Quarterly Update
This has been a whirlwind of a year, from COVID-19 to the west coast wildfires and a contentious election, so we are excited to be entering the home stretch.
The second and third quarter were the best quarters for the stock market since 2009, and the significant actions of the CARES Act and the Federal Reserve’s stimulus have helped to keep this performance going. At this point, we believe economic activity is running ahead of expectations in developed countries, but at different paces depending on the virus activity and stimulus packages. We are also starting to see signs of a two-track recovery emerging, wherein some workers, companies, and regions show signs of growing stronger and others are in deep decline.
In general, people who are well-educated, business tied to supply chains or the digital economy, and regions with tech-forward cities are prospering by and large. However, on the other side of this are lower-wage workers with few credentials, small storefronts that can’t raise capital or move online easily, and regions closely tied to tourism.
This is one of the main reasons there has been such a disconnect between the performance of the stock market and economic indicators, as we discussed in previous letters this year. Household wealth is near record highs, but lines at food banks continue to grow. There are growing concerns that the US recovery may lose steam without further fiscal stimulus to help those most deeply affected, and while negotiations continue regarding a pre-election stimulus package, the legislative window is closing fast.
We fully understand that there is a lot of uncertainty, and there are many risks ahead in 2021. Many Americans are dissatisfied with the way things are going. Our friends at Blackrock produced the chart below that looks at how markets have performed when a low percentage of Americans are satisfied with the way things are going in the US, and in general low levels of satisfaction precede a higher market return.
As we mentioned in our Labor Day newsletter, our sense is that March 23rd will remain the bottom of the market, but we continue to see elevated levels of volatility, and as always having a well-diversified portfolio and sound financial plan is of paramount importance.
As we approach the end of the year, we would recommend adding the following items to your to-do list:
Review your beneficiaries and estate planning documents. Many times, these are decided upon but not necessarily implemented.
Consider your workplace retirement account contributions and increasing as appropriate to take advantage of tax benefits.
Review contributions to an IRA or Roth IRA. You have until you file your taxes in 2021 to contribute.
If you have children or other close younger family members, consider a year-end gifting. You can give up to $15,000 per person, or $30,000 with a spouse, without needing to file a gift tax return.
We review our after-tax investment accounts to take advantage of capital gains and losses towards the end of the year and recommend doing so if you have outside investments.
With historical low mortgage rates, review your mortgage rates to see if you can refinance to pay off your house sooner.
With any questions regarding these items, feel free to reach out to my office and we can assist you in determining which of these may apply to you and how best to implement them.