Secured Retirement

Never Forget

As we observe Veteran’s Day this week let us give gratitude to those who have served in the Armed Forces. We enjoy the freedoms we have today because of their bravery and sacrifice. Our country was founded on certain principles including liberty and freedom, for which our forefathers fought during the Revolutionary War and many of our family members, friends, and neighbors have more recently protected. By securing our freedom, men and women in uniform have also protected the capitalistic society from which we benefit. This enables us to work hard to earn a living, save money, and have investments for savings to grow.

Speaking of investing, the stock markets are again sitting at all-time highs with last week being the fifth consecutive week of gains, which were driven by positive economic news and continued strong corporate earnings. The earnings season is winding down with 85% of the S&P 500 companies now having reported. Not surprisingly the earnings reports were strong with many companies beating estimates and boosting forward guidance. Strong corporate profits and a growing economy should provide continued tailwinds for the markets. Historically speaking, the stretch from November through January is one of the best times of the year for the stock market. It remains to be seen if history repeats itself this year, but having a solid economy and continued growth in corporate profits leads us to believe there is no reason this year would be any different.

Beginning in March of last year, in response to the economic impact of the COVID-19 pandemic, the Federal Reserve (the “Fed”) has purchased $120 billion of bonds per month in an effort to keep interest rates low as well as signal the intention of using monetary policy to help support the economy. Last week on Wednesday, the Fed announced they are going to being “tapering,” or reducing, this monthly bond buying program, commonly referred to as quantitative easing, or “QE.” The tapering will consist of reducing those purchases by $15 billion per month which is expected to fully wind down the program by the middle of next year, but the Fed maintains flexibility to adjust in either direction if needed. Since this announcement does indicate the Fed feels the economy is close to fully recovering and able to stand on its own, it helped push the stock market higher even though this announcement was expected since the Fed generally signals their intentions in advance. The QE program helped keep interest rates low so we expect to see some rise in interest rates over the coming months. It is also now expected the Fed will begin to raise the base Fed Funds rate shortly after QE is fully wrapped up in the middle of next year.

Jobs

The employment reports of the previous two months were weaker than expected, but still positive, which led some to believe the Fed could hold off on beginning the taper to ensure the economy was on stable footing. However, the Fed obviously felt strongly enough that the economy was at least stable, and most likely expanding, that they went ahead with the taper announcement. Their decision seems well justified since the October employment report on Friday was better than expectations and the previous two months were revised upwards, which should not be a surprise given we remain near record highs for job openings. The unemployment rate dropped to 4.6%, but even with these large jobs gains the employment-to-population ratio remains below where it was pre-pandemic and indicates we are still not at full employment. This shows there is still room to run in the labor market recovery and therefore further wage pressures may be limited.

Also on the economic front, durable orders, factory orders and the Institute for Supply Management (ISM) non-manufacturing survey all came in better than expected last week, providing further evidence the economic recovery remains intact and is not showing signs of slowing down. Data for labor costs and hourly earnings were higher than expected, which is not completely surprising given the current state of the labor market. Since labor costs, along with supply chain disruptions, seem to be driving inflation this leads us to believe inflation will continue in the foreseeable future.

Looking Ahead

Given the numerous surveys suggesting inflation continues to be the largest risk on investors’ minds, this coming week will be significant with the Producer Price Index (PPI) and Consumer Price Index (CPI) being reported. The stock market has enjoyed a healthy run since the beginning of October and with earnings season winding down it might be due for a bit of a slowdown; hopefully that is not the case and it continues to march upwards.

We also continue to watch the progress of the infrastructure and social spending bills, especially any revenue provisions, i.e. taxes, which might be included and how they would impact individuals. Political dynamics have changed over the past week with election results, especially two key gubernatorial races. This does not impact Congress directly but it does show that the Democratic party in Washington, which holds a razor-thin majority, does not hold the leverage once thought for passing these bills, especially going into mid-term elections next year.

We would like to especially like to recognize our firm’s founder, Joe Lucey, who is a veteran of the United States Marine Corps and the many clients who are veterans or have family members serving in the military. We do have a few spots remaining for our Veteran’s Appreciation Luncheon on Wednesday, November 10th with special guest speaker John Kriesel. Call our office for more details if you or a veteran you know would like to attend. Thank you to all vets for your service; we will never forget.

Have a wonderful week!

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

The Great Pumpkin

For those of you who spent Halloween waiting in the pumpkin patch hoping to catch a glimpse of the Great Pumpkin, hopefully you were not disappointed. Investing in the stock market is similar to believing in the Great Pumpkin – maintain an optimistic attitude, remain patient, and be willing to commit time in order to experience the joy of what you hope to achieve.

After a frightening September for the stock market, October did not seem very scary. Strong earnings reports pushed the market higher with the S&P 500 ending the month with a gain of nearly 7%. About half of the companies in the S&P 500 have reported quarterly earnings with roughly 12% of those providing positive earnings surprises. This pace is lower than the previous two quarters but higher than the long-term average of 8.4%, indicating that despite the supposed undertows in the market, companies remain very profitable and continue to experience growth.

Microsoft and Alphabet (Google) had very strong earnings while Apple and Amazon were surprisingly disappointing. There is no doubt Apple and Amazon are extremely profitable and continue to grow but not at the pace analysts expected. The four companies listed above make up about 20% of the S&P 500 so the movement in their stock prices has the potential to have outsized impacts on the index, which is commonly viewed as a barometer of the health of the overall market. While these companies may grab headlines and move the major indices, there are many other stocks making moves with much less visibility. This leads us to believe that individual stock selection and sector weightings will be increasingly important in the foreseeable future.

Sugar High

Similar to children (and adults) coming off a post-Halloween sugar high from eating too much candy, the economy is slowly coming off a high from having large amounts of stimulus pumped into it. This does not mean there is going to be a crash or recession, but rather the pace of growth will be lower than the previous few quarters. GDP numbers released last week were slightly below expectations, but still showed continued growth. The term “stagflation,” which is high or moderate inflation accompanied by slow or no economic growth, is increasingly being used due to concerns of diminishing growth. However, economic growth remains modest for now, but this is an area in which we remain vigilant. In our view, the biggest risks to continued economic expansion are the current supply chain constraints and higher input costs which could possibly lead to a slowdown in spending.

We would be remiss if we did not mention inflation since that is what we see as being the largest risk to investors in the intermediate to long term. The Federal Reserve’s (the Fed) preferred inflation measure, Personal Consumption Expenditures (PCE), was reported last week and remains elevated at the highest levels since 1991 as well as above the Fed’s comfort zone. There seems to now be little doubt inflation remains persistent and will take center stage during the Fed’s discussions when they meet this week.

Looking Ahead

Earnings reports continue in earnest over the next few weeks, but with many large names already reporting it seems unlikely any individual announcements will move the markets substantially. A continuation of the momentum in positive earnings surprises should provide further tailwinds for the stock markets. It is widely anticipated at the conclusion of their meeting this week the Fed will announce the beginning of a tapering, or reduction, in their monthly bond buying program, often referred to as Quantitative Easing or “QE.” Since the Fed tends to telegraph their intentions in advance their action is generally priced into the market before it happens. Should they deviate greatly from expectations there is the potential to cause some market movement, either up or down, on a short-term basis.

As we head into the last two months of the year, we expect stock market returns to be more muted especially after such a strong showing in October. Close attention is being paid to supply chain issues and how retail inventories, both traditional and online, are affected. Consumer sentiment remains high and indications are most people are willing to spend money this holiday season but it remains to be seen if there will be enough inventory to support a high level of spending. We will also be watching the progression of the infrastructure and social programs bills in Congress, especially how revenue will be generated to pay for each and what impact that might have on individuals, corporations and the broader economy.

Even though we have moved past Halloween and transition into a new month, do not lose faith in the Great Pumpkin, a robust economy or the stock markets. If you would like to have a discussion regarding any potential tax savings moves or portfolio adjustments prior to the end of the year, which is rapidly approaching, please do not hesitate to contact us to schedule a meeting.

Have a wonderful week!

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