“All of the Above” Multiple Choice Questions & Pivot Points – Nvest Nsights Q3 Newsletter

With the 3Q now complete but the stock market seemingly more choppy since September, investors wonder if the final 3 months of the year and 2022 might offer a resumption of upward trend.  For most, it’s a difficult consideration amid the confluence of BIG Government-related issues ranging from significant spending and tax proposals (infrastructure and social programs), a potential government shutdown (debt ceiling), whether Fed Chair Powell will be reappointed, and more.

In this quarter’s update, “All of the Above” we review the reasons we see for the stock market losing momentum in recent months, September in particular.  We also believe that the Great Lockdown response to COVID will be viewed as a “Pivot Point” in a variety of ways, but including how investors think about inflation, interest rates, and asset allocation.  Related, September 30 marked the 40th anniversary of a secular bull market for bonds.  What might the next 40 look like?

The personal finance discussion this quarter provides a quick summary of what we see are the most likely tax changes coming as a result of current proposals.  As you might imagine, this is a topic arising in most every client conversation this year and we hope you find the quick bullet format helpful.

A printer-friendly version of the full quarterly newsletter, including benchmarking and fund performance data, can be obtained here: Q3 Nvest Nsights

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(Tax) Change is in the Air

It is often said that there are just two certainties in life: Death and Taxes. Or how about “the only constant in life is change”? In 2021, it is hard to recall a client conversation where the topic of potential tax policy changes did not arise. Since COVID, government policy was all about huge stimulus and spending; as we shift our attention to the final quarter of 2021 and beyond, the conversation is increasingly about how all additional spending proposals will be paid for (via taxes – both corporate and personal).

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Price Changes Everything – September Market Commentary

Why does price change everything?  When product and service prices are rising, there is a point when buyers diminish.  Economic value ceases to exist.  That is, unless the item is very critical to meeting important needs, then higher prices know no upper bound.  Take oil prices – rising too quickly curbs driving habits; some businesses tack on fuel surcharges.  If the price rises too much, then alternative product or service choices may be pursued (again with oil prices – one seeks alternative transportation options – bus, fuel efficient car, or electric vehicle); or other competition enters the picture wherein more supply promotes prices to slide.  Shortages can cause prices to rise, often in huge ways.  Currently, shortages of computer chips exist because of supply chain and transportation challenges.

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Check Engine Light is On – August Commentary

When your “check engine” light is displayed it usually means the car’s emissions control system is faulty and the vehicle is polluting the air beyond allowable federal standards.  A vehicle with this condition would likely fail an emissions inspection.  Common causes include a gasoline cap that is loose, oxygen or mass airflow sensor is bad, spark plugs may be caking with too much carbon buildup, spark plug wires are bad, or the catalytic converter is faulty (rare).  You should not confuse the “check engine” light with the maintenance or service light; those signal a more immediate condition and should be promptly diagnosed.

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“Ruff & Reddy” and “Hotel California” – Nvest Nsights Q2 Newsletter

On June 30, the S&P500 enjoyed its 34th new closing high of the year, and is now up roughly 95% from its March 2020 low.  Remarkable!  Our first article, “Ruff & Reddy” reviews the catalysts behind this powerful advance, but also that under the surface there is rotation underway and broader market momentum is softening.  This is normal in the second year of a new bull market and is often accompanied by more volatility.  Government remains a key factor for the prospect of volatility as well.  In that regard, the lyrics of the 1976 Eagles song “Hotel California” may be a good summary of the challenge government may face when they at some point attempt to walk-back from deficit spending or target inflation.  In a different way, the song’s lyrics may be spun toward appropriate guidance for individual investors too.

The personal finance article this quarter, “Is Your Beachbody Ready for Summer?“, shares a client’s motivation to participate in a recent stock IPO.  We are often asked by clients about various investment ideas – ranging from ‘meme-stocks’, bitcoin, or real estate; this client’s thoughtful approach to an investment receiving lots of buzz provided a refreshing and textbook example of how to avoid potentially unhealthy financial behavior.

A printer-friendly version of our quarterly newsletter can be obtained here: Q2 Nvest Nsights

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Is Your BeachBody Ready for Summer?

Meme stocks, Real-Estate, Initial Public Offering (IPOs), Special Purpose Acquisition Company (SPACs), Bitcoin, and Precious Metals – what do all of these share in common? Each is an example of an investment or asset currently receiving lots of “buzz” and client curiosity. While we do not typically follow these items intimately and prefer the diversification and liquidity of traditional mutual funds, bonds, and ETFs, we do not necessarily have anything against a client owning other assets when the exposure is properly managed. We do encourage anyone exploring ideas that are receiving intense attention from the media or “peers” to proceed with caution as the waters are often dangerous. If we were lifeguards at the beach, we would hang the yellow flag on the chair, “proceed with caution.”

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Huff & Puff – June Commentary

Do you ever “huff and puff’?  Is this question relating to breathing heavily with exhaustion, or is it expressing annoyance in an obvious or threatening way?  In life, we huff and puff when winded or short of breath, from wheezing or feeling done-in; even spent or exhausted.  Often, despite much huffing and puffing about the “bus” service, traffic, or government policy, nothing happens.  Recall the wolf in “The Three Little Pigs”?  The mother pig sent her three little ones out into the world to make their own way.  Each built their own shelter.  The wolf traveled the lane where each lived, and smelling the little pig inside, pounded on the door, “Let me in!  Let me in!”  Each pig yelled, “Not by the hair of my chinny chin chin!”  The wolf was annoyed, declaring “Then I’ll huff and I’ll puff and I’ll blow your house in!”  He blew in the straw house, the wood house, but not the brick house (where all 3 were finding refuge).  The wolf lost his frustrating endeavor after bounding up the roof and climbing down the chimney, where he fell into a huge pot of boiling water in the fireplace.  Whether weary from exhaustion or expressing annoyance, we never know when fear is going to come knocking, or pounding, on our door.

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Is This as Good as it Gets? – May Commentary

The first quarter offered lots of “candy” (government spending) and no “spinach” (tax increases).  But that idea started changing in April with government policy shifts: the unveiling of big infrastructure spending (spread over 8 to 10 years), plus new large-dollar child spending programs; both to be funded with higher taxes – corporate and individual.  Taxes are oriented as an aggressive path to pay for massive spending.  At present, the combination of extraordinary fiscal spending and monetary stimulus is pulling forward demand, output, revenue, profitability and investment (perhaps stealing it from 2022 and maybe beyond; called a growth hole).  After such a strong start to the year, and remarkable 12 month recovery, the biggest hurdle the market faces is high expectations and crowded positioning.  At present, there appears to be a peak in positive data and eager market participation (number of stocks rising at the same time), usually found in the first third of a new bull market run.  With so much good news already priced into stocks, any bad news or “miss” could spark near-term volatility.  So let’s ask… Is this as good as it gets?

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“Green Light = GO!” – Nvest Nsights Q1 Newsletter

March marked the one-year anniversary of last year’s stock market low, as COVID fears continued to intensify and lockdowns were beginning.  Since that time, a flood of government support prevented the economy from enduring a depression and fueling a remarkable market rebound.

The first quarter of 2021 provided investors additional growth.  Another round of government stimulus and an accelerating pace of vaccination is driving optimism unleashing pent-up demand, reinforcing the investment theme “Green Light = Go!“.  Yet returns tend to be less exuberant and more volatile as new bull markets enter their second year.  This is not a “bearish” forecast; but rather an acknowledgement that market dynamics can be more frustrating in “Year Two Following the Low” even as economic fundamentals become more robust.

Indeed we are already experiencing a more choppy start to 2021.  Much of the volatility relates to concerns about inflation – a topic of frequent client questions as the huge sums of government spending are recognized.  The “Roaring 20s” was a decade of surging economic growth following recovery from wartime devastation and pent-up demand.  100 years later, there are some interesting parallels and other key ingredients causing many to wonder if higher inflation is on the way and how it may impact their portfolios.

Our personal finance article this quarter, “ARPA What?”, reviews how the most recent economic stimulus package is way more than direct payments to individuals/families; some strategic planning opportunities exist for many even if they do not qualify for a stimulus check.

A printer-friendly version of our quarterly newsletter can be obtained here: Q4 Nvest Nsights

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ARPA What?

On March 11, Congress passed a third round of COVID-related stimulus via the American Rescue Plan Act (ARPA) with a price tag of $1.9 trillion.  This latest package – months in the making – is best known for direct payments of $1,400 to qualifying persons and each of their dependents.  A more abrupt income phase-out (adjusted gross income of $75,000 or $150,000 married filing jointly) made fewer people eligible this round.  Those who are near that threshold may consider making a deductible IRA contribution for example.  But stimulus payment eligibility aside, there are other provisions in the bill that may provide you with some strategic planning opportunities – even for those who do not qualify for direct payments.

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