Weekly Market Commentary 12/28/2020

Weekly Market Commentary 12/28/2020

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Weekly Financial Market Commentary

December 28, 2020

Our Mission Is To Create And Preserve Client Wealth

U.S. stock markets remained calm as a fresh chapter opened in the coronavirus stimulus saga last week.

Congress managed to cobble together a new stimulus package that was acceptable to both sides and pass it. The proposed package included money to help states distribute vaccines, an unemployment benefits extension, $600 checks for eligible Americans, aid for airlines, and other provisions, reported Mike Calia of CNBC.

“…fiscal support is seen as critical to keep the economic recovery from faltering as coronavirus cases rise and cities consider new shutdowns. Consumer spending has flagged, and labor market gains have begun to stall. While the number of Americans applying for unemployment benefits declined last week, it still remains elevated compared with pre-COVID levels,” reported Colby Smith and Eric Platt of Financial Times.

President Trump disagreed with some provisions in the bill, reported Financial Times. Over the weekend, it was unclear whether he would sign it, veto it, or just hold it without taking action.

Since the $900 billion stimulus bill was attached to the $1.4 trillion government funding bill, the impact of a veto or inaction could be quite significant. “Without Trump’s signature, the government may partially shut down on Tuesday as funding runs out, though Congress could pass a stopgap measure,” reported Daren Fonda of Barron’s.

Stock investors appeared optimistic President Trump would sign the bill. News of a Brexit trade deal and a more contagious version of the virus in the United Kingdom had limited impact on U.S. markets.

All-in-all it was a quiet holiday week and major U.S. indices finished with mixed results. If the stimulus bill is not signed and a stopgap measure is not passed, markets could be volatile next week.

There will always be risks.
After a year of living with the fear of COVID-19, many investors are hoping 2021 will bring a return to ‘normal,’ even if the new normal may not be exactly like the old one.

Optimism about the future has many investors feeling bullish, according to most of the sentiment surveys listed in Barron’s last week. Financial Times reported, “Almost universally, fund managers believe the year will bring a rebound in economic activity, supporting assets that have already soared in value since the depths of the pandemic crisis in March, but also lifting sectors that had been left behind. Bond yields are expected to stay low, lending further support to stock valuations.”

This doesn’t mean 2021 will be risk free. In its December market sentiment survey, Deutsche Bank asked more than 900 market professionals about the biggest risks to global financial markets in 2021. Here are the concerns they highlighted:

38 percent       Virus mutates and vaccines are less effective
36 percent       Vaccine side effects emerge
34 percent       People refuse to take the vaccine
34 percent       Technology bubble bursts
26 percent       Central banks end stimulus too soon
22 percent       Inflation returns earlier than expected

It’s possible none of these will occur and investors will sail smoothly into and through the new year. We hope that’s the case and next year brings with it a return to normal. Just remember, normal doesn’t mean risk-free. In 2021, investors will still need to balance risk and reward on the journey toward their financial goals – just as they do every year.

Weekly Focus – Think About It
“Qualities you need to get through medical school and residency: Discipline. Patience. Perseverance. A willingness to forgo sleep. A penchant for sadomasochism. Ability to weather crises of faith and self-confidence. Accept exhaustion as fact of life. Addiction to caffeine a definite plus. Unfailing optimism that the end is in sight.
–Khaled Hosseini, Novelist

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Investment advice offered through Research Financial Strategies, a registered investment advisor.
* This newsletter and commentary expressed should not be construed as investment advice.
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
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Investment advice offered through Research Financial Strategies, a registered investment advisor.


https://www.ft.com/content/b0f95a35-5aa6-4a9a-a0f6-ea509e27aca0 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-28-20_FinancialTimes-Treasuries_Under_Pressure_as_Traders_Look_Past_Trump_Stimulus_Pushback-Footnote_2.pdf)
https://www.barrons.com/articles/stimulus-bills-fate-remains-in-limbo-the-stock-market-isnt-reacting-so-far-51609005727 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-28-20_Barrons-Stimulus_Bills_Fate_Remains_in_Limbo-The_Stock_Market_Isnt_Reacting_So_Far-Footnote_3.pdf)
https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-28-20_Barrons-Market_Data-Footnote_6.pdf)
https://www.barrons.com/market-data/market-lab (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-28-20_Barrons-Sentiment_Data-Footnote_7.pdf)
https://www.ft.com/content/1afc5e9f-f05d-48f5-a126-870ba70ce254 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/12-28-20_FinancialTimes-What_Can_Go_Wrong-Investors_Views_on_the_Big_Risks_to_Markets_in_2021-Footnote_8.pdf)

Special Edition – Year End Tax Matters

Special Edition – Year End Tax Matters

Making a List and Checking It Twice

As one of the strangest years ever thankfully draws to a close, it behooves us to take stock and see our situation as it now stands. A host of questions inevitably arise, the type that beg for our honest and, we hope, astute answers.

So let’s make a list. Look over each item and ask yourself how you stand. Try to envision any changes you think you should make. And for those questions that involve your account here at RFS, we invite you to raise them with us. Perhaps together we can come up with the perfect answer. You can always call me personally 301-294-7500.

Making a List

1. Do I Have Enough Cash?

Do you have enough cash available to pay for short-term needs. If not, you might raise cash by realizing some of the gains in your portfolio—either the one we manage or any self-managed accounts you might have. Potential 2021 changes to the tax laws—including significant increases in the capital gains tax—might make this the perfect time to set some gains at current tax rates. Any action along these lines must occur before December 31, 2020. See our Note in item #2.

2. Are Losses Really a Good Thing?

If you have other brokerage accounts, a careful look at your holdings might reveal some with that awful red color. Of course, everyone likes to avoid that color as best we can, but no one can predict where a particular investment might go. If a position does dip into the red, now might be a good time to sell it while at the same time selling some of those with that lovely green color. The red will cancel out the green, much to the tax man’s chagrin.

Note: We can look at any self-managed holdings you have and provide you with a “second-opinion” analysis. You might very well have some gains you should take and some losses to offset those gains.

3. Do My Retirement Accounts Need a Pick and a Shovel?

Retirement accounts can serve as your private gold mines. But to make those mines productive, you have to do some digging. Are you contributing as much as the law allows to your retirement accounts? If not, take your effective tax rate and multiply it by the amount you’re not contributing. The result is the amount you’re failing to find in that gold mine of yours.

Make sure you do some thinking and figure out if you’ve left some 401K or other retirement accounts at previous employers. These you should roll over into an IRA or other tax-deferred account.

Have you considered converting an IRA into a Roth IRA? Have you thought about gift-funding Roth IRAs to family members who have earned income?

4. How Can I Help My Family with the Costs of Education?

You might want to consider giving to 529 accounts for children or grandchildren. They can then enjoy tax-exempt growth if the account is used for educational expenses. You might even be able to “Superfund” these accounts by giving five years’ worth of exclusion gifts ($75,000 for individuals, $150,000 for married couples).

5. Am I Ready for Changes to the Gift-Tax Laws?

Right now, you enjoy an $11.58 million lifetime gift-tax exemption. But if you listen carefully, you can hear serious discussions in Washington about reducing this amount by 50% or more. Gifts now (before the law changes) can lock them in as free from gift taxes. And they can help reduce taxes by moving income-producing holdings to taxpayers in lower brackets.

6. Are There Some Charities I Want to Support?

If you have some assets that have appreciated significantly, you can give them to a charity and deduct the market value of the asset at the time of the gift. The charity can then sell that asset and pay no taxes on the gain. Poof! The gain escapes the clutches of the tax man.

The CARES Act changed deductibility of some charitable gifts. In 2020, if you itemize deductions, you can give away (and then deduct) your entire adjusted gross income and pay zero income tax. Of course, only some people can afford to live on other assets and ignore their adjusted gross income. But if you find yourself among those fortunate few, a charity awaits your generosity.

7. Am I Missing Out on Any Benefits Associated with COVID?

Congress responded to the COVID outbreak by passing a number of laws assisting businesses and individuals. Many of these advantages dwell within the tax code. According to Mark Luscombe, principal federal tax analyst at Wolters Kluwer Tax & Accounting, “Both individual and business taxpayers may need to act before year-end to take advantage of many of these tax breaks.”[1]

Mr. Luscombe’s analysis appears in an article in Accounting Today, which summarizes his checklist as follows (some of these appear on our list above):

“Here’s a breakdown of the items that may need to be acted on according to Luscombe:

  • “More than 30 tax breaks that Congress has permitted to regularly expire and then renew currently expire at the end of 2020, including individual, business, and energy tax breaks.
  • “More generous charitable contribution deduction provisions expire at the end of 2020, including a new above-the-line charitable contribution deduction.
  • “The ability to make expanded penalty-free withdrawals from retirement plans for COVID-related expenses expires at the end of 2020.
  • “The deadlines to apply for Economic Impact Payments expire before the end of the year, although tax credit is available on the 2020 tax return.
  • “Employers must continue to deal with a variety of tax credits and deferrals related to employee payroll taxes that expire at the end of 2020.
  • “A number tax provisions provide retroactive relief, which might require filing of amended tax returns for prior years, including net operating loss carrybacks, modifications to deductions for non-corporate business losses, modifications to business interest deduction limitations, qualified improvement property, the Kiddie Tax, disaster relief, and the 30-plus regularly expiring provisions.
  • “The possibility of higher taxes in 2021 might suggest a reversal of the usual year-end tax planning strategy, which is to defer income and accelerate deductions. Taxpayers may also want to realize capital gains, make lifetime gifts, and engage in Roth conversions.”[2]

Checking It Twice

The above list includes some of the major items you should consider as the curtain draws on 2020. After you review your list, you can call on me to help you with checking it twice; we can explore these and any other issues we might identify. Feel free to call my office at 301-294-7500. We can discuss your list and perhaps add to it.

All of Us

All of us here at RFS extend our best wishes to you in the holiday season. Play it safe. Wear your mask. No holiday hugs (bummer). And count the many blessings we enjoy as a free people in the country we all love.

Best wishes,

Jack, Val, Toni, Chris, Jim, Michael, Jay, Dinah, and David

[1] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues
[2] https://www.accountingtoday.com/news/new-end-of-year-tax-planning-issues