Financial Resolutions for 2022

Retirement and Longevity

Start the new year right by reviewing and revamping your financial plan.

Instead of hauling out those familiar New Year’s resolutions about keeping a journal or drinking more water, how about focusing on your financial well-being? Here’s a set of resolutions that can help ensure your long-term financial confidence.

Update your beneficiaries

If you don’t correctly document your beneficiary designations, who gets what may be determined by federal or state law, or by the default plan document used in your retirement accounts. When did you last update your designations? Have life changes (divorce, remarriage, births, deaths, state of residence) occurred since then?

Update your beneficiary listings on wills, life insurance, annuities, IRAs, 401(k)s, qualified plans and anything else that’d affect your heirs. If you’ve named a trust, have any relevant tax laws changed? Have you provided for the possibility that your primary beneficiary may die before you? Does your plan address the simultaneous death of you and your spouse? An estate attorney can help walk you through these various scenarios.

Create flexible liquidity

Cash has inflation and opportunity tradeoffs, but a lack of access can cause greater problems if you find yourself needing to draw from your investments. Finding a balance in line with your life and goals is important to avoid disrupting your long-term plans.

The right liquidity strategy will be different for every investor and could incorporate cash reserves, cash alternatives, highly liquid securities, lines of credit, margin loans or even structured lending. Multiple institutions and account owners can be used to hold more than $250,000 with FDIC guarantees.

Evaluate your retirement progress

What changes are needed given your current lifestyle and the market environment? Don’t fixate solely on your assets’ value – instead, drill down into what types of securities you hold, your expected cash flows, your contingency plans, your assumed rate of return, inflation rates and how long you’re planning for. Retirement plans have many moving parts that must be monitored on an ongoing basis.

Review your account titling

Haphazard account titling can create problems down the line. If one partner dies and an account is titled only in their name, those assets can’t be readily accessed by the survivor. The solution may be creating joint accounts, but it’s not always that simple. Titling has implications across a range of estate planning issues, as well as other situations such as Medicaid eligibility and borrowing power, too.

Develop a charitable strategy

Giving comes from the heart, but you can also do well when doing good. For example, consider whether or not it’d make sense to donate low-basis stocks in lieu of cash, or learn about establishing a donor advised fund to take an upfront deduction for contributions made over the next several years. Give, but do so with an eye toward reducing your tax liability.

Spark a family conversation

Sustaining the benefits of wealth for generations is nearly impossible without a mutual understanding among family members. Consider creating a family mission statement that outlines the shared vision for your wealth and legacy. This should include nonfinancial topics, too, like your values, expectations and important life lessons.

Digitize your record keeping

You likely receive emails, letters reports and updates from multiple accounts. Consider going paperless and centralizing important files in one place to reduce frustration and ensure easy access when needed. Your advisor may have access to secure storage tools that can help.

Invest with your values

Your portfolio should reflect what matters to you – and that can mean anything from avoiding particular industries to actively pursuing an ESG (environmental, social and governance) investing approach. So whether you want to promote the transition to clean energy, advocate for diversity and inclusion in the workplace, or support companies with strong data privacy practices, your portfolio can be tailored to reflect those priorities.

Check in with your advisor

Your advisor can offer specialized tools, impartiality and experience earned by dealing with many market cycles and client situations. Communicate openly about what’s happening in your life today and what may happen in the future. It’s difficult to manage what they aren’t aware of, so err on the side of over-communicating and establish a regular check-in schedule for the year ahead.

These suggestions are a helpful starting point, but no two long-term plans are identical – so reach out to your advisor for more specific guidance about progressing toward your goals in 2022.

This material has been created by Raymond James for use by its financial advisors.

Volatility and Fear

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

December 6, 2021

At the close on Friday, the NASDAQ Composite Index was down 6.1% and the S&P 500 was down 3.5%, from their recent all-time record highs. The 10-year Treasury yield, which was 1.67% as recently as the week of Thanksgiving, was yielding 1.35% at the close on Friday. Oil prices have fallen about 22% from their highs and Bitcoin was down about 28% over this past weekend.

Some investors are worried about the Omicron variant of COVID-19, and maybe further variants to come. But many are concerned about the Federal Reserve speeding-up its pace of tapering quantitative easing, which could set the stage for interest rate hikes in 2022. Meanwhile, the odds of passing President Biden’s signature fiscal plan – the so-called Build Back Better proposal – appear to be no better than 50%, down significantly from earlier this year.

What this reminds us of is the “stop-go” Keynesianism of the 1970s, where policymakers would whipsaw between goosing the economy through loose money and extra government spending, then battling the ensuing inflation by tightening monetary policy, slowing the growth of spending, or even by raising taxes. This ping-pong policymaking was not healthy for the stock market: the S&P 500 increased at a 1.6% annual rate in the 1970s as consumer prices rose 7.4%.

In recent weeks, the stock market has decided the economic pain associated with an eventual tightening of fiscal and monetary policy is more likely to come sooner rather than later. Investors realize the budget deficit in the year ahead is likely to be much smaller than the past couple of years, which will be good for the long-run but could be an economic headwind in the near future.

Meanwhile, the Fed meets next week and recent testimony by Fed Chairman Jerome Powell indicates it will likely hasten the pace of tapering. One theory is that the Fed could finish tapering as early as March next year. That’s consistent with the futures market for federal funds, which appears to be pricing in two or three rate hikes in 2022 (assuming the rate hikes are 25 basis points each).

We think taking the economic pain earlier rather than later is the better option. The next report on consumer prices arrives on Friday and we are estimating an increase of 0.7% in November. If we’re right, that would mean consumer prices are up 6.8% from a year ago, the largest increase for any twelve months since the early 1980s.

The longer the Fed waits to address this, the harder it will be to stop. In the early 1980s, Paul Volcker ended up pushing the federal funds rate to nearly 20%, which caused a brutal set of recessions. Some tightening now, versus more tightening later, would signal wisdom in managing monetary policy.

We also think the economy could handle both a faster taper and earlier rate hikes. Remember, even when it’s tapering, the Fed is still expanding its balance sheet, it’s just doing so at a slower rate. Meanwhile, with inflation approaching 7%, the “real” (inflation-adjusted) federal funds rate is lower than it ever was in the 1970s.

But mark us down as skeptical about two or three rate hikes in 2022. Policymakers and politicians may be willing, but the flesh is weak. After the last time the Fed finished a tapering operation, back in 2014, it raised rates only when the 10-year Treasury yield was above 2.00%, not below. It’s hard seeing the Fed getting aggressive with rates with the 10-year yield south of 2.00% and, right now, we’re at about 1.4%. Maybe the Fed will raise once; two or three times seems like a stretch, even if the economy could handle it and inflation suggests more rate hikes are needed.

Sooner or later, though, the US will have to pay a price for COVID era looseness in both money and fiscal policy. For now, we’re betting more of the pain comes after 2022.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

12-7 / 7:30 am Int’l Trade Balance – Oct -$66.8 Bil -$67.6 Bil -$80.9 Bil

7:30 am Q3 Non-Farm Productivity -4.9% -5.3% -5.0%

7:30 am Q3 Unit Labor Costs +8.3% +8.8% +8.3%

2:00 pm Consumer Credit– Oct $25.0 Bil $20.0 Bil $29.9 Bil

12-9 / 7:30 am Initial Claims – Dec 5 220K 235K 222K

12-10 / 7:30 am CPI – Nov +0.7% +0.7% +0.9%

7:30 am “Core” CPI – Nov +0.5% +0.5% +0.6%

9:00 am U. Mich Consumer Sentiment- Dec 68.0 68.4 67.4

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Riding the COVID Rollercoaster

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 29, 2021

On Friday, news of a COVID-19 variant identified in South Africa, and the announcement of new travel restrictions, sent markets reeling. This is obviously not the only variant, and it won’t be the last, either. In our opinion, it’s not the new variant that is the problem, but the government’s potential reaction to it. Oil prices fell 13% on Friday, pricing in a potential new round of lockdowns.

We’re obviously not scientists, but what seems clear is that vaccines have underdelivered on their promise of ending the pandemic. Yes, relative risks for hospitalization and death are reduced (though not eliminated) after the jab, but fully vaccinated individuals can still get and spread the virus. This means the “zero COVID” strategy that public health officials have been pursuing since the pandemic began needs to change.

At this point, what seems likely is that COVID will gradually become like the flu, where there is a vaccine/booster available each year depending on what strain is most likely to be prevalent. Providing the public with accurate information about risk factors surrounding age and comorbidities is more important than ever.

However, our fear as economists is that certain urban areas in the US could be stuck in a cycle of fear, with each new variant leading to more draconian measures. This is where policymakers and individuals with disproportionate influence live, and their mindsets have become gradually divorced from the rest of the population. Just look at the packed stadiums at college football games.

Most importantly, is this how people want to live? Economic planning for businesses has become impossible. Individual travel plans can be disrupted at any moment. Maybe you are already fully vaccinated and are not overly concerned about mandates. What about when boosters become required to maintain your fully vaccinated status? Dr. Fauci recently hinted that this would be the case. Where is the offramp to normal life at this point?

Fortunately, we think widespread shutdowns are unlikely in response to this or any variant. Recent election returns in New Jersey and Virginia suggest the American public is fed up with the overly cautious policy mix chosen by officials in the past year and a half, including widespread shutdowns and tough mask rules.

Another round of shutdowns could turn a political environment that we believe favors a Republican wave in 2022 into a Republican tsunami. Democratic political strategists will be cautioning their party’s leaders not to court fate. Although it’s not our base case at this point, it’s not outside the realm of possibility that another harsh shutdown would lead to a filibuster-proof Senate majority for the GOP in 2025.

Put it all together and we think investors need to continue to be ready to ride the COVID rollercoaster. Given record high profits, we still believe stocks are relatively cheap. That doesn’t mean there won’t be dips, though, or even corrections. But when they happen, they should still be considered buying opportunities.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-30 / 8:45 am Chicago PMI – Nov 67.0 66.4 68.4

12-1 / 9:00 am ISM Index – Nov 61.2 60.9 60.8

9:00 am Construction Spending – Oct +0.4% +0.5% -0.5%

afternoon Total Car/Truck Sales – Nov 13.4 Mil 13.6 Mil 13.0 Mil

afternoon Domestic Car/Truck Sales – Nov 10.3 Mil 10.2 Mil 10.1 Mil

12-2 / 7:30 am Initial Claims – Nov 27 240K 220K 199K

12-3 / 7:30 am Non-Farm Payrolls – Nov 550K 535K 531K

7:30 am Private Payrolls – Nov 536K 525K 604K

7:30 am Manufacturing Payrolls – Nov 45K 35K 60K

7:30 am Unemployment Rate – Nov 4.5% 4.5% 4.6%

7:30 am Average Hourly Earnings – Nov +0.4% +0.4% +0.4%

7:30 am Average Weekly Hours – Nov 34.7 34.7 34.7

9:00 am ISM Non Mfg Index – Nov 65.0 65.4 66.7

9:00 am Factory Orders – Oct +0.5% +0.6% +0.2%

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Make Your Retirement Contributions Count

November 22, 2021

Dear Friends and Clients,

For the 2021 tax year, individual investors can contribute up to $6,000 to either a traditional or Roth IRA. If you’re age 50 or older, you can contribute an extra $1,000. I wanted to remind you so you can take full advantage of your ability to save toward retirement. Contributing as much as you can as early as possible allows those assets more time to potentially grow and compound. Keep in mind that contributions generally must be made before you file your tax return in April.

You may also contribute up to $19,500 to applicable 401(k), 403(b) and 457 plans, SAR-SEP plans and the federal government’s Thrift Savings Plan. The catch-up contribution limit for individuals age 50 or older is $6,500. Employee contributions to qualified plans generally must be made by December 31.

Review the below 2021 Retirement Plan Limits document for more details.

If you have any questions about these limits or your retirement planning in general, feel free to contact me.

Sincerely,


Matt Goodrich, Financial Advisor

President, Goodrich & Associates, LLC

Branch Manager, RJFS

Raymond James financial advisors do not render advice on tax matters. Please consult a qualified professional regarding tax matters.

Thankful, But Watchful

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 22, 2021

As Americans gather among family and friends to celebrate Thanksgiving, we all have much to be thankful for.

Twenty-one months after COVID-19 led to massive lockdowns across the US, vaccines are now widely available thanks to the private enterprise system. In addition, new highly effective treatments are coming to market, which could minimize the risks associated with COVID-19 for both the highly-vulnerable as well as those who’d prefer not to take the vaccine.

Meanwhile, entrepreneurs and businesses of all sizes had to squeeze about a decade’s worth of innovation into a year to overcome both COVID itself as well as draconian measures taken to (supposedly) limit the spread of the disease. So much so that the number of workers on payrolls is still down 4.2 million versus February 2020 (the last month pre-COVID). But this reflects worker decisions, more than worker demand. Total employment plus total job openings are just 1.3 million below pre-COVID levels.

Meanwhile 232 years after the Constitution was ratified we continue to enjoy the blessings of the American Founders’ wisdom. The separation of powers means no president is a dictator, neither the ones you vote for or against, even in the face of a health threat that many still perceive as severe. Witness the recent suspension of extremely burdensome OSHA rules that would have required private companies to impose vaccine mandates on their workers or, in the alternative, authoritarian-style mask and testing requirements, even as every adult who wants a vaccine can get one and young people face very little risk.

Then there’s the federal system of overlapping jurisdiction between the federal government and the states that allows for some variety in public policy, in part responsible for the movement of people between the states toward places where people are more free, both in general, as well as with respect to COVID.

But all of the things we should be thankful for don’t add up to a reason to be complacent. Inflation is obviously a bigger problem than it’s been in decades and no one should be confident that they know exactly the course of treatment the Federal Reserve will ultimately apply. Near the end of next year, we will all have a clearer picture of how persistent and high inflation really is, and whether tapering does anything to bring it down.

Our belief is that inflation is not temporary. The only question is whether the Fed chooses to bring policy back to normal quickly or slowly. We expect the Fed to kick the inflation can down the road for some period of time. Whether that is just until 2023, or until a new administration in 2025, is still debatable. Either way, the US will end up with a period of slower growth at some point in the years ahead.

So for now, be thankful. We remain bullish on equities and the economy. A bear market or recession in 2022 is very unlikely. But don’t be complacent. Be watchful and be ready to shift, as always, if circumstances change.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-22 / 9:00 am Existing Home Sales – Oct 6.200 Mil 6.300 Mil 6.340 Mil 6.290 Mil

11-24 / 7:30 am Initial Claims – Nov 20 260K 262K 268K

7:30 am Q3 GDP Second Report 2.2% 2.3% 2.0%

7:30 am Q3 GDP Chain Price Index 5.7% 5.7% 5.7%

7:30 am Durable Goods – Oct +0.2% -0.4% -0.3%

7:30 am Durable Goods (Ex-Trans) – Oct +0.5% +0.4% +0.5%

7:30 am Personal Income – Oct +0.2% +0.3% -1.0%

7:30 am Personal Spending – Oct +1.0% +1.0% +0.6%

9:00 am New Home Sales – Oct 0.800 Mil 0.800 Mil 0.800 Mil

9:00 am U. Mich Consumer Sentiment- Nov 66.9 67.0 66.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Inflation Returns

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 15, 2021

Inflation is back and worse than it’s been in decades. Consumer prices rose 0.9% in October and are up 6.2% in the last twelve months. Two more months of moderate increases, and the CPI will be 6.5% in 2021, the highest inflation since 1982.

As a result, after surging in the earliest stages of the pandemic, “real” (inflation-adjusted) average hourly wages have been trending downward since peaking in April 2020 and are down 1.2% in the past year. In fact, real average hourly wages are up only 1.5% since February 2020 (pre-COVID) versus a gain of 2.3% in the twenty months before COVID arrived.

One of the Keynesian justifications for applying a very loose monetary policy was to run the economy “hot,” in order to offset damage from COVID itself and pandemic lockdowns. But this has apparently backfired as inflation accelerated rapidly. It looks like workers are the ones getting burned.

The Federal Reserve, however, says inflation is going to drop next year. And we think the Fed is probably right about the direction of inflation; prices should go up next year, but not as fast as this year.

Why? Think of oil, for example, which ended last year at $48 per barrel (for West Texas Intermediate) and closed on Friday at $81. Could oil prices move up again in 2022? Sure. Will they go up almost 70% like they have so far this year? Probably not. Then there are the massive supply-chain issues, particularly with computer chips, that have disrupted the automobile market. Prices for new cars and trucks are up 9.8% from a year ago; prices for used cars and trucks are up 26.4%. Higher semiconductor production should curb price increases next year and prices might even fall modestly in this sector.

The problem is that the most recent forecast from the Federal Reserve (released September 22) suggests its favorite inflation measure will only be 2.2% next year, which translates into an increase of about 2.5% for the Consumer Price Index (CPI). Sorry…put us down supporting the “Over.”

We think the Fed is making the same mistake it made last year. At the end of last year, the Fed projected that its favorite measure of prices would be up 1.8% in 2021, which translates into roughly a 2.0% increase in the Consumer Price Index (CPI). Oops! Not even close.

The M2 measure of the money supply is up almost 40% from where it was in February 2020, substantially faster than the pre-COVID trend. Ultimately, this is the root cause of the inflation we’re seeing. Yes, the extra government spending matters, too. But it matters because the Fed is monetizing the extra debt related to that spending; otherwise, it’d just be transferring demand from one group to another.

We think CPI inflation will run around 4.0% next year and might continue to do so for multiple years until either the extra M2 growth passes through the economy or the Fed somehow drains some of the extra M2 from the monetary system.

The same thing happened in the 1970s, when the Fed believed that rising inflation was transitory, and therefore did not slow growth in the money supply. As long as the Fed thinks inflation is transitory, it will not drain money from the system. Although the Fed is “tapering,” that just means the expansion of its balance sheet will proceed at a slower pace, not that the balance sheet will actually shrink.

Look for housing rents to be a key source of inflation in the years ahead. Housing rents – both for actual tenants as well as the imputed rent of homeowners – were both artificially low last year due to limits on evictions. Now that the limits on evictions are over, the rental value of real estate will rise more quickly, and rents make up more than 30% of the CPI.

The Fed has let inflation take root in the US economy. We don’t expect to be back at the Fed’s 2.0% target anytime soon.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-15 / 7:30 am Empire State Mfg Survey – Nov 22.0 26.0 30.9 19.8

11-16 / 7:30 am Retail Sales – Oct +1.4% +1.5% +0.7%

7:30 am Retail Sales Ex-Auto - Oct +1.0% +0.3% +0.8%

7:30 am Import Prices – Oct +1.0% +0.9% +0.4%

7:30 am Export Prices - Oct +1.0% +0.9% +0.1%

8:15 am Industrial Production – Oct +0.8% +1.2% -1.3%

8:15 am Capacity Utilization – Oct 75.9% 76.0% 75.2%

9:00 am Business Inventories - Sep +0.6% +0.7% +0.6%

11-17 / 7:30 am Housing Starts – Oct 1.580 Mil 1.579 Mil 1.555 Mil

11-18 / 7:30 am Initial Claims – Nov 14 260K 264K 267K

7:30 am Philly Fed Survey – Nov 23.9 26.5 23.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Tuesday Results and the 2022 Economic Outlook

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 8, 2021

In spite of what listening to the mainstream media might make you think, the voting public doesn’t change much from year to year or election to election. As a result, when leaders try to take policy too far in one direction, without enough public support, they often get punished at the polls. That’s our takeaway from the Virginia and New Jersey gubernatorial and down-ballot state legislative elections last week.

Here are five key political lessons from Tuesday. First, if former President Trump isn’t running, (or in office) it’s hard for Democrats to use him as a bogeyman to scare voters. Second, white working class and rural voters will turn out in high numbers without Trump on the ballot and in favor of more conventional GOP candidates.

Third, early signs suggest the GOP continues to make headway with Hispanic voters. One of the counties in New Jersey that shifted the most toward the GOP was Passaic County, with some towns with heavy concentrations of Hispanic voters leading the way. As a result, according to at least one political betting market, Republicans are now favored to win the Senate seats in Arizona and Nevada, even though both seats will have incumbent Democrats running for re-election.

Fourth, Republicans may have won in Virginia this year, but it is still a blue state. Four years ago, when Trump was in office, the Democrats won Virginia by nine points; this year the GOP won by two points. The party that wins by nine and loses by two is still the majority party.

And last, the GOP is in excellent position to win the House next year and probably the Senate, as well. Usually, the Virginia governor’s race is a harbinger of which way the mid-terms will go. If Republicans see nationwide gains that are equivalent to the gains they made in Virginia, they’d easily win the House.

However, the mid-term elections are still a year away. The Congress and the President still have plenty of time to enact legislation they agree on, before submitting themselves to the voters. That happened late last week when the House rubberstamped a “bipartisan” $1 trillion infrastructure spending bill passed this summer by the Senate, sending it to President Biden’s desk. This bill will generate extra spending for highways, mass transit, airports, water systems, Amtrak, broadband, electric vehicle charging, and “renewable” energy.

This spending shifts resources from the private sector to the public sector, and to the extent that this is paid for by Federal Reserve money printing, it will push inflation higher. However, this bill did not create new entitlements, and is a small part of total nominal GDP over the next 10 years – which the Office of Management and Budget pegs at $282 trillion. In spite of this spending, the budget deficit should be substantially smaller in 2022.

Meanwhile, the larger, fully partisan plan to raise taxes and create new entitlements has lost momentum. Right now, we put the odds of passage of this much more economically harmful legislation at less than 50%, in part because of last week’s election results.

However, this legislation remains a threat to the forecast for 2022 and beyond. As does monetary policy. The financial markets appear to expect two or three rate hikes in 2022. But personnel changes, and political pressure, at the Federal Reserve will make it less hawkish. As a result, we are looking at one rate hike very late next year, but no more than that.

In addition, businesses across the country must be wondering what’s going to happen with the Biden Administration’s draconian COVID-related OSHA rules, which mandate vaccines for “private” companies of over 100 employees. This would deter some workers from seeking jobs while making it much more costly for many businesses to hire.

Oddly, these new rules coincide with the arrival of new treatments that should make the vaccine debate obsolete. A federal court has temporarily put the rules on hold. Hopefully, for the job market’s sake, policymakers rethink the rules and decide to withdraw them.

From a forecasting point of view, 2021 was simple. Solid economic growth, higher inflation, and a bull market in stocks have been our mantra all year along. As we focus on 2022, the Fed is still pumping money, interest rates remain low, and the economy continues to add back the jobs it lost during lockdowns. At the same time, election results show a backlash against bigger government. For 2022, we watch with cautious optimism.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-9 / 7:30 am PPI – Oct +0.6% +0.7% +0.5%

7:30 am “Core” PPI – Oct +0.5% +0.3% +0.2%

11-10 / 7:30 am Initial Claims – Nov 6 260K 270K 269K

7:30 am CPI – Oct +0.6% +0.5% +0.4%

7:30 am “Core” CPI – Oct +0.4% +0.3% +0.2%

11-12 / 9:00 am U. Mich Consumer Sentiment -Nov 72.5 72.0 71.7

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

October Market Review

November 2, 2021

Dear Friends and Clients,

The major domestic equity indices climbed steadily through October, a confident step forward from September’s stumble even as supply issues created intermittent voids on supermarket shelves and broad patches of uncovered tarmac at car dealerships.

Strong corporate earnings reports set the stage at the start of the month, and the release of a low gross domestic product (GDP) growth estimate at the end of the month did not blunt the markets’ upward march. The S&P 500 and Dow Jones Industrial Average both set new record highs in October, and the NASDAQ Composite was not far behind.

September was the first equity market decline in eight months, and the worst month for the S&P 500 since March 2020, but fears cooled. As a result, October rode optimism from the aforementioned earnings reports, the diminishing of a threat of onerous tax hikes and early signs that inflation and supply chain concerns have peaked.  

Economic growth, however, remains harried by some lingering concerns. Supply chain difficulties and a tight labor market may continue to restrain economic growth and add to near-term inflation pressures.

But growth appears to be regaining momentum as COVID-19 cases decline. The demand for goods increased throughout the pandemic and, counter to expectations, has remained strong, amplifying supply issues.

Let’s see where the headline indices stand for the year.

Now onto the specifics:

Shaping the big bill

October saw the acceleration of negotiations on a reconciliation bill in Congress, with momentum shifting toward a package slightly below $2 trillion with lessened overall tax impact. Key lawmakers’ opposition to heightened corporate and individual tax rates means we are less likely to see them included in the deal, but the negotiations are still producing market volatility over some policy details. These will not likely be resolved until the bill is finalized.

An up October across the world

As in the U.S., European equity markets had a strong October, reversing some of September’s losses. Most equity markets in Asia and emerging economies also grew through the month. China continues to face significant levels of uncertainty over the scope of ongoing government policy changes, including unknowns about the impact on its property market.

Bond matters

Yields for 2-year and 10-year Treasuries moved closer together, creating a potential sweet spot for adding incremental yield while keeping duration risk in check – an appealing balance amid historically low rates.

There was very little spread change in either the investment-grade space or the high-yield space, which is trading with very narrow spreads compared to historical averages. This continues the trend that investors are not getting paid to take on credit risk or duration risk.

Climate questions

The 2021 United Nations Climate Change Conference, or COP26, started on Oct. 31 and runs through Nov. 12. This gathering, the largest climate conference in six years, is expected to drive news and market movement, particularly in light of different climate change targets between developed and emerging markets.

A rally for the average stock

A consistent theme in the pandemic era has been that steadily growing indices created somewhat of a false front to the cyclical churn below the surface. There were the big gainers driving the pushes and – in various degrees – everyone else. October’s rally, however, saw broader participation in these gains and the “average stock” reached new record highs.

The bottom line

October demonstrated how the climb can be filled with obstacles but still reach new heights. In brief:

  • No new major concerns emerged in October, though we have more information on the ones we’ve been watching.

  • Supply chain disruptions have continued longer than expected – blunting GDP growth – and will likely last into 2022.

  • Inflation may lead the U.S. Federal Reserve and other central banks to raise short-term interest rates earlier than expected, though nothing conclusive has been announced.

Unequivocally, October was a strong month for domestic equities, reflecting generally improving conditions and confidence as we deal with the long and winding tail of the COVID-19 pandemic. Obstacles are always present, but thoughtful investors take inventory, challenge their assumptions and continue to plan out their next move.

As always, I will keep you up to date with news and events important to your investments and financial plan. If you have any questions about this market recap, or anything else, please reach out at your earliest convenience.

I am grateful for your continued trust and for the opportunity to help you pursue your financial goals and well-being.

Sincerely,


Matt Goodrich, Financial Advisor                

President, Goodrich & Associates, LLC       

Branch Manager, RJFS

Investing involves risk, and investors may incur a profit or a loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Consumer Price Index is a measure of inflation compiled by the U.S. Bureau of Labor Studies. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes. The performance mentioned does not include fees and charges, which would reduce an investor’s returns.

Material prepared by Raymond James for use by its advisors.

Eyes on the Fed

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

November 1, 2021

Investors will be focused on the Federal Reserve this week and our expectation is that it will finally announce an overdue tapering of quantitative easing. In addition, we expect Chairman Jerome Powell to make it clear in the press conference that he expects tapering to be completed by mid-2022.

Inflation is clearly a problem. The CPI is up 5.4% from a year ago. When October data arrive the year-ago comparison will likely be 5.7%, the largest increase since the early 1990s. Some of this is “transitory,” but not all of it, not by a long shot. Housing rents were held down artificially until early September, due to limits on evictions. Once nationwide eviction limits ended, rents escalated in September and we expect more of the same for the foreseeable future. That’s important because rents make up more than 30% of the CPI.

Given the likely pace of inflation in October, the “real” federal funds rate (the funds rate adjusted by inflation) is running at about -5.6%. That’s a record low, even more deeply negative than the -5.0% in early 1975 and -4.8% in mid-1980, both of which were at the end of recessions, not almost a year and a half into a recovery, like we are right now.

In other words, the current economic environment doesn’t just warrant tapering, but rate hikes. Unfortunately, rate hikes aren’t happening anytime soon. We wouldn’t be surprised by just one rate hike at the very end of 2022, but the start of a hiking cycle could also be postponed until 2023.

First, the Fed is very unlikely to raise rates until after it’s done tapering, so that alone delays hikes until at least mid-2022.

Second, we think the Fed will be reluctant to start hiking a few months before the mid-term elections.

And third, personnel changes at the Fed will likely give the Fed a more dovish tilt in 2022. There’s already a vacancy on the Fed Board, two openings to fill for bank presidents in Dallas and Boston, and we think Trump-appointees Richard Clarida and Randy Quarles will be gone by mid-2022, due to the expiration of their terms as Vice Chairman and Vice Chair for Supervision, respectively.

The problem with monetary policy is that the M2 measure of money is up 36% since February 2020, versus a trend of about 6% annualized pre-COVID. That surge in M2 is like a cow that’s been eaten by a snake…gradually moving through. As long as the Fed doesn’t regurgitate the extra money, the cow isn’t going away, which, in this case, means a devaluation of money relative to goods and services.

That doesn’t mean higher inflation forever, but it does mean a prolonged period of higher inflation until the extra M2 is fully digested by the economy.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

11-1 / 9:00 am ISM Index – Oct 60.5 60.6 60.8 61.1

9:00 am Construction Spending – Sep +0.3% +1.0% 0.0%

11-2 / afternoon Total Car/Truck Sales – Oct 12.5 Mil 12.9 Mil 12.2 Mil

afternoon Domestic Car/Truck Sales – Oct 9.5 Mil 9.7 Mil 9.1 Mil

11-3 / 9:00 am Factory Orders – Sep +0.5% +0.3% +1.2%

9:00 am ISM Non Mfg Index – Oct 62.0 62.0 61.9

11-4 / 7:30 am Initial Claims - Oct 30 275K 280K 281K

7:30 am Int’l Trade Balance – Sep -$80.1 Bil -$81.9 Bil -$73.3 Bil

7:30 am Q3 Non-Farm Productivity -3.2% -3.2% +2.1%

7:30 am Q3 Unit Labor Costs +7.0% +7.8% +1.3%

11-5 / 7:30 am Non-Farm Payrolls – Oct 450K 400K 194K

7:30 am Private Payrolls – Oct 408K 400K 317K

7:30 am Manufacturing Payrolls – Oct 29K 25K 26K

7:30 am Unemployment Rate – Oct 4.7% 4.6% 4.8%

7:30 am Average Hourly Earnings – Oct +0.4% +0.5% +0.6%

7:30 am Average Weekly Hours – Oct 34.8 34.8 34.8

2:00 pm Consumer Credit– Oct $16.0 Bil $17.5 Bil $14.4 Bil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Slower Growth in Q3

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

October 25, 2021

Keynesianism can temporarily giveth, but ultimately always taketh away…and then some.

When the US fell into the COVID crisis, the federal government went on a massive spending binge. Pre-COVID, in the twelve months through March 2020, federal outlays were $4.6 trillion, or 21.4% of GDP. In the next twelve months outlays soared to $7.6 trillion, or 36.2% of GDP. Outside of wartime, we know of no other time when the government has ramped up spending that much or that fast. As a result, as well as very easy money, the economy partially bounced back faster than it would have in the absence of the extra spending.

But the extra spending was like an opioid given to a car crash victim, temporarily masking the economic pain caused by government-imposed shutdowns. Ultimately, there is no free lunch when it comes to spending, and the economic bill is already starting to come due.

As recently as early August, the consensus among economists was that real GDP would grow at about a 7% annual rate in the third quarter, even faster than it grew in the first half of the year when the government was passing out checks like it was going out of style. Now, as we set out below, we’re estimating that the economy grew at only about a 2% rate.

Consumption: Car and light truck sales fell at a 61.6% annual rate in Q3, largely due to supply-chain issues, while “real” (inflation-adjusted) retail sales outside the auto sector were roughly unchanged. The good news is that although we only have reports on spending on services through August, it looks like real services spending should be up at a solid rate. Putting it all together, we estimate real consumer spending on goods and services, combined, increased at a tepid 0.9% annual rate, adding only 0.6 points to the real GDP growth rate (0.9 times the consumption share of GDP, which is 69%, equals 0.6).

Business Investment: The third quarter should continue growth led by investment in business equipment. Investment in intellectual property should also gain, as usual, but commercial construction should be down for the quarter. Combined, business investment looks like it grew at an 3.8% annual rate, which would add 0.5 points to real GDP growth. (3.8 times the 13% business investment share of GDP equals 0.5).

Home Building: Residential construction looks like it slowed slightly in the third quarter. That’s not due to less demand – sales are trending higher and inventories remain very low – but instead reflects supply-chain issues and lingering problems getting people to work, given unusually high jobless benefits that only ran out nationally late in the third quarter. We estimate a contraction at a 2.1% annual rate in Q3, which would subtract 0.1 point from real GDP growth. (-2.1 times the 5% residential construction share of GDP equals -0.1).

Government: It’s hard to translate government spending into GDP; only direct government purchases of goods and services (and not transfer payments like extra unemployment insurance benefits) count when calculating GDP. We estimate federal purchases grew at a 0.6% annual rate in Q3, which would add 0.1 point to real GDP growth. (0.6 times the 18% government purchase share of GDP equals 0.1).

Trade: A faster economic recovery in the US earlier this year as well as the labor shortage have spurred a rapid recovery in imports, which are at an all-time high. At present, we’re projecting that the surge in imports relative to exports will subtract 1.3 points from real GDP growth in Q3.

Inventories: Inventories look like they fell again in Q3 as businesses with supply-chain issues keep having to dip into inventories to meet demand. However, inventories didn’t fall as rapidly as they did in Q2, and in the arcane world of GDP accounting, that means inventories will make a positive contribution to growth, which we are estimating at 2.2 points.

Add it all up, and we get 2.0% annualized real GDP growth for the third quarter, nowhere close to the “sugar high” 6.5% annual rate of growth in the first half of the year.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

10-26 / 9:00 am New Home Sales – Sep 0.757 Mil 0.756 Mil 0.740 Mil

10-27 / 7:30 am Durable Goods – Sep -1.0% -2.2% +1.8%

7:30 am Durable Goods (Ex-Trans) – Sep +0.4% +0.1% +0.3%

10-28 / 7:30 am Initial Claims – Oct 24 289K 295K 290K

7:30 am Q3 GDP Advance Report 2.8% 2.0% 6.7%

7:30 am Q3 GDP Chain Price Index 5.3% 4.6% 6.1%

10-29 / 7:30 am Personal Income – Sep -0.2% +0.4% +0.2%

7:30 am Personal Spending – Sep +0.6% +0.4% +0.8%

8:45 am Chicago PMI 63.5 65.5 64.7

9:00 am U. Mich Consumer Sentiment- Oct 71.4 71.4 71.4

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Respect Millennials

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

October 18, 2021

Politics today is in large part about pitting one group against another and convincing one side they’ve been treated unfairly. One of those groups is the younger generation of workers known as Millennials, who are supposedly up to their eyeballs in debt and lagging well behind prior generations.

Before we get into it, let’s define who we’re talking about: 

  • Millennials (born 1981-96)

  • Generation X (born 1965-80)

  • Baby Boomers (born 1946-64)

  • Silent Generation (born before 1946)

Politics is a zero-sum game, so instead of focusing on whether the pie is growing or shrinking, politicians and many others like to focus on who owns what share of the pie. In this case the pie we’re talking about is total wealth among all American households. In turn, net worth is assets (stocks, bonds, real estate, mutual funds, bank deposits, pension entitlements, and ownership in businesses) minus liabilities (mortgages, student loans, car loans,…etc.).

As of the middle of this year, Baby Boomers had 51.4% of all net worth, according to the Federal Reserve. Pretty good for a group that makes up about 21% of the US population. Generation X has 28.6% of US wealth.

Meanwhile, Millennials are lagging way behind. This group – which now has 22% of the US population, slightly more than Boomers – has only 5.6% of US household net worth.

It’s no wonder some politicians have been talking about this issue: there are more Millennials than Boomers but Boomers have about nine times more wealth than Millennials. Unfair!

The problem with these numbers is that despite being 100% accurate, they’re 100% misleading. Each generation’s share will rise and eventually fall as they start out young, hit their peak earning years, pay off debts, and then enjoy compounding returns on accumulated investments later on in life, before eventually spending down those assets. Back in 1989, the Silent Generation had almost 80% of all net worth. Today, they have 14.4%.

There is a much better way to look at the generations. Rather than looking at the share of total net worth, we should look at the average level of net worth for each generation as they age from young to old. Essentially, take each generation’s total net worth, divide it by the number of households within each generation (some generations are bigger than others), and then adjust for inflation. Credit where credit is due: this method was originally developed by Jeremy Horpedahl, a very insightful economics professor at the University of Central Arkansas. We gave his method a couple of tweaks and reached essentially the same conclusions.

We estimate that the typical Boomer was born in the fourth quarter of 1955. So, as of mid-2021, the typical Boomer was 65.5 years old. Right now, the average Boomer household has a net worth of $1.629 million. (Remember, this is an average, so it includes Jeff Bezos.) By contrast, the typical Gen Xer now has $1.108 million. (Yes, this includes Elon Musk.)

Superficially, it’s advantage Boomers. But the typical Gen Xer was born in the third quarter of 1972, and so was age 48.75 in the middle of this year. That means Boomers have had longer to accumulate assets and earn compound returns.

But when comparing Boomers to Gen Xers, what we really want to know is how much net worth Boomers had back when they were 48.75 years old. And guess what? When you adjust for inflation, the typical Boomer household had $730,000 back then, well below today’s Gen Xers, with $1.108 million. So when you adjust for age and inflation, the average Gen X household is beating the average Boomer household. (And Bob Stein won’t let Brian Wesbury forget it.)

Unfortunately, the data only go back to 1989, and can’t yet directly compare Millennials to Boomers. But we can compare Millennials to Gen X. Today, the average Millennial household, at age 32, has a net worth of $196,000. (Yes, this includes Mark Zuckerberg.) Back when Gen Xers were age 32, they had an inflation-adjusted $158,000. (And you can be sure Strider, Andrew, and Bryce won’t let Bob forget it!)

The bottom line is that, at the same point in their lives, the average Gen Xer is better off than the average Boomer and the average Millennial is beating the average Gen Xer.

None of this means this pattern will persist. If policymakers obsess about shares of net worth rather than growing the whole pie, they may adopt more policies that slow economic growth and wealth creation and then Millennials could end up being thrown off track. For now, however, it’s important to recognize that Millennials don’t have it as bad as many think.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

10-18 / 8:15 am Industrial Production – Sep +0.1% +0.1% -1.3% +0.4%

8:15 am Capacity Utilization – Sep 76.4% 76.4% 75.2% 76.4%

10-19 / 7:30 am Housing Starts – Sep 1.615 Mil 1.615 Mil 1.615 Mil

10-21 / 7:30 am Initial Claims – Oct 16 298K 305K 293K

7:30 am Philly Fed Survey – Oct 25.0 30.7 30.7

9:00 am Existing Home Sales – Sep 6.090 Mil 6.140 Mil 5.880 Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Focus on Data, Not Spin

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

October 11, 2021

In 2009, after overly strict mark-to-market accounting rules were altered, we said the Financial Crisis was over. It was hard to get our voice heard, though, because both sides of the political aisle were busy saying the economy stunk. Political liberals tried to use the crisis to grow the government and increase bank regulation. Political conservatives said it was a “sugar high” and that President Obama was going to cause a Depression. It was all spin, all the time.

That’s what it seemed like last Friday, when the September jobs report was spun into terrible news.

Yes, nonfarm payrolls rose an underwhelming 194,000 in September, well below the consensus expected 500,000. Meanwhile, the labor force (the number of people working or looking for work), declined 183,000. Some liberals seized on these figures to say (1) the expiration of bonus unemployment benefits didn’t boost jobs like free-market supporters claimed, (2) women are hesitant to get jobs because of COVID and kids at home, and (3) the economy needs more stimulus.

But the jobs report only captured the first couple weeks of expired benefits, and, as a result, it’s too early to tell the real impact of the expiration. Many recipients may have piled up enough savings to be patient in re-entering the labor force. Meanwhile, vaccines, perhaps boosters, and waning COVID case counts should help more sectors return to normal. And if the amount of stimulus applied to the economy already hasn’t worked, what makes anyone confident even more stimulus would work? Wouldn’t it call for a different strategy entirely?

The bottom line is that the employment report really wasn’t that bad. It wasn’t great, but it wasn’t awful, either. Payrolls were revised up a combined 169,000 for prior months. Much of the weakness in September itself was due to public school jobs that are still not back to normal due to COVID. The civilian employment measure of job creation was up a healthy 526,000. And, most importantly, the number of hours worked rose 0.8% in September, the equivalent of more than one million jobs. In addition, wages per hour rose another 0.6%.

At this point, we expect a much stronger employment report for October. Supply chain problems, vaccine mandates at private companies, kids not being back in school…all of this…mean a more volatile economic environment, but easy money from the Fed and less fear of COVID are continuing to boost economic activity. Yes, some disappointing numbers, but the economy has not ground to a halt.

Right now, third quarter real GDP growth looks like it’s coming in soft – at around a 2.0% annual rate, maybe below – and that report arrives just six days before the next Fed announcement. But we also expect both faster job growth and real GDP growth in the fourth quarter. As a result, Jerome Powell is likely to follow through on his intention to start tapering in November. This may cost him his job, but even if the Fed does taper it will still be easy.

As it’s happened in the past, economic reports have become a political football, with each side trying to use the data to score points for their side, greasing the wheel of politics to try to get policy or elections moving in their preferred direction. What’s important for investors is to focus on the data and underlying economic forces, not the narrative driven by politics.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

10-13 / 7:30 am CPI – Sep +0.3% +0.3% +0.3%

7:30 am “Core” CPI – Sep +0.2% +0.2% +0.1%

10-14 / 7:30 am Initial Claims – Oct 9 320K 320K 326K

7:30 am PPI – Sep +0.6% +0.5% +0.7%

7:30 am “Core” PPI – Sep +0.5% +0.4% +0.6%

10-15 / 7:30 am Retail Sales – Sep -0.2% 0.0% +0.7%

7:30 am Retail Sales Ex-Auto – Sep +0.5% +0.5% +1.8%

7:30 am Import Prices – Sep +0.5% +0.3% -0.3%

7:30 am Export Prices – Sep +0.7% +0.6% +0.4%

7:30 am Empire State Mfg Survey – Oct 25.0 27.3 34.3

9:00 am Business Inventories – Aug +0.6% +0.6% +0.5%

9:00 am U. Mich Consumer Sentiment- Oct 73.5 72.0 72.8

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

September Market Review

October 6, 2021

September Market Review

Dear Friends and Clients,

Markets prefer clarity – or at least as close a facsimile as they can get. Since the start of the pandemic, we’ve seen how markets can push through uncertainty, up to a certain point.

September, however, brought a stack of compounding uncertainties, combining to end the S&P 500’s seven-month streak. To understand what caused this downward tilt, look to these four Cs:

  • China: The potential default of Evergrande, the Chinese real estate giant

  • Congress: Brinkmanship over the federal debt ceiling and pending legislation

  • Commodities: The rapid oil price hike to values not seen since 2018

  • COVID-19: The continuing surge, even as global lockdowns are at a low point

These and other issues have led Federal Reserve officials and most economists to slightly lower their expectations for 2021 gross domestic product growth.

“Supply chain difficulties have lasted longer and have been more severe than anticipated and will likely continue into the early part of 2023,” Raymond James Chief Economist Scott Brown said. “Inflation forecasts for 2021 have moved higher, though Federal Reserve officials still view much of the increase as transitory. Needless to say, there is a high level of uncertainty in the economic outlook.”

Still, there are good reasons to see the strength underneath this September dip and to consider it in context, Chief Investment Officer Larry Adam said.   

“Market performance highlights the underlying strength and resiliency of this bull market as indices bounced back from their worst day since May and are about 5% from recent record highs,” Adam said. “Fundamentals continue to provide support for this young bull, even as we recommend caution in the short term given the uncertain environment.”

Let’s see where we’re at as we enter the last quarter of the year.

Screenshot (400).png

And here’s a look at some other ongoing and related issues here and abroad: 

Federal Reserve may start drawdown of pandemic policies

The Federal Reserve’s Federal Open Market Committee (FOMC) may slow down its $120 billion per month purchases of long-term securities – a pandemic response – if the economy continues to grow as expected. A plan to taper the purchases through the middle of 2022 could be announced at its November policy meeting, Chair Jerome Powell said. Notably, Federal Reserve officials are not debating when to raise short-term interest rates, but most have moved their preferred timeline forward. They are now evenly split on whether an initial rate hike will occur next year.

Treasuries feed on Fed news

Treasuries sold off following the FOMC meeting, pushing yields higher across the curve. The belly of the curve has seen the most movement, emphasizing that opportunity still exists in high-quality corporate bonds around four to eight years in maturity. Municipal yields have inched higher alongside Treasuries, with the benchmark 10-year, AAA bond yield topping 1.10% for the first time since March.

Congress brings clarity and opacity

This month, we got the first glimpse of details in the much-debated budget reconciliation bill. Things remain hazy – we can expect more details through October. Here’s what we know, with an understanding it’s in flux.

Proposed tax policy changes include:

  • The introduction of a progressive corporate tax rate

  • An increase in the top individual income tax rate to 39.6%

  • A 3% surcharge for individuals with income over $5 million a year

  • An increase of investment taxes to 25%

  • A number of changes to high-balance IRAs and restrictions on Roth IRA conversions

Also being discussed are lower estate tax exclusions, increased IRS enforcement and changes to international taxes. Overall, the known provisions are trending more moderate than those initially proposed by President Biden.

While the Senate and House passed a bill ensuring government funding through early December, a looming debt ceiling showdown is making the future murkier for the markets. Congress will need to act within an October to November time frame to avoid a default. 

The world report

Improvements in job creation numbers didn’t keep European markets from falling modestly through September. Energy prices also pushed higher on a round of fuel panic buying in the U.K. and an unrelated fire that interrupted transmissions with continental Europe. Moving forward, key focuses include third-quarter corporate earnings and the formation of Germany’s next coalition government. 

The Chinese and Hong Kong markets were volatile throughout the month on the heels of Evergrande’s debt uncertainty and the continued evolution of corporate policy in China. In the energy space, Chinese authorities have cracked down on carbon-intensive activities, including cryptocurrency mining and some manufacturing operations.

And while COVID-19 inoculations have continued to build across the emerging markets, rising inflation levels were apparent in many countries, which has led to tighter monetary policy at a number of central banks.

The bottom line

The events that led to September’s retreat are unfortunate, but they by no means indicate the end of a momentous period of growth. I continue to see resiliency in the market as investors have been quick to “buy the pullback” in this low-rate environment. Further:

  • The cure for uncertainty is often time. As issues are resolved – or their effects clearly known –the future-focused markets find confidence again.

  • The underlying market fundamentals remain strong. We see continuing growth despite new issues emerging and old ones hanging on longer than expected.

Thank you for your ongoing trust. I am steadfastly committed to you and your economic well-being and eager to answer any question you may have about this monthly market update, your investments or your financial plan. Please do not hesitate to reach out.

Sincerely,

Matt Signature 2019.jpg



Matt Goodrich, Financial Advisor                

President, Goodrich & Associates, LLC       

Branch Manager, RJFS 

 

All investments are subject to risk, including loss. All expressions of opinion reflect the judgment of the authors and are subject to change. There is no assurance the trends mentioned will continue or that the forecasts discussed will be realized. Past performance may not be indicative of future results. Economic and market conditions are subject to change. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. The Russell 2000 is an unmanaged index of small-cap securities. The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market. An investment cannot be made in these indexes.

The performance mentioned does not include fees and charges, which would reduce an investor’s returns. Small-cap securities generally involve greater risks. International investing is subject to additional risks, such as currency fluctuations, different financial accounting standards by country, and possible political and economic risks. These risks may be greater in emerging markets. Companies engaged in business related to a specific sector are subject to fierce competition and their products and services may be subject to rapid obsolescence. There are additional risks associated with investing in an individual sector, including limited diversification. The value of fixed income securities fluctuates and investors may receive more or less than their original investments if sold prior to maturity. High-yield bonds are not suitable for all investors. Material prepared by Raymond James for use by advisors.

The Cost of Lockdowns

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

October 4, 2021

Last March, when the government was considering whether to lockdown the economy, we argued that the longer we stayed locked down the more permanent the damage we would do to the underlying economy.

It is now clear that the cost of the lockdowns is immense. We aren’t just talking about the $5 trillion in government borrowing from future generations, but the clear damage done to small businesses and supply chains.

The US economy cannot be switched off and on like a light bulb. Every day, countless decisions are made in order to get the simplest of things on store shelves. One of our favorite economic essays is “I, Pencil” by Leonard Read in which he writes, “not a single person on the face of this earth knows how to make me (the pencil).”

Think about it. We all know the simple components of a pencil (wood, graphite, paint,…etc), but it’s a complex chain of people and events that put it together. Loggers need equipment, food, and clothing. So do all the other suppliers. Each part of the process depends on those before, and if just one part is thrown out of whack, making a pencil gets harder.

Locking down the economy threw complicated supply chains into chaos, and restarting them is not as easy as many seem to think. Markets are robust, and sturdy, but government decisions (made by bureaucrats who, at most, can handle a dozen pieces of information) destroy the information flow necessary for smooth functioning.

Add into this mix that government locked down the supply-side of the economy, while simultaneously providing rocket fuel (through printing and borrowing money) to the demand-side. A massive spike in consumer spending by people who weren’t producing is a recipe for unbalanced markets.

It’s like causing a car accident and saying that morphine is the cure. Once the morphine wears off, the injuries remain, and the pain resurfaces. Here, inflation is one clear result.

We have seen ports in Los Angeles and New York thrown into chaos as ships wait weeks to be unloaded. And the cost to ship those containers has soared by nearly 500%. Dollar Tree, which sells items (many imported) for a dollar, now says they can’t do it anymore and will sell more items for above a dollar.

Oil, gasoline, and natural gas prices are rising. Europe, which also locked down, is heading into the winter with a shortage of fuel. Government attempts to alter a well-established industry by forcing it to create more green energy are failing. Government can’t possibly manage such a complicated system.

The United States Postal Service is slowing down deliveries to save money as financial losses go ever higher. Automobile manufacturers cannot get semiconductors and are seeing production levels, in the face of strong demand, fall behind.

All of this was predictable. A market economy only works when information (through the price system) is allowed to flow freely. Turning it off, or trying to manage it to fit some politician’s utopian vision of the future, creates chaos.

In the economy, there is the “seen,” and the “unseen.” The seen is the fact that you can’t buy toilet paper, or food prices are going up. The unseen is the market system; what Adam Smith called the “invisible hand.” The market provides because people work together as a team, even though they don’t know each other. They do it to earn a paycheck or make a profit.

To call this system “greedy” misunderstands the role of profit, and how resources are allocated by the marketplace. Free markets require unimpeded information. Locking down the economy and attempting to manage it from Washington, DC is guaranteed to create more problems.

One of those is inflation. It isn’t transitory, it’s a natural outcome of decisions that have been made in the past year. Lockdowns will cause more problems than COVID itself.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

10-4 / 9:00 am Factory Orders – Sep +1.0% +0.5% +0.7%

10-5 / 7:30 am Int’l Trade Balance – Aug -$70.7 Bil -$71.3 Bil -$70.1 Bil

9:00 am ISM Non Mfg Index – Sep 59.9 60.5 61.7

10-7 / 7:30 am Initial Claims – Oct 2 350K 340K 362K

2:00 pm Consumer Credit– Aug $17.3 Bil $20.0 Bil $17.0 Bil

10-8 / 7:30 am Non-Farm Payrolls – Sep 488K 575K 235K

7:30 am Private Payrolls – Sep 450K 545K 243K

7:30 am Manufacturing Payrolls – Sep 25K 25K 37K

7:30 am Unemployment Rate – Sep 5.1% 5.1% 5.2%

7:30 am Average Hourly Earnings – Sep +0.4% +0.4% +0.6%

7:30 am Average Weekly Hours – Sep 34.7 34.7 34.7

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Less Government, More Employment

First Trust Monday Morning Outlook

Brian S. Wesbury - Chief Economist

September 27, 2021

Usually, the most important economic data report every month is the Employment Report and usually that key report comes out the first Friday of every month. But this month is throwing one of those periodic knuckleballs and so we need to wait an extra week, until Friday October 8.

Nothing strange is really going on, and there’s no reason for conspiracy-thinking. Both the payroll report and the employment survey – which give us the nonfarm payrolls and unemployment rate data, respectively – are based on the week of the month that includes the 12th.

Well, September 12 was a Sunday this year, which means that key week (September 12 – 18) fell relatively late in the month. Some months, the key week is relatively early, starting the 6th and running through the 12th. In turn, a relatively late survey week mixed with the first Friday of the month being October 1 means there is too little time to put together the report.

Right now, the consensus among economists is that nonfarm payrolls grew 513,000 in September, while the unemployment rate dropped to 5.0% from 5.2%. We will come out with our own forecast at the end of this week, and then might adjust it based on incoming data on jobless claims and the ADP jobs report. So, for all we know, the current consensus might be exactly right. After all, payrolls are up 503,000 per month in the past year and up 586,000 per month so far in 2021, so what the consensus is forecasting is more of the same.

But what the consensus seems to be overlooking is that the national system of overly generous unemployment benefits that had been in effect since COVID-19 hit the US ran out on Labor Day weekend. As a result, many unemployed people who had previously been getting payments in excess of what they could have earned while working are no longer able to do so.

We think this should translate into a major surge in job growth in September or October, and think there is enormous upside potential for the next two jobs reports. No one should be surprised if one of those reports shows as much as two million net new jobs. Seriously.

Keep in mind that not all of these jobs have to be real job creation; much of it could be workers who were being paid “under the table” to preserve their unusually high jobless benefits moving back toward regular “on the books” employment.

Meanwhile, with more people looking for work the unemployment rate might not fall as dramatically as that kind of surge in job creation would normally predict. One of the reasons the jobless rate has dropped so quickly in the past year or so is that the number of people pursuing work (on the books) has dropped. Now, there is more reason to look for work.

Yes, we are well aware that some news outlets have published stories about the states that curtailed extra jobless benefits earlier in the summer not getting extra job creation, but this analysis was very weak. For example, it failed to control for other factors, like the extra COVID cases/hospitalizations that many of these states had this summer. Nor did they control for the smaller remaining pool of available labor in these states. In addition, the rollout of the child credit may have temporarily dampened job creation nationally.

The US economy is far from fully healed from the COVID19 disaster. But now that the government has stepped back from extra large payments to the unemployed, we think the labor market is on the verge of a big step forward.

Date/Time (CST) U.S. Economic Data Consensus First Trust Actual Previous

9-27 / 7:30 am Durable Goods – Aug +0.7% +0.7% +1.8% -0.1%

7:30 am Durable Goods (Ex-Trans) – Aug +0.5% +0.4% +0.2% +0.8%

9-30 / 7:30 am Initial Claims – Sep 26 330K 335K 351K

7:30 am Q2 GDP Final Report 6.6% 6.8% 6.6%

7:30 am Q2 GDP Chain Price Index 6.1% 6.1% 6.1%

8:45 am Chicago PMI - Sep 65.0 69.1 66.8

10-1 / 7:30 am Personal Income – Aug +0.2% +0.1% +1.1%

7:30 am Personal Spending – Aug +0.6% +0.7% +0.3%

9:00 am ISM Index – Sep 59.5 59.5 59.9

9:00 am Construction Spending – Aug +0.3% +0.5% +0.3%

9:00 am U. Mich Consumer Sentiment- Sep 71.0 71.0 71.0

afternoon Total Car/Truck Sales – Sep 13.2 Mil 13.5 Mil 13.1 Mil

afternoon Domestic Car/Truck Sales – Sep 10.0 Mil 10.1 Mil 9.8Mil

The attached information was developed by First Trust, an independent third party. The opinions are of the listed authors at First Trust Advisors L.P, and are independent from and not necessarily those of RJFS or Raymond James.  All investments are subject to risk. There is no guarantee that these statements, opinions, or forecasts provided in the attached article will prove to be correct. Individual investor's results will vary. Past performance does not guarantee future results. Forward looking data is subject to change at any time and there is no assurance that projections will be realized. Any information provided is for informational purposes only and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.