MWM Weekly Update

The Week of December 13, 2021

MWM Weekly Update

The Week of December 13, 2021

End of Year Tax planning questions?
Use our checklist to help you review typical tax planning issues before the end of this year. Please reach out to your advisor if you have any questions.

Source: 8 Ways 2021 Taxes May Be Different

“Inflation is when you pay fifteen dollars for the ten-dollar haircut
you used to get for five dollars when you had hair.”
- Sam Ewing

REMINDER - CLIENTS AGE 72 AND ABOVE or have BENEFICIARY IRAs MAKE SURE YOU HAVE TAKEN YOUR RMDs for 2021.

Greetings Everyone,

In many of our client conversations, the subject of inflation comes up. Inflation is a topic of concern to retirees and people on fixed incomes. As prices rise, their incomes may not keep up and what economists refer to as purchasing power risk is very real. When I was first learning the concepts of financial planning, I was taught an acronym for investment risks.

If you own something like a stock or real estate, you will have market risk and business risk. These ownership assets can be attractive investments in a time of moderate inflation. However, fixed income assets are those where you have loaned your money to another entity for an exchange of interest or dividends. This type of asset is subject to purchasing power (inflation) risk and interest rate risk. As interest rates rise, bonds for example may very well lose principal value if sold prior to maturity. Fixed income is attractive for income and to balance portfolios. In low inflationary times, fixed income generally performs.

The acronym I learned goes like this: BIMP or Business, interest, market and purchasing power risk. Of course, there are all kinds of other risks too. One very important risk is longevity risk or the risk of living too long and having your money run out.

You have probably observed that almost everything is increasing in price. Currently, there is a debate about whether inflation is transitory or a harbinger of a long-lasting shift in our economy. As I was listening last week to Federal Reserve Chairman Powell, he suggested that the causes of our current inflation are temporary and when the global economy returns to a more normal supply and demand balance, prices will moderate.

I think it is helpful to look at recent price data to gain a deeper understanding of our current situation. Here are a few of the price changes since just before the pandemic took hold in the United States. Data is sourced from the U.S. Bureau of Labor Statistics.

Tyson Foods Inc. produces roughly 1 of every 5 pounds of chicken, beef, and pork in the U.S.

It seems likely that the global supply chain is only part of the issue. You may have read about the shortages of semiconductors affecting automobile/truck production and used vehicle pricing. The other aspect of inflation is demand. Federal government fiscal programs have injected money into the U.S. economy, so Americans have two things: more cash to spend and Covid caused pent up demand.

Linette’s daughter Ashley and her husband Joe tell us that the Hive Social restaurant in Oregon City they own is finding prices rising and some products unavailable. Wages and benefits are also more costly which puts pressure on owners to raise prices.
Inflation can be somewhat personal. To understand how it is affecting you, check your own spending and costs. Look back a few months and see if there has been a change in what things in your life cost. I was a little shocked to pay over $90 to fill my gas tank last week. It wasn’t so long ago that it was around $50. At our office we have adjusted financial planning inflation expectations for the future to 3%.

We will all have little choice but to watch and see whether rising inflation is transitory or here to stay.  See you at the gas pump.

Wishing you the best of the December holidays,

Judith McGee, L.H.D., CFP®, ChFC®
Executive Vice President and Senior Lead Advisor

In the Markets

LAST WEEK
  • Wall Street could not maintain its early momentum, closing the week down. Lower-than-expected employment, new reports of Omicron variant cases, and a hawkish stance from Federal Reserve Chair Jerome Powell led to uncertainty in the market. Each of the benchmark indexes ended the week lower, led by the small caps of the Russell 2000 and the tech-heavy Nasdaq. Treasury yields fell 14 basis points to 1.34%. Crude oil prices continued the longest streak of weekly losses since 2018, falling 2.9%, a skid that has run for six consecutive weeks. The dollar and gold prices changed little. Only utilities and real estate were able to eke out gains among the market sectors.
  • Stocks rallied last Monday, following the previous week's Omicron-related selloff. President Biden assured Americans the response to the Omicron variant would not involve shutdowns or lockdowns. The Nasdaq (1.9%) and the S&P 500 (1.3%) led the benchmark indexes, followed by the Dow (0.7%) and the Global Dow (0.1%). The Russell 2000 (-0.2%) ended the day in the red. Sector gains were broad-based, with information technology, consumer discretionary, and utilities outperforming. Ten-year Treasury yields and crude oil prices advanced, while the dollar was mixed.
  • Wall Street ended the day lower last Tuesday. Chair Jerome Powell admitted that recent inflationary pressures are more than just "transitory," the emergence of the Omicron variant could pose downside risks to employment and economic recovery, and that the Fed may accelerate the tapering of asset purchases. That was apparently enough to drive stocks lower, with each of the benchmark indexes falling by more than 1.6%. The Russell 2000 dipped 1.92%, followed by the S&P 500 and the Dow, which lost 1.9%. The Nasdaq fell 1.6%. Bond prices spiked, with the yield on 10-year Treasuries dropping over 10.9% to close at 1.44%. Crude oil prices fell to $66.80 per barrel, and the dollar declined.
  • Last Wednesday, stocks suffered their worst back-to-back sessions since October 2020. The first Omicron case was confirmed in California, while new cases were reported in the United Kingdom, Switzerland, and Brazil. A decline in tech shares pulled the Nasdaq down 1.8%. The Dow fell 1.3%. The S&P 500 dipped 1.2%. The Russell 2000 fell the furthest on the day, losing 2.3%. The Global Dow inched up 0.5%. Crude oil prices fell to $65.35 per barrel. Ten-year Treasury yields declined 62 basis points to 1.43%. The dollar was mixed.
  • Wall Street rebounded last Thursday, notching its biggest advance since October as dip buyers nabbed some of the hardest-hit shares during the two-day selloff. The Russell 2000 jumped 2.7%. The Dow gained 1.8%. The S&P 500 rose 1.4%. The Nasdaq and the Global Dow climbed 0.8%. Crude oil prices increased to $66.83 per barrel. Treasury yields and the dollar also advanced. Energy, financials, industrials, and real estate led the market sectors.
  • Stocks closed out a volatile week in the red last Friday. While equities rallied for most of the day, stocks ultimately closed lower on weaker-than-expected jobs data. Among the benchmark indexes, the Russell 2000 (-2.4%) and the Nasdaq (-1.9%) fell the furthest, followed by the S&P 500 (-0.8%), the Global Dow (-0.3%), and the Dow (-0.2%). Ten-year Treasury prices climbed higher, sending yields lower. Crude oil prices and the dollar declined. Consumer staples, utilities, and health care were the only sectors to close in the black.

THIS WEEK

The first report on inflationary trends is available this week with the release of the November Consumer Price Index. Prices rose 0.9% in October and have risen 6.2% over the past 12 months. With the holiday season in full swing, consumer prices are not expected to show any significant slowdown.

Source: Broadridge Investor Communication Solutions, Inc.

Articles & Education

Investing and Politics – Are They Connected?

The midterm results suggest there will be few policy changes in Washington during the next two years.

Giving Thanks this Holiday Season

Thanksgiving is an excellent time to talk to family about philanthropy and meaningful gifting. Here’s a few ideas to get started.
Investment Term of the Week

Thought of the Week

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Making Life a Richer Experience