulthood, you are likely to concern yourself with bigger issues and certain “toys,” which instead of BB guns might be hunting rifles, golf clubs or even a boat, may still be wanted but in the big picture they often become less important than items of greater significance in your life.  For those saving for retirement, one of their greatest wishes, if not the greatest, may be to ensure they have accumulated enough money to continue to support their income and lifestyle.  Regardless of what you might yearn for most, anyone reading this is most likely wanting a stock market to continue the upward trajectory it has generally been on over the past decade. 

Unfortunately, this was not the case last week with the stock markets moving lower, which was primarily attributed to the Federal Reserve (the Fed) meeting in the middle of the week.  Markets traded lower early in the week in anticipation of this meeting and as expected the Fed announced they were going to reduce their monthly bond buying program faster than when this taper was announced last month. It is now forecasted the program will be wrapped up in March, setting the stage for an interest rate hike in June, or possibly sooner, with projections for three total rate hikes in the year.  The stock markets reacted positively to this announcement on Wednesday, even though it was widely anticipated, because there was some concern the Fed would take more drastic measures to combat inflation such as further speeding up the taper of the bond buying program or even raising rates immediately. 

Many stocks, specifically many technology companies, were hit particularly hard later in the week due to worries over higher interest rates and slowing economic activity. This might mark the beginning of a shift from momentum stocks, which have performed very well over the past few years, and into more of the value sectors as the markets pay more attention to valuations in a rising interest rate environment.  There was relatively little change in the narrative surrounding the Omicron variant, but it does remain an overhang and therefore causes continued headwinds to the market.   

The Biden Administration’s Build Back Better spending bill had its tongue stuck to a frozen flagpole over the weekend with Sen. Joe Manchin announcing he would not be supporting the bill, effectively killing it.  If this bill would have passed it could have produced a short-term catalyst to push markets higher since it introduces a high level of government spending, but in the long-term it was likely to cause even more inflation and potentially be a drag on economic growth from higher levels of government debt.  There is always a chance the parties will continue talks and come to an agreement which would resurrect the bill, but chances are minimal and if that were to occur it would not be until sometime in 2022. 

The Soft Glow…

A soft glow is a stark contrast to burning bright with the former a reference to the “major award” (aka leg lamp) won in a contest by the Old Man (Ralphie’s father) in the aforementioned movie while the latter could be used to describe the current state of inflation.  The Producer Price Index (PPI), a measure of wholesale prices of goods before they are sold to consumers, last month rose more than analysts’ estimates at a record high pace of 9.6% compared to a year ago.  These price increases are generally passed along to consumers and with PPI increases accelerating it is very likely consumer prices will continue to move higher in coming months.  We expect inflation to remain a large threat to investors’ returns in 2022 and beyond. 

Last week retail sales for the month of November were reported and came in less than expectations, but still showed a monthly increase in spending by consumers.  Previously October retail sales were reported noticeably stronger than expectations, so the thought is the most recent numbers reflect consumers pulling forward holiday shopping because of concerns about product availability due to supply chain issues.  Indications remain that holiday spending this year will surpass previous years and be the highest on record, which can be attributed to greater personal wealth and higher household incomes thanks to a strong stock market, solid labor market and stimulus payments.  We monitor consumer spending closely since it comprises over two-thirds of GDP and we will remain especially watchful going into the new year when spending traditionally slows down and now that the stimulus payments have ended but remain optimistic for continued strength in spending from increasing wages and a robust employment situation. 

Looking Ahead

With the year winding down and major holidays approaching, we would expect the markets to get quieter.  Trading volumes are decreasing, as tends to be the case this time of year.  On the economic front, there are some key data releases coming up this week including consumer confidence, durable goods orders, and personal consumption expenditure (PCE) price index, which happens to be the Fed’s preferred measure of inflation.  Given the holiday and lower trading activity we do not expect any of these to have a major impact on the markets unless there is a major surprise, either to the downside or upside.  We follow these numbers closely since they provide signals about the health of the economy and can impact how the stock market reacts.  With recent market events, we will also be keeping a vigilant eye on how various sectors perform over the next few weeks to look for indications on which direction the market might be headed and what we think the new year will bring so we can best position our clients’ portfolios to protect against risk and capitalize on opportunities.

We remain hopeful for a year-end Santa Claus rally in the stock market, which would satisfy the author’s Christmas wish.  If this does not come to fruition, settling for a leg lamp might not be so bad since the market has already provided another great year of returns.  As always, we remain available to discuss market events and portfolio positioning.  With 2021 winding down, it is time to start looking ahead to 2022 and consider how the world might be different going forward.  But for this week, hopefully you are able to spend time with family or friends to celebrate the holiday.  If Santa does bring you a Red Ryder BB gun, don’t shoot your eye out. 

Wishing you all a very Merry Christmas!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

info@securedretirements.com
Office phone # (952) 460-3260