Market Insights November 15, 2021

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Stocks posted small declines last week as investors digested recent stock market gains and an unexpectedly high inflation read.

The Dow Jones Industrial Average slid 0.63%, while the Standard & Poor’s 500 retreated 0.31%. The Nasdaq Composite index slipped 0.69% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 0.78%.1

MARKET TAKES A PAUSE
After moving higher on Congressional approval of a $1 trillion-plus infrastructure spending bill, stocks drifted lower as investors took a breather after a weeks-long run-up in prices. A high October inflation report on Wednesday sent bond yields higher and stock prices lower, especially technology and other high growth companies. Energy also fell.4,5

Higher-than-expected inflation elevated investor worries that the Fed may be forced to accelerate its bond tapering schedule and hike interest rates sooner than planned. Stocks found firmer footing following the inflation-related sell-off, closing the week on a strong note, though it wasn’t sufficient to keep stocks from ending the week in the red.

HOT! HOT! HOT!
Rising prices appear to be showing no signs of moderating. The first reading on inflation was Tuesday’s release of the Producer Price Index, which saw wholesale prices rise 0.6% in October and register an 8.6% increase from 12-months ago.4

A day later the Consumer Price Index came in above consensus estimates, with prices climbing 0.9% from September 2021 and increasing 6.2% year-over-year. The 12-month increase was the sharpest such rise since 1990. The 12-month core inflation rate (excludes the more volatile food and energy sectors) was 4.6%, the fastest pace since 1991.5

1. The Wall Street Journal, November 12, 2021

2. The Wall Street Journal, November 12, 2021

3. The Wall Street Journal, November 12, 2021

4. CNBC, November 9, 2021

5. The Wall Street Journal, November 10, 2021

When Bad News is Good News

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Financial markets can be challenging to understand. But when markets enter a “bad news is good news” cycle, it becomes even more difficult to follow along.

At its November meeting, the Fed outlined its plan to taper monthly bond purchases, which will end this pandemic-era policy response by July 2022.1 Bad news, right? The bond purchases were one of the ways the Fed supported the economy. Stopping the program would be like removing the punchbowl just as the party was getting going.

Not so fast. This time around, the financial markets said that bad news was good news. Ending the program signaled that the Fed had confidence in the economic recovery, and it no longer needed to support the financial markets.

But just a month ago, the bad news was still bad news. The financial markets hit a rough patch in late September after the Fed said it was preparing to reduce its bond-buying program as soon as November.2

If you have been investing for any period of time, it should come as no surprise to hear that the financial markets changed their mind. So remember, we’re here to help you keep focused on your investing goals while the financial markets sort out what’s good news and what’s bad.

1. CNBC.com, November 3, 2021
2. WSJ.com, September 29, 2021

VETERAN’S DAY – NOVEMBER 11, 2021

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VETERAN’S DAY NOVEMBER 11, 2021 -THANK YOU!

As the nation celebrates Veterans Day, take a moment to recognize and thank the veterans in your community. In every field, every business, veterans help America thrive.

Proposed Changes to Estate Taxes

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To help raise revenue to pay for President Biden’s Build Back Better Plan, Congress is considering a number of tax law changes, including adjusting estate taxes.

One of the proposals would reduce the estate tax exemption to anywhere between $3.5 and $5 million, with an effective date of January 1, 2022. Another proposal would bring new rules to grantor trusts, including a change to how life insurance held in a trust would be taxed.1,2

At this point, many ideas are being evaluated, but nothing is final. Corporate tax rates, individual tax rates, and capital gains taxes are also on the negotiating table.

For now, the federal estate tax exemption remains at $11.7 for 2021, with a married couple having a combined exemption for 2021 of $23.4 million.3

But it wouldn’t be a surprise if the estate tax law changed as part of the overall plan. In 2019, 2,570 taxable estate-tax returns were filed, and they owed a combined $13.2 billion. Lowering the estate tax exemption to $5 million would raise an estimated $52.3 billion over five years.1

As difficult as it may be, the best approach is to wait-and-see. It would be hasty to make any estate changes based on current discussions.

But if you’re feeling unsettled as Congress continues to work on these changes, please reach out. Estate strategies often need adjustments as tax laws change, and it’s best to be prepared for a range of potential new rules coming out of Washington.

1. CNBC.com, September 29, 2021
2. FA-mag.com, September 22, 2021
3. IRS.gov, October 25, 2021

Market Insights November 1, 2021

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A fresh wave of positive corporate earnings surprises sent markets to new record highs last week. The Dow Jones Industrial Average increased 0.40%, while the Standard & Poor’s 500 rose 1.33%. The Nasdaq Composite index picked up 2.71% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, was up 0.68%.1,2

Earnings Drive Market
The week kicked off with the Dow Jones Industrials and S&P 500 index setting record highs as the financial markets carried over the previous week’s price momentum.4

Stocks continued to climb on a string of forecast-beating earnings results. With about half of the S&P 500 constituent companies having reported earnings, more than 80% of them have beaten Wall Street analysts’ consensus estimates. Based on these results, earnings for all S&P 500 companies are expected to come in approximately 39% above the third quarter of last year. (Forecasts are based on assumptions, and may not materialize.) Stocks overcame disappointing earnings from two mega-cap tech names on Friday to maintain the week’s solid gains.5

GDP Growth Slows
While businesses managed to post strong earnings in the third quarter, the first look at economic growth came in below consensus estimates. The Gross Domestic Product (GDP) grew at a 2.0% annualized rate in the third quarter, a slowdown from the two previous quarters, each of which posted annualized growth rates in excess of 6%.6
The spread of the Delta variant and backlogs in the supply chain were two major factors dragging on economic activity.
1. The Wall Street Journal, October 29, 2021
2. The Wall Street Journal, October 29, 2021
3. The Wall Street Journal, October 29, 2021
4. CNBC, October 24, 2021
5. CNBC, October 28, 2021
6. The Wall Street Journal, October 28, 2021