We’ve Moved! 6121 Excelsior Blvd. St. Louis Park, MN 55416

Weekly Insights

Weekly Insights 9/20/21 – 9/24/21

Being Above Average

The transition from summer to fall entails children returning to school, which holds special meaning this year given the challenges with Covid over the past two school years. Overcoming these challenges has proven that the children of Minnesota are indeed above average as has been touted, which from our biased opinion has always been a factual statement. Speaking of averages, we are seeing aspects of the markets and economy that are also above average. Let’s begin with the stock market, specifically the S&P 500 since it is regarded as the most common benchmark used for overall market performance. Over the past three-, five-, and ten-year periods this index has provided average annual returns in the neighborhood of 16-17%, all better than the long-term average of 10%. Some might argue that the market will “revert to the mean” which can either occur via a market pullback or slowly over time with below average returns. Our thoughts are the latter is more likely than the former and we will see a steadily increasing market, albeit at a slower pace than what we’ve experienced over the past decade. Another strong possibility is the long-term average returns of the stock market trend higher given current easy monetary policy and technological advances driving further growth. As a side note, the strong market returns mentioned above include a period of time where economic activity came to a near standstill due to a pandemic which led to a short-lived bear market where stock prices dropped dramatically. This demonstrates the importance of staying the course and adhering to your investment strategy, especially during times of volatility.

Inflation (again) and the Consumer

In what may seem like a broken record, we again want to mention inflation but it is difficult not to since we continue to feel this has the potential to have a very large impact on retirement savings over the next few years. Headlines last week proclaimed the inflation situation was improving since the twelve-month change in the Consumer Price Index (CPI), which is a measure of the prices for consumer goods and services, was below consensus estimates. However, what the headlines overlooked is this change in the CPI level remains well above long-term averages and is at the highest rate since 2008. Core CPI, which removes food and energy since they tend to be somewhat volatile, is increasing at the highest rate in 30 years!

In some good news, retail sales figures for August were released last week and they showed a surprise increase versus an expected decrease caused by concerns about rising Covid cases. This indicates consumers are continuing to spend money and since consumer spending makes up about two-thirds of the U.S. GDP (Gross Domestic Product, which is the value of all goods and services produced within a country) this was a good sign for the economy and points toward continued growth.

Looking Ahead

Not surprisingly, September has been a somewhat volatile month with the major market indexes taking a breather from their upward trajectory and pulling back from their recent highs. This volatility is typical and not unexpected since historically September is the most challenging month of the year for the stock market. From a historical perspective the last three months of the year tend to be the strongest quarter for the markets. We hope this is the case again this year but with the strong performance year-to-date that may be difficult to achieve. But even if the market is flat or does not live up to historical expectations over the next three and a half months, we will still end the year with above average returns.

Our work of reviewing economic data and studying market themes so we can best position portfolios to protect against risks and profit from opportunities continues. We also endeavor to keep our clients informed of what is happening in the market and how it impacts your portfolio. We are not satisfied with being above average in this regard but rather strive to excel. Please let us know if we can be doing anything differently or if there is any other information you would like to see.

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 9/13/21 – 9/17/21

Summertime Blues

A few weeks ago we were honored to have longtime sports personality Patrick Reusse join us for our monthly Lunch & Learn. Not only did he provide his thoughts on the Vikings upcoming season, but he also shared some stories including one of how the late Sid Hartman was able to track him down in a pasture in Prior Lake back in 1963 when a young Mr. Reusse thought he would skip work on a nice summer’s day. While many of us maybe have had thoughts of skipping work when the weather is nice, the financial markets do not take summer breaks but they often slow down. Fortunately, this year was a little different as the stock market did not show signs of slowing and continued its steady march upward. However, now that we are past Labor Day, which marks the unofficial end to summer, it seems some changes are beginning to occur.

The S&P 500 reached 53 new highs year-to-date through the end of August, which is the most ever through the first eight months of a year. September has gotten off to a rocky start with the markets being slightly more volatile and not continuously providing the gains we had become accustomed to (and spoiled with) over the past few months. Some of the culprits being blamed for this change in market activity include the withdrawal from Afghanistan, damage from Hurricane Ida, and continued concerns about Covid’s prolonged impact. While we are mindful of these events, we are more focused on those factors which we think will have longer term impacts including a potential slowdown in economic growth, changes in Fed policy and impending spending bills in Congress. As we have been anticipating for a while, a lot of market action could occur over the next month so we expect volatility to continue.

Inflation Continues

Last week’s major economic release was the Producer Price Index (PPI) which measures prices of goods at the producer level before they are passed along to the final consumers. An increase in PPI will most likely lead to an increase in consumer prices, as measured by the Consumer Price Index (CPI). The year-over-year change in the PPI is the highest since this measure began being kept in 2010 and the fact it has been accelerating over the past few months indicates inflationary pressures will continue to persist.

We currently view inflation as being a very substantial risk to long-term investor’s portfolios since it has potential to erode purchasing power, having an especially profound impact on retirement savers. This is why it is vital you have an income plan in place that takes into account inflation and invest in assets which benefit from higher prices.

Looking Ahead

On the economic front this week, we will receive further inflation figures with the Consumer Price Index (CPI) which will garner a great deal of attention in light of last week’s PPI data and fact that inflationary pressure no longer appears to be transitory from the pandemic. Also due to be released are retail sales numbers from August, which are expected to fall slightly due to concerns with the Delta variant and the anticipation of stimulus payments ending. Retail sales are a strong driver of the U.S. economy and an indicator of future spending so a significant surprise in either direction has the potential to move the markets.

If you missed seeing Patrick Reusse in our office and want to hear the stories he shared or his insights into the local sports teams, you can watch the replay on the Secured Retirement YouTube channel. Even with summer winding down and fall sports seasons starting, we remain focused on watching the markets and economy so we can best position portfolios and keep our clients informed.

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

Secured Retirement Insights 8/2 – 8/6

Duck, Duck, Grey Duck

When a duck is floating across a pond or lake it appears to be relaxed and at ease, but what we don’t see is the amount of work being done underwater as they frantically paddle their feet to move.  The stock market last week was very similar – from a high level, it did not appear to do much despite there being many events happening below the surface.  This was arguably one of the busiest weeks of the quarter with several high-profile companies reporting earnings, a relatively large volume of important economic releases, and a Federal Reserve meeting.  Throw in renewed coronavirus worries due to the spread of the Delta variant and we would have expected some July fireworks, which did not come to fruition.  Maybe the market hit the summer doldrums a little early or maybe the market simply has fatigue from the volatility over the past 18 months and simply decided to take it easy.  Regardless, July is now in the books and provided the sixth straight month of positive stock market returns. 

While a lack of volatility for the overall market may be easily apparent, that was not the case for some of the individual names.  Many large companies, including tech bellwethers, reported decent earnings, but their stock prices reacted differently with some moving sharply higher while others sold off.  If these companies all reported solid earnings that beat analyst’s expectations why did some of the stock prices drop?  In most cases, forward guidance was not as strong as expected. The stock market is a leading indicator based upon future expectations with individual stock prices reflecting anticipated earnings or growth prospects. If those expectations are lowered, the price of a stock will drop.  Conversely, we generally see the opposite when forward guidance is raised – stock prices rise.  The past week was a good reminder of why it is important to have a diversified portfolio since individual stock prices can be unpredictable and often move in different directions. 

GDP Growth, Consumer Confidence, and Inflation

There was a flurry of economic releases over the past week, all of which had the potential to move the market, but none seemed to have had much of an impact. This is understandable given how the releases were overshadowed by the volume of earnings releases and focus on the Fed meeting, which as predicted was anti-climactic.  Of note was Q2 GDP came in below consensus estimates but still indicated some of the strongest quarterly growth in decades and provides evidence to the fact the post-pandemic economic recovery remains intact. Consumer Confidence and the University of Michigan Consumer Sentiment index both beat expectations, indicating consumers continue to feel good about the economy and consumer spending can be expected to remain strong. 

Also of note is the core personal consumption expenditures (Core PCE) index, which happens to be the Fed’s preferred measure of inflation, experienced the largest increase since June 1991 and further signals rising inflation. This is a key theme we continue to monitor and are positioning portfolios accordingly to not only shield against inflation but also take advantage of it. 

Looking Ahead

With a high volume of earnings reports and economic releases continuing in earnest, we expect the potential for some market volatility during the next week.  We will be paying special attention to the employment reports, culminating with Non-Farm Payrolls on Friday, to gauge the continuing strength of the post-COVID recovery. 

Like a duck swiftly padding underwater but appearing calm above the surface, we continue our tireless work of keeping abreast of the markets and managing portfolios accordingly to navigate risks and capitalize on opportunities.   

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com

Secured Retirements Insights 7/26-7/30

What a difference a day makes

I grew up in South Dakota, where they have a saying, “If you don’t like the weather, stick around for 24 hours.”  It seems the same can be said about the stock market.  On Monday, the markets suffered the worst single-day losses of the year due to concerns about rising coronavirus cases from the spread of the Delta variant and the potential for restrictions being re-imposed.  Given the strong gains in the market already this year, many analysts (a.k.a. talking heads/fear mongers) have been sounding the alarm about a pull-back. Hence, there was worry Monday’s losses were the beginning of a longer-term downward trend.  Fortunately, these fears were soon quashed as the markets quickly recovered losses and went on to show gains by the end of the week.  Besides shrugging off concerns about coronavirus, the market was driven higher by strong earnings reports, especially from Dow components IBM, Coca-Cola, and Johnson and Johnson. 

Those who did not keep a daily eye on the market last week would have thought the market simply enjoyed a march upward.  Monday’s sell-off saw the S&P 500 experience a 2% single-day loss, but by Friday, the S&P 500 was higher by almost 2% compared to a week ago.  This is a great example of why investors should not be concerned with day-to-day, or even week-to-week, market gyrations but instead should stay focused on the longer term. 

Many people remain on edge regarding another round of coronavirus cases spreading, specifically the potential for restrictions being re-imposed.  My prediction is these concerns abate as time passes, especially as more people are vaccinated.  Also, it seems the majority of people in the U.S. and most developed countries have “COVID fatigue,” so any large-scale restrictions would be met with resistance and, in most cases, would not be politically popular.  Coronavirus will become less, and less of a factor on the market – similar to when you throw a rock in a lake, the first splash is the biggest but the farther away you get, the smaller the ripples. 

Housing

It was a relatively quiet week for economic releases, with the exception being housing data.  The National Association of Homebuilders (NAHB) Housing Market Index, Existing Home Sales, and the number of building permits all came in below expectations while Housing Starts were above expectations.  There is no doubt the housing market may be a little “over-heated” and due for a slow-down but should be more of a leveling-off versus a crash like we experienced in 2007/2008 since conditions are different this time, namely tighter lending standards, lower interest rates and a growing demographic of people looking to purchase a home.  The recent housing craze has been driven by an increase in demand since workers are not as geographically constrained due to the ability to work-from-home and supply-chain issues with raw materials due to COVID-related shutdowns.  The supply chain issues are being worked out with raw materials prices normalizing, but labor costs remain a concern. 

Looking Ahead

The next week will be busy on the earnings front with tech leaders Apple, Microsoft, Alphabet (Google), and Amazon set to report.  Any downside earnings surprise could have an adverse impact on the market, but that seems unlikely since all have historically provided strong, consistent earnings, which does not seem likely to change in the near term.  It is also a heavy week for key economic releases, including Durable Orders, Consumer Confidence, Gross Domestic Product (GDP), and Personal Consumption Expenditures (PCE), any of which have the potential to move the markets if there is a large variance from expectations.  PCE is the Federal Reserve’s primary measure of inflation, so there could be special attention paid to that number, not necessarily by the financial news outlets but more so by economists and analysts.  Speaking of the Fed, the Federal Open Market Committee (FOMC) meets on Tuesday and Wednesday, but we do not expect any surprises since they generally telegraph expectations well in advance.

That will bring us to the end of July. Historically, August has been a relatively quiet month in the markets, gearing up for what have traditionally been the more volatile months of September and October.  We will have to see if this year brings more of the same. 

Have a wonderful week!

Nathan Zeller, CFA, CFP®

Chief Investment Strategist

Secured Retirement

nzeller@securedretirements.com