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Weekly Insights 12/27/21 – 12/31/21

Party Like It’s…

Without a doubt the past two years have been challenging with many happy to bid adieu to 2021.  As we look ahead to 2022 there is optimism, but we would be remiss to not reflect on this last year before moving ahead.  Notwithstanding personal health issues or any negative impacts the pandemic may have had on loved ones, in most regards 2021 could be considered a decent year, especially when compared to a year ago.      

From the stock market point-of-view, 2021 was a decent year with the S&P 500 returning more than 25% year-to-date.  On a long-term historical, this benchmark returns on average somewhere between 8-10% annually making this year well above average.  In comparison, 2020 had the index returning over 18%, despite the nearly 35% nosedive experienced by the market when COVID first threw the world into unexpected chaos. 

The economy has stabilized and remains robust with unemployment levels falling dramatically throughout the past year and nearing some of the lowest levels in history. Personal incomes and average hourly earnings rose sharply and are at all-time highs.  The economy is now expanding on its own regardless of the government stimulus payments and pent-up demands.  Unfortunately, inflation is forecasted to be the highest this country has seen in decades.  Higher prices equate to a higher cost of living and when viewed in real-terms, income and wages do not stretch as far as they used to.  Generally higher prices occur due to economic growth, therefore not all inflation is negative.  However, when personal income is not aligned with inflation it creates a difficult environment for consumers and workers, as experienced now. 

This last week, the markets began with a sharply negative day attributed primarily to news that the Build Back Better (aka federal spending) bill does not have the support needed for passage. Goldman Sachs indicated that GDP growth in 2022 will be less than previous expectations due to the lack of passage of the over trillion-dollar spending bill.  While the individuals at Goldman Sacks may be very knowledgeable and intelligent, we somewhat disagree with their assessment.  Yes, some of the spending would go towards certain social programs that benefit the economy in the short-term, but the amount of spending proposed would add increased liquidity into the economy, further fueling inflation.  Further, not all the spending would contribute towards growth and the expenditures require further funding through the combination of tax hikes and debt, which would be a drag on future growth especially when looking out longer-term.

Also affecting the markets was further insight regarding shifts in monetary policy from the Federal Reserve, the increase in omicron COVID cases with the discussion of potential shutdowns, including soft lockdowns. Soft lockdowns are those driven by business reductions and closings due to the virus spread.  Tuesday’s quickrebound energized the market with continued gains throughout the rest of the week where we now again sit at all-time highs.  It

seems the Santa Claus rally we all hoped for came to fruition, especially if it continues this coming week to finish the year strong. 

Watching the Ball Drop

When we transition from year to year there is a distinct cut over on the calendar, but most other aspects of our lives do not change significantly as the ball drops in Times Square. This is also very true of the markets and economy.  As we enter 2022, it is highly likely inflation will continue to make headlines, but we also expect employment and consumer spending to remain strong.  Last week Personal Consumption Expenditures (PCE), which measures the change in prices of consumer goods and services, was reported as being 5.7% higher than a year ago.  This is the Fed’s preferred measure of inflation and well above their comfort zone of 2-3%.  Unless something dramatically changes, we expect this coming year for there to be a lot of activity from the Fed, such as adjusting interest rates. 

The newly released Consumer Confidence Index indicates continued optimism amongst consumers for income, business, and labor market conditions and setting the stage for continued growth as we enter the new year.  There could be headwinds to confidence and consumer spending from rising prices and an expected winter surge of the pandemic. Consumer spending looks to remain strong, especially for larger ticket items such as homes, appliances, automobiles, and vacations.  We will also be watching retail sales numbers reported for the holiday season determining how robust spending was and if there were any supply chain issues. 

Looking Ahead

As the yuletide cheer subsides and the holiday decorations are put away, let us not forget the memories created from the holiday seasons.  The same can be said of the markets – we learned valuable lessons from years past and the last two are certainly no exception.  We continuously use these learnings to position portfolios. 

We hope the momentum seen in the markets continues and the Santa Claus rally stays intact through the end of the year.  2021 remains a solid performance for the stock market where the party can last past New Year’s Eve.  We remain hopeful and optimistic for the year ahead but also feel investors will face different challenges than experienced in the recent past.  As we look ahead, please do not hesitate to contact us should you want to review your portfolio or discuss our views on what might occur in 2022. 

Wishing you all a very happy, healthy, and safe New Year!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

info@securedretirements.com
Office phone # (952) 460-3260

Weekly Insights 12/20/21 – 12/24/21

You’ll Shoot Your Eye Out

As you progress through life, the things you desire most will most likely change.  A child with few worries about the outside world may want nothing more than receiving a special toy as a gift.  Perhaps this toy would be a Red Ryder BB Gun, as was longed for by a young Ralphie Parker in the classic film, “A Christmas Story.”  When you get older into adulthood, you are likely to concern yourself with bigger issues and certain “toys,” which instead of BB guns might be hunting rifles, golf clubs or even a boat, may still be wanted but in the big picture they often become less important than items of greater significance in your life.  For those saving for retirement, one of their greatest wishes, if not the greatest, may be to ensure they have accumulated enough money to continue to support their income and lifestyle.  Regardless of what you might yearn for most, anyone reading this is most likely wanting a stock market to continue the upward trajectory it has generally been on over the past decade. 

Unfortunately, this was not the case last week with the stock markets moving lower, which was primarily attributed to the Federal Reserve (the Fed) meeting in the middle of the week.  Markets traded lower early in the week in anticipation of this meeting and as expected the Fed announced they were going to reduce their monthly bond buying program faster than when this taper was announced last month. It is now forecasted the program will be wrapped up in March, setting the stage for an interest rate hike in June, or possibly sooner, with projections for three total rate hikes in the year.  The stock markets reacted positively to this announcement on Wednesday, even though it was widely anticipated, because there was some concern the Fed would take more drastic measures to combat inflation such as further speeding up the taper of the bond buying program or even raising rates immediately. 

Many stocks, specifically many technology companies, were hit particularly hard later in the week due to worries over higher interest rates and slowing economic activity. This might mark the beginning of a shift from momentum stocks, which have performed very well over the past few years, and into more of the value sectors as the markets pay more attention to valuations in a rising interest rate environment.  There was relatively little change in the narrative surrounding the Omicron variant, but it does remain an overhang and therefore causes continued headwinds to the market.   

The Biden Administration’s Build Back Better spending bill had its tongue stuck to a frozen flagpole over the weekend with Sen. Joe Manchin announcing he would not be supporting the bill, effectively killing it.  If this bill would have passed it could have produced a short-term catalyst to push markets higher since it introduces a high level of government spending, but in the long-term it was likely to cause even more inflation and potentially be a drag on economic growth from higher levels of government debt.  There is always a chance the parties will continue talks and come to an agreement which would resurrect the bill, but chances are minimal and if that were to occur it would not be until sometime in 2022. 

The Soft Glow…

A soft glow is a stark contrast to burning bright with the former a reference to the “major award” (aka leg lamp) won in a contest by the Old Man (Ralphie’s father) in the aforementioned movie while the latter could be used to describe the current state of inflation.  The Producer Price Index (PPI), a measure of wholesale prices of goods before they are sold to consumers, last month rose more than analysts’ estimates at a record high pace of 9.6% compared to a year ago.  These price increases are generally passed along to consumers and with PPI increases accelerating it is very likely consumer prices will continue to move higher in coming months.  We expect inflation to remain a large threat to investors’ returns in 2022 and beyond. 

Last week retail sales for the month of November were reported and came in less than expectations, but still showed a monthly increase in spending by consumers.  Previously October retail sales were reported noticeably stronger than expectations, so the thought is the most recent numbers reflect consumers pulling forward holiday shopping because of concerns about product availability due to supply chain issues.  Indications remain that holiday spending this year will surpass previous years and be the highest on record, which can be attributed to greater personal wealth and higher household incomes thanks to a strong stock market, solid labor market and stimulus payments.  We monitor consumer spending closely since it comprises over two-thirds of GDP and we will remain especially watchful going into the new year when spending traditionally slows down and now that the stimulus payments have ended but remain optimistic for continued strength in spending from increasing wages and a robust employment situation. 

Looking Ahead

With the year winding down and major holidays approaching, we would expect the markets to get quieter.  Trading volumes are decreasing, as tends to be the case this time of year.  On the economic front, there are some key data releases coming up this week including consumer confidence, durable goods orders, and personal consumption expenditure (PCE) price index, which happens to be the Fed’s preferred measure of inflation.  Given the holiday and lower trading activity we do not expect any of these to have a major impact on the markets unless there is a major surprise, either to the downside or upside.  We follow these numbers closely since they provide signals about the health of the economy and can impact how the stock market reacts.  With recent market events, we will also be keeping a vigilant eye on how various sectors perform over the next few weeks to look for indications on which direction the market might be headed and what we think the new year will bring so we can best position our clients’ portfolios to protect against risk and capitalize on opportunities.

We remain hopeful for a year-end Santa Claus rally in the stock market, which would satisfy the author’s Christmas wish.  If this does not come to fruition, settling for a leg lamp might not be so bad since the market has already provided another great year of returns.  As always, we remain available to discuss market events and portfolio positioning.  With 2021 winding down, it is time to start looking ahead to 2022 and consider how the world might be different going forward.  But for this week, hopefully you are able to spend time with family or friends to celebrate the holiday.  If Santa does bring you a Red Ryder BB gun, don’t shoot your eye out. 

Wishing you all a very Merry Christmas!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.   

info@securedretirements.com
Office phone # (952) 460-3260

Weekly Insights 12/13/21 – 12/17/21

Let it Snow, Let it Snow, Let it Snow

A relatively mild start to the winter season came to a rather abrupt end last week with colder temperatures and measurable snow. On its own, snow can provide pretty scenery, however for those taking part in a daily commute the snow can cause headaches. When taken individually, snow and commuting are independent events, however one can have a major bearing on the other. While it could be argued the stock market itself can impact outside events, the stock market is very susceptible to being influenced by outside events.

The stock market began last week on some very high notes, putting together the best two-day streak in over a year. The uplift in the market was attributed to the realization the Omicron variant is more mild than previous COVID variants and therefore not expected to lead to further restrictions which could dampen economic growth. The re-opening stocks, such as travel companies and restaurants, led the rally to rebound from their losses the prior week. The markets finished the week quieter on the heels of a hot inflation report and now sit at the same levels where they were trading prior to Thanksgiving and the latest COVID scare. This provides another example of the importance of maintaining a long-term view and not getting caught up in the short-term noise.

After the excitement in the markets the past couple of weeks, we are starting to experience lower trading volumes which we expect to continue to decrease through the end of the year. Much of the portfolio positioning from large institutional investors and tax harvesting from individual investors is winding down. Preliminary reports of holiday consumer spending have been positive with some reports of supply chain and inventory issues, but many retailers remain optimistic that conditions are improving and shelves are well stocked.

Rising Prices

Consumers are fully aware that prices are rising even without data releases from the government. This is especially true during the holiday season when spending for gifts and food is generally at higher levels than at other times during the year. The monthly data release on inflation, Consumer Price Index (CPI), showed that consumer prices have risen by 6.8% compared to a year ago; the highest level since 1982. This report was slightly higher than analysts’ expectations and continues to trend higher. What is alarming is that inflation seems to be gaining momentum with the amount of change from month to month growing larger. Barring an unanticipated event, the rate of increases will need to abate before inflation moderates. We anticipate elevated levels of inflation for the foreseeable future, further cutting into the buying power of consumers as well as the real rates of returns for investors. We will be watching the Producer Price Index (PPI) release this coming week since producer prices tend to be a forerunner of consumer prices.

Job openings remain at the highest levels in history, as was reported last week. The employment reports have shown that unemployment remains low and continues to improve, evidenced last week when the number of continuing unemployment claims hit its lowest level since 1969. Despite this low level of unemployment, there remains some slack in the labor market as we are not yet at what is considered full employment. Labor costs, which have been rising at a rate markedly above the long-term average since the beginning of this year and contributing to inflation, with signals this will continue and could accelerate. Having abundant jobs available, which companies need to fill, coupled with low rates of unemployment are very likely to lead to higher wage pressure.

Looking Ahead

The focus this week will be on the Federal Reserve (the “Fed”) meeting. Recent comments from Fed Chair Jerome Powell and other members of the committee indicate there will be discussion about speeding up the taper of asset purchases with the expectation being the program will wind down faster than previously anticipated. This will set the stage for multiple interest rate hikes in 2022. At the conclusion of their meeting, the Fed will also release the results of their quarterly internal survey of interest rate expectations going forward, commonly referred to as the Dot Plot. It is projected this will show two rate hikes next year with increasing odds of a third. This is a change from the previous quarter which showed only one rate hike next year. Over the past couple of decades the Fed has strived for transparency, minimizing the impact their actions have on the stock market. However, given the current inflation situation and rapidly changing dynamics in the economy they now have to act faster than in the past, allowing less time to telegraph their intentions. Market reactions, both stock and bond, are most likely to be limited since the markets responded, somewhat sharply, to Chairman Powell’s comments two weeks ago when he provided a preview of discussions at this meeting, unless there is a major deviation from prior comments which would come as a surprise.

The onset of snow does guarantee winter has arrived but unfortunately does not guarantee a year-end Santa Claus rally in the stock market, for which we remain hopeful. For the time being enjoy the scenery the snow provides as it should help get us all in the holiday spirit. We remain available to discuss market events, how they impact your portfolio and strategies to protect against downturns while taking advantage of opportunities. Do not hesitate to give us a call to discuss your individual situation and any year-end strategies.

Wishing you all a happy and joyous holiday season!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.

info@securedretirements.com Office phone # (952) 460-3260

Weekly Insights 12/6/21 – 12/10/21

Switch to Decaf

Coffee has been prevalent around the globe for centuries with increased popularity over the past few decades from the surge of large coffee chains and the jolt of caffeine the beverage provides. Specialty drinks based upon coffee have come into vogue and helped propel this ascension. In the current time of year, aficionados are likely to point out that Thanksgiving marks the transition from pumpkin spice latte to peppermint mocha. If the stock market drank coffee, the volatility of the past week might have many of us wish it would switch to decaf and settle down.

Picking up from where it left off from the holiday shortened previous week, the market continued with volatility – to the upside and the downside, and in some cases both on the same day. The latest covid variant, Omicron, continued to be at the forefront but comments from Federal Reserve Chairman Jerome Powell also moved the markets, as did the monthly employment report. The equity markets ended the week lower, near levels last seen in mid-October, and bond yields retreated.

Our assessment is the market, particularly investors, are not afraid of the virus itself but rather how governments might react, with renewed fear of shutdowns or policy mistakes. Widespread restrictions have been announced in Europe but domestic governments have thus far indicated there will not be lockdowns or restrictions, with the exception of some foreign travel. The impact lockdowns could have on the global economy, especially ongoing supply chain issues, coupled with the possibility of additional stimulus would likely further fan the flames of inflation, which remains relatively high and continues to accelerate.

Fed Chairman Powell provided testimony to Congress last week in which he said it was time to retire the term “transitory” when referring to the current state of inflation; finally acknowledging that inflation truly is persistent. He also suggested the Fed would be discussing a possible acceleration to its asset-purchase taper at their upcoming meeting, which would then set the stage for interest rate hikes sooner than previously anticipated. These comments moved stock markets lower, but in our opinion this is the best course of action for the economy and needs to be done to fight inflation before it becomes out of control.

Workin’ For a Livin’

There was no shortage of economic releases last week, with the most notable being employment and payrolls which were lower than expected, leading to some downward pressure on the markets to end the week. While the report did not deliver up to expectations it was not classified as a disaster since it did reflect sustained growth in the labor market. The unemployment rate dropped to 4.2% which is the lowest since before the pandemic. With job openings remaining near historical highs, we would expect continued strength in the employment reports and the number of jobs created in the months ahead. It is worth mentioning we have seen lower than expected numbers numerous times in the past which then

are revised upwards in subsequent months, so it would not be a surprise if that occurred with this month’s numbers.

Our elected politicians in Washington continue their work on current legislative priorities, albeit with limited progress. To use a football analogy, Congress moved near the edge of a government shutdown before “punting” the issue by voting to continue funding until February. Discussions continue in the Senate around the Build Back Better bill which even if it does pass will need to be reconciled with the House version making the likelihood of it being passed by the end of the year now seemingly low. The passage, or inaction, of this bill will most likely have limited short-term impact on the stock market however some provisions, such as changes to the tax code, would impact individuals with increased government spending adding to the inflation fire.

Looking Ahead

Omicron looks to remain front and center in the coming week(s) as we find out more about the transmission of the virus, severity of its symptoms, and potential impacts on the economy. Early indications are this variant is more contagious than previous variants, however symptoms are mild. To reiterate what we mentioned last week, it appears there has been an overreaction to the news and we think the markets will eventually brush this off and get back on track.

This coming week brings reports of the Consumer Price Index (CPI) from last month, which is a measure of the change in consumer prices and the most commonly used gauge of inflation. Consensus estimates from analysts are for the year-over-year change in inflation to be higher than last month’s reading, indicating inflationary pressures continue to accelerate. Regardless of where this report comes in versus expectations, there is little doubt inflation remains elevated which is expected to continue for the immediate future.

Beyond news making headlines, the markets tend to experience added volatility this time of year from year-end portfolio positioning and tax harvesting. This year seems to be no exception and we would expect some swings in the market to continue over the next couple of weeks however it certainly would not come as a surprise if we see a “Santa Claus rally” to close out the year. For the time being, many investors would like the markets to settle down and get into the holiday spirit. We are not getting too wound up over recent events since we maintain a long-term view of the markets and underlying fundamentals remain strong. Hopefully all of you are able to enjoy your favorite holiday beverages, hot or cold, and remain healthy. As always, do not hesitate to contact us should you want to discuss your portfolio positioning or if you have last-minute tax planning you need to do prior to year-end.

Wishing you all a happy and joyous holiday season!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.

info@securedretirements.com Office phone # (952) 460-3260

Weekly Insights 11/29/21 – 12/3/21

You’re a Mean One, Mr. Grinch

What was expected to be a happy and cheerful kick-off to the holiday season quickly turned nasty in the markets, leading many to now wonder if there is going to be a Grinch to play spoiler this year. Fears surrounding a new Covid variant, being dubbed “Omicron,” and potential lockdowns sent shockwaves through the markets on Friday with US equity markets having their worst day since February, on what was a shortened trading session following the Thanksgiving holiday. The impact was felt not only by stock markets but also commodity prices, namely oil, and the bond markets with a “flight to quality” from stocks into bonds, pushing yields lower and prices higher.

Prior to the coronavirus news, the markets were expected to be focused on retail sales and consumer spending as the holiday season officially kicked off. Indications are consumer spending remains strong, which was reflected in the Personal Consumption Expenditures (PCE) figures released last week. It has also been reported that retail sales in the month of November are very robust as many people started their holiday shopping early. This seems to have carried through to Black Friday with preliminary reports of solid spending, both in stores and online, at a pace 10% greater than last year. With supply chain constraints garnering headlines, some shoppers may be worried about inventory and higher prices so therefore are trying to get an early jump to ensure they can find what they want.

Earnings reports from numerous retailers last week showed strong sales and revenues in the third quarter but earnings were lower than expected due to higher expenses, especially elevated shipping costs related to higher fuel prices. There was also mention of limited inventory in some reports as a result not only of shipping issues but also factory output being limited, primarily overseas, due to shutdowns over concerns of virus spread as well as ongoing labor shortages. There have been early signs the worst of the supply chain bottlenecks, shipping issues, and labor shortages are behind us and conditions are improving, however that may now come into question with the coronavirus surge and continued shortages of raw materials.

We cannot go a week without mentioning inflation, especially since last week the PCE Deflator data was released, which measures the change in prices of goods and services included in Gross Domestic Product (GDP) and happens to be the Fed’s preferred measure of inflation. The Federal Reserve (“Fed”) has publicly stated they are targeting inflation of 2% and would be comfortable with inflation up to 3%, however the reading last week showed inflation being 5% on a year-over-year basis so well above their comfort zone. With recent gauges all showing sustained, and even accelerating, levels of inflation there is now intensified speculation the Fed will speed up the taper, or reduction, of their monthly bond buying program as well as increased chances of multiple interest rate hikes in 2022.

Coal in Your Stocking

It would be nearly impossible to not be aware of what energy prices have done over the past year with oil and natural gas prices spiking much higher, impacting the cost to operate motor vehicles and heat our homes. Given that energy is a large input cost for transported goods this

has been a major contributor to the rise in inflation over the past several months. Multiple forces remain at play within the energy markets as last week the Biden administration announced the release of 50 million barrels of oil from the Strategic Petroleum Reserve (SPR). On the day this was announced, oil prices moved higher, contrary to the expectation they would move lower when larger supply was going to be made available. Why is this? It could be the release was not as large as expected and new concern this will affect the actions of OPEC, whose members prefer higher prices. Previously it was widely expected that OPEC was going to increase production but now the thought is they might instead decrease production to counteract the SPR release which could possibly lead to a price war. As a point of reference, the U.S. consumes about 20 million barrels of oil per day so the 50 million barrels being released most likely will not have a significant impact on longer term energy prices.

Despite the SPR release announcement and price action earlier in the week, oil prices took a major hit on Friday trading about 12% lower from what was “panic” over reduced demand should shutdowns again occur. We remain anxious to see how oil prices react in the coming week since trading was very thin on Friday due to the holiday and the potential impact of the Omicron variant is more widely determined. Our guess is that prices will rebound, but maybe not all the way to where they were early last week. Also of note is that natural gas, which is less affected by shutdowns and driven more by demand for heating and power generation, traded 5% higher on Friday so notions of lower energy prices leading to lower levels of inflation are probably premature.

Looking Ahead

As this week kicks off attention will be on news about the new Covid variant and what impacts it might have. Over the weekend indications are that while perhaps more contagious than other strains, this variant is milder with symptoms similar to the common flu. Our thought is that we have been hit with the initial fear which will subside and the stock markets will quickly recover. The market’s reaction to the virus is not based directly on the virus itself but rather the prospect of shutdowns and what impacts those might have on the economy. While there have recently been full shutdowns in some European countries we find this high unlikely here in the U.S., especially given how politically unpopular lockdowns have become. Also, trading has historically been volatile with low volume on the day after Thanksgiving, so we would guess that cooler heads will prevail when the “adults” come back to work this week.

At this point we are not changing our market outlook but will maintain a vigilant watch on developments and potential impacts. Let us all hope this does not derail the economic recovery and play Grinch to this holiday season nor set us off on a bad foot to begin 2022; scenarios which we presently deem to be unlikely. If you would like to discuss portfolio positioning or ways to protect against a market downturn please give us a call to discuss your individual situation.

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.

info@securedretirements.com Office phone # (952) 460-3260

Weekly Insights 11/8/21 – 11/12/21

Never Forget

As we observe Veteran’s Day this week let us give gratitude to those who have served in the Armed Forces. We enjoy the freedoms we have today because of their bravery and sacrifice. Our country was founded on certain principles including liberty and freedom, for which our forefathers fought during the Revolutionary War and many of our family members, friends, and neighbors have more recently protected. By securing our freedom, men and women in uniform have also protected the capitalistic society from which we benefit. This enables us to work hard to earn a living, save money, and have investments for savings to grow.

Speaking of investing, the stock markets are again sitting at all-time highs with last week being the fifth consecutive week of gains, which were driven by positive economic news and continued strong corporate earnings. The earnings season is winding down with 85% of the S&P 500 companies now having reported. Not surprisingly the earnings reports were strong with many companies beating estimates and boosting forward guidance. Strong corporate profits and a growing economy should provide continued tailwinds for the markets. Historically speaking, the stretch from November through January is one of the best times of the year for the stock market. It remains to be seen if history repeats itself this year, but having a solid economy and continued growth in corporate profits leads us to believe there is no reason this year would be any different.

Beginning in March of last year, in response to the economic impact of the COVID-19 pandemic, the Federal Reserve (the “Fed”) has purchased $120 billion of bonds per month in an effort to keep interest rates low as well as signal the intention of using monetary policy to help support the economy. Last week on Wednesday, the Fed announced they are going to being “tapering,” or reducing, this monthly bond buying program, commonly referred to as quantitative easing, or “QE.” The tapering will consist of reducing those purchases by $15 billion per month which is expected to fully wind down the program by the middle of next year, but the Fed maintains flexibility to adjust in either direction if needed. Since this announcement does indicate the Fed feels the economy is close to fully recovering and able to stand on its own, it helped push the stock market higher even though this announcement was expected since the Fed generally signals their intentions in advance. The QE program helped keep interest rates low so we expect to see some rise in interest rates over the coming months. It is also now expected the Fed will begin to raise the base Fed Funds rate shortly after QE is fully wrapped up in the middle of next year.

Jobs

The employment reports of the previous two months were weaker than expected, but still positive, which led some to believe the Fed could hold off on beginning the taper to ensure the economy was on stable footing. However, the Fed obviously felt strongly enough that the economy was at least stable, and most likely expanding, that they went ahead with the taper announcement. Their decision seems well justified since the October employment report on Friday was better than expectations and the previous two months were revised upwards, which should not be a surprise given we remain near record highs for job openings. The unemployment rate dropped to 4.6%, but even with these large jobs gains the employment-to-population ratio remains below where it was pre-pandemic and indicates we are still not at full employment. This shows there is still room to run in the labor market recovery and therefore further wage pressures may be limited.

Also on the economic front, durable orders, factory orders and the Institute for Supply Management (ISM) non-manufacturing survey all came in better than expected last week, providing further evidence the economic recovery remains intact and is not showing signs of slowing down. Data for labor costs and hourly earnings were higher than expected, which is not completely surprising given the current state of the labor market. Since labor costs, along with supply chain disruptions, seem to be driving inflation this leads us to believe inflation will continue in the foreseeable future.

Looking Ahead

Given the numerous surveys suggesting inflation continues to be the largest risk on investors’ minds, this coming week will be significant with the Producer Price Index (PPI) and Consumer Price Index (CPI) being reported. The stock market has enjoyed a healthy run since the beginning of October and with earnings season winding down it might be due for a bit of a slowdown; hopefully that is not the case and it continues to march upwards.

We also continue to watch the progress of the infrastructure and social spending bills, especially any revenue provisions, i.e. taxes, which might be included and how they would impact individuals. Political dynamics have changed over the past week with election results, especially two key gubernatorial races. This does not impact Congress directly but it does show that the Democratic party in Washington, which holds a razor-thin majority, does not hold the leverage once thought for passing these bills, especially going into mid-term elections next year.

We would like to especially like to recognize our firm’s founder, Joe Lucey, who is a veteran of the United States Marine Corps and the many clients who are veterans or have family members serving in the military. We do have a few spots remaining for our Veteran’s Appreciation Luncheon on Wednesday, November 10th with special guest speaker John Kriesel. Call our office for more details if you or a veteran you know would like to attend. Thank you to all vets for your service; we will never forget.

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Please contact us if you would like to review your individual financial plan or learn how the TaxSmart™ Retirement Program can help you.

info@securedretirements.com Office phone # (952) 460-3260

Ryan Keapproth

Ryan Keapproth

Retirement Planner

Ryan is dedicated to serving clients to achieve their retirement goals. Ryan’s holistic approach centers on wealth management strategies with a focus on income planning throughout retirement. As a Financial Advisor, Ryan is an Investment Adviser Representative (IAR), life and health insurance licensed and a Certified Tax Preparer. Ryan is a graduate of the University of Minnesota, with an Accounting and Finance major.

Ryan is a lifelong Minnesotan originally from Woodbury and currently residing in Bloomington with his wife, Riamae, and their rescue Terrier Beagle mix, Douglas. He and his family are avid travelers in their free time. Ryan enjoys playing golf and poker, and describes himself as a major foodie enjoying new restaurants around the cities whenever possible. He is a sports fan especially when the Vikings and Timberwolves are playing.