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[post_date] => 2023-02-02 09:22:13
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[post_content] => By Kevin Oleszewski CFP®, MST, EA, Senior Wealth Planner
Multiple retirement savings vehicles are available but having options can be overwhelming. Each option comes with different rules leading to a variance of outcomes in the short-term and long-term. It’s not that dissimilar to choosing what to eat. There are options which are satisfying in the short-term but may necessitate a more vigorous workout later to compensate. Other menu options might be less satisfying immediately but reduce the need to work out as intensely. Similar to how different foods affect the way the body is fueled, retirement contribution choices affect the fuel for retirement. How you save is just as important as how much you save.
Traditional IRA vs. Roth IRA
One example of two similar, yet very different, retirement saving vehicles are Traditional IRAs and Roth IRAs. Both are Individual Retirement Accounts meaning the account is opened and funded by the worker and are tax-advantaged accounts designed for retirement savings. Certain other types of retirement accounts are sponsored by employers and can be funded with both worker and employer contributions. Traditional and Roth IRAs can be distinguished by their tax treatment. So how do they differ and how does each fuel retirement?
Traditional IRA
The Traditional IRA is what usually comes to mind when hearing about an IRA. Often, it’s called a simple IRA, whereas a Roth IRA goes by its full name or Roth for short. The features commonly associated with an IRA include tax-deductible contributions and tax-deferred growth. Because Traditional IRA contributions are made during income-earning years for a time when earned income ends or is reduced (and tax liabilities are frequently lower), the IRA can be a nice way to reduce the current income tax liability while also targeting retirement saving goals.
Traditional IRAs provide tax benefits at the point of contribution for those within the income limits for qualification of a tax deduction. Whether an employer-sponsored retirement plan is offered affects the income limits for contribution deductibility. In 2023, for example, the Modified Adjusted Gross Income (MAGI) limits are as follows:
| Single / Head of Household | Married Filing Jointly | Married Filing Separately | |
| No Employer Retirement Plan | No Limit | Phase Out $218,000 - $228,000 No Limit if spouse is not covered by a plan | Phase Out $1 - $10,000 No Limit if spouse is not covered by a plan |
| Employer Retirement Plan | Phase Out $73,000 - $83,000 | Phase Out $116,000 - $136,000 | Phase Out $1 - $10,000 |
| Single / Head of Household | Married Filing Jointly | Married Filing Separately |
| Phase Out $138,000 - $153,000 | Phase Out $218,000 - $228,000 | Phase Out $1 - $10,000 |
This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
[post_title] => Should I Open a Traditional or Roth IRA? [post_excerpt] => Multiple retirement savings vehicles are available but having options can be overwhelming. Each option comes with different rules leading to a variance of outcomes in the short-term and long-term. It’s not that dissimilar to choosing what to eat. [post_status] => publish [comment_status] => closed [ping_status] => closed [post_password] => [post_name] => should-you-invest-in-a-roth-or-traditional-ira [to_ping] => [pinged] => [post_modified] => 2023-02-02 10:22:32 [post_modified_gmt] => 2023-02-02 16:22:32 [post_content_filtered] => [post_parent] => 0 [guid] => https://divi-partner-template.carsonwealth.com/?p=17967 [menu_order] => 0 [post_type] => post [post_mime_type] => [comment_count] => 0 [filter] => raw ) [1] => WP_Post Object ( [ID] => 65623 [post_author] => 90034 [post_date] => 2023-01-25 13:02:37 [post_date_gmt] => 2023-01-25 19:02:37 [post_content] => At long last, The Carson Investment Research team is proud to officially release our 2023 Market and Economic Outlook, aptly titled Outlook ’23: The Edge of Normal. You can download the whitepaper here. As you are all painfully aware, 2022 wasn’t pretty for investors – it was the first year to ever see both stocks and bonds down 10% or more. Higher-than-expected inflation was the theme of 2022, surging to the highest level since 1981. Add an aggressive Federal Reserve and an unfortunate war in Ukraine, and the result was a very poor year for investors and growing uncertainty for the U.S. and global economies. A bleak year, no doubt, but where do we go from here? We in the Carson Research team believe there are many potential reasons to be optimistic about the year ahead.
For example, Inflation already started to pull back in the second half of 2022, and 2023 may actually be disinflationary, with several factors that drove inflation higher last year reversing this year.
This could allow the Fed to slow down on the aggressive policy stance, and although it won’t be easy, we think there’s an above-average chance we can avoid a recession in 2023. Much like you don’t drive looking out of the rearview mirror, to look backward to predict what could be next isn’t wise. Housing and manufacturing could be headed to recessions, but the consumer remains the most important and largest part of the economy, and they are still very healthy.
Just because 2022 was a poor year for stocks and bonds doesn’t mean the same will be true for 2023 (past performance isn’t indicative of future results). Stocks and bonds could bounce back nicely, with the potential for stocks to lead the way higher and for bonds to begin meaningfully contributing to investors’ portfolios again.
We expect stocks to produce a total return of between 12% to 15% in 2023. We also expect a more normal year for bonds, with most of the return coming from yield. Our expectation is that the Bloomberg US Aggregate Bond Index may produce a total return between 4% to 5% in 2023.
You can read the full Outlook ’23: The Edge of Normal here. We hope you find it useful! If you’d like to discuss the report further, or talk about what 2023 might mean for your finances, please reach out.
Schedule a conversation.
| Single / Head of Household | Married Filing Jointly | Married Filing Separately | |
| No Employer Retirement Plan | No Limit | Phase Out $218,000 - $228,000 No Limit if spouse is not covered by a plan | Phase Out $1 - $10,000 No Limit if spouse is not covered by a plan |
| Employer Retirement Plan | Phase Out $73,000 - $83,000 | Phase Out $116,000 - $136,000 | Phase Out $1 - $10,000 |
| Single / Head of Household | Married Filing Jointly | Married Filing Separately |
| Phase Out $138,000 - $153,000 | Phase Out $218,000 - $228,000 | Phase Out $1 - $10,000 |
This article is designed to provide accurate and authoritative information on the subjects covered. It is not, however, intended to provide specific legal, tax, or other professional advice. For specific professional assistance, the services of an appropriate professional should be sought.
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[post_date] => 2022-05-26 08:18:44
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[post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions
Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.
The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.
Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.
Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.
Sadly, she is far from alone.
Read the full article
[post_title] => COVID’s Financial Toll Isn’t What You Think
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[post_content] => By: Erin Wood, CFP®, CRPC®, FBS®, Senior Vice President, Financial Planning, Carson Group
Laura and Caroline are in their late 50s. Friends since meeting at a playgroup for their toddlers, both were in long-term, seemingly happy marriages. Laura married her high school sweetheart right after they graduated from college and worked as an RN while her husband attended medical school. When their first child was born, Laura decided to become a stay-at-home parent. She just celebrated sending her last child off to college and was looking forward to enjoying an empty nest with her husband.
Already established in her career as an accountant for a large insurance firm, Caroline married a bit later, at 33. Today, she’s a financial controller for the same firm. Her spouse owns his own landscaping business. Caroline is the high-wage earner in the family.
Unfortunately, both women are now surprised to be facing a “gray” divorce: a divorce involving couples in their 50s or older. Each will need to make some tough choices as they deal with the emotional devastation of unraveling a long-term marriage. Although my focus as a financial planner is to help my clients find their financial footing during and after divorce, I also encourage clients to build a strong network of family and friends as well as a therapist or clergy person to offer critical emotional support during this time.
Read full article on Kiplinger.com
[post_title] => Emerging Financially Healthy After a Gray Divorce
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[post_content] => By Jamie Hopkins
Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
The Tax Cut and Jobs Act lowered taxes for many Americans and with the SECURE Act Roth IRAs became even more powerful as an estate planning vehicle to minimize taxes, so it’s a convenient time to take advantage of Roth conversions. However, Roth conversions can come with some issues. Before you engage in one, be aware of these common problems as it can be hard to undo the transaction.
Conversions After 72
IRAs and Roth IRAs are both retirement accounts. It’s easy to assume Roth Conversions are best suited for retirement, too. However, waiting too long to do conversions can actually make the entire process more challenging.
If you own an IRA, it’s subject to required minimum distribution rules once you turn 72, as long as you had not already reached age 70.5 by the end of 2019. The government wants you to start withdrawing money from your IRA each year and pay taxes on the tax-deferred money. However, Roth IRAs aren’t subject to RMDs at age 72.
If you don’t need the money from your RMD to support your retirement spending, you might think, “I should convert this to a Roth IRA so it can stay in a tax-deferred account longer.” Unfortunately, that won’t work. You can’t roll over or convert RMDs for a given year. So, if you owe a RMD in 2020, you need to take it and you cannot convert it to a Roth IRA.
Despite the fact you can’t convert an RMD, it doesn’t mean you can’t do Roth conversions after age 72. However, you need to make sure you get your RMD out before you do a conversion. Your first distributions from an IRA after 72 will be treated as RMD money first. This means, if you want to convert $10,000 from your IRA, but you also owe an $8,000 RMD for the year, you need to take the full $8,000 out before you do a conversion.
Full article on Forbes
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice."
"Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. Converting from a traditional IRA to a Roth IRA is a taxable event. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
[post_title] => 3 Roth Conversion Traps To Avoid After The SECURE Act
[post_excerpt] => Roth conversions can be a powerful tax and retirement planning technique. The idea behind most Roth conversions is to take money from an IRA and convert it to a Roth IRA. Essentially, you’re paying taxes today instead of paying taxes in the future.
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[post_date] => 2019-12-06 10:26:33
[post_date_gmt] => 2019-12-06 16:26:33
[post_content] => By Jamie Hopkins
People plan on having a good day, a good year, a good retirement and a good life. But why stop there? Why not plan for a good end of life, too?
End of life or estate planning is about getting plans in place to manage risks at the end of your life and beyond. And while it might be uncomfortable to discuss or plan for the end, everyone knows that no one will live forever.
Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Sometimes it takes a significant event like a health scare to shake us from our procrastination. Don’t wait for life to happen to you, though.
Full article on Kiplinger
[post_title] => 10 Common Estate Planning Mistakes (and How to Avoid Them)
[post_excerpt] => Estate planning and end of life planning are about taking control of your situation. Death and long-term care later in life might be hard to fathom right now, but we can’t put off planning out of fear of the unknown or because it’s unpleasant. Don’t wait for life to happen to you, though.
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[post_date] => 2019-11-11 16:27:38
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[post_content] => By Jamie Hopkins
Everyone’s heard the stories of celebrities who died without a proper estate plan in place. It’s been a hot topic in the last few years with Prince and Aretha Franklin serving as unfortunate faces of the phenomenon. But it’s not just freewheeling entertainers. Abraham Lincoln – a lawyer by trade – didn’t have one either, which leads me to say something you’ve probably never heard anyone say: don’t be like Abraham Lincoln.
Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.
1. Review Beneficiary Designations
Many accounts can pass to heirs and loved ones without having to go through the sometimes costly and time-consuming process of probate. For instance, life insurance contracts, 401(k)s and IRAs can be transferred through beneficiary designations – meaning you determine who you want to inherit your accounts after you die by filing out a beneficiary form. You can often name successors or backup beneficiaries, and even split up accounts by dollar amount or percentages between beneficiaries with these forms.
Full article on Forbes
[post_title] => 4 Ways To Improve Your Estate Plan
[post_excerpt] => Most people want to plan for a good life and a good retirement, so why not plan for a good end of life, too? Let’s look at four ways you can refine your estate plan, protect your assets and create a level of control and certainty for your loved ones.
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[post_content] => By Erin Wood, Senior Vice President, Financial Planning and Advanced Solutions
Just a few years ago, Rose retired with a decent-sized 401(k). With some careful budgeting and a part-time job, her retirement finances were on track. Rose was looking forward to traveling, reigniting her passion for photography and spending time with her son and her grandkids.
The pandemic changed everything. Her son contracted COVID-19 in the early days of the pandemic. His health deteriorated quickly and he died at only 35 years old. He didn’t have life insurance. A gig worker without a 401(k), he had very minimal retirement savings.
Rose’s grandchildren, ages 2 and 6, joined the more than 140,000 U.S. children under the age of 18 who lost their primary or secondary caregiver due to the pandemic from April 2020 through June 2021. That’s approximately one out of every 450 children under age 18 in the United States.
Rose’s ex-daughter-in-law battles drug addiction and had lost custody of the kids during the divorce, so Rose became the children’s primary caregiver. She quickly discovered that caring for young children as an older adult is more physically challenging than when she raised her son, so she made the difficult decision to leave her part-time job to have the energy to care for her active grandchildren. She wants to do everything for these kids who have lost so much — but it puts her financial security at risk.
Sadly, she is far from alone.
Read the full article
[post_title] => COVID’s Financial Toll Isn’t What You Think
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[post_date] => 2023-02-06 10:37:47
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[post_content] => As poor as last year was for investors, 2023 has fortunately been a near mirror image. Stocks and bonds have both made solid gains to kick off the new year. The economy is in better shape than most expected, and overall inflation is also coming down, making a very nice combo.
The Labor Market is Defying Recession Forecasts
Let’s keep it simple: The economy created 517,000 jobs in January, well above expectations for a slowdown to 175,000.
The unemployment rate is 3.4%, the lowest level since May 1969.
It’s like the labor market, i.e., America’s employers, are on a mission to upend forecasts of a recession in 2023.
Also, revisions suggest payroll growth was stronger than we thought in 2022. The Bureau of Labor Statistics now says the economy created 4.8 million jobs in 2022, as opposed to the previous estimate of 4.5 million.
Forget recessions and landings; these numbers suggest an employment boom!
Strong Numbers Under the Hood
The data corroborate what we’ve been seeing in leading employment indicators, such as weekly initial claims for unemployment, which fell to the lowest level in nine months last week. January data typically tend to be quite noisy, due to seasonal effects. But even accounting for that, let’s not miss the big picture, which is that the labor market is very resilient, if not outright on fire.
The huge payroll gain in January was not due to outsized gains in one sector either. Cyclical sectors, such as manufacturing, construction, and wholesale/retail trade services, all added a total of 85,000 jobs. That contradicts the narrative of a significant slowdown in these areas.
Meanwhile, the service industry is growing rapidly. Americans are spending, and employers are responding, including by adding 113,000 net jobs across accommodation, restaurants, and bars.
Information processing, which includes technology and utilities, were the only sectors that saw job losses, and not many.
What Does This Mean for Monetary Policy?
The Federal Reserve raised rates by 0.25% last week, taking the federal funds rate to the 4.50-4.75% range. This is the slowest pace of increases since last March and a welcome downshift after the aggressive pace last year.
Fed officials also said ongoing interest rate increases will be appropriate to return inflation to their 2% target over time, suggesting they’re not done with rate increases yet. But the extent of future increases will take the totality of rate hikes so far plus incoming data, which indicates they are close to peak rate, perhaps around 5%.
Mainly, the Fed is waiting to see disinflation in the “core services inflation, ex housing” category. This is closely tied to wage growth, and there’s good news on that front. Wage growth is decelerating. The employment cost index, which is perhaps the most stable measure of wage growth, showed a sharp deceleration in the fourth quarter, corroborating other measures.
The best news is that wage growth is slowing even as the unemployment rate is at 50+ year lows. This is not what textbook theory or forecasters would predict. But we’ll take reality over that. And Fed Chair Jerome Powell’s comments after the Federal Open Market Committee (FOMC) meeting suggest the Fed might be inclined to do the same. In other words, they don’t need to be convinced that inflation is coming down and will remain low only if the unemployment rate surges. They just need to see the data, i.e., continued deceleration in wage growth, and disinflation in core services ex housing.
Of course, stronger economic growth means the Fed is likely to keep interest rates higher for longer, which is contrary to market expectations of rate cuts in the second half of 2023. But we believe the economy is strong enough to handle higher rates currently.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Compliance Case # 01649284
[post_title] => Market Commentary: More Positive Signs
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[post_date] => 2023-01-30 11:11:29
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[post_content] => Last week the stock market rally continued, with various sectors showing renewed strength. This time a year ago, defensive areas, such as utilities, consumer staples, and health care, were leading. That was a warning sign, and it sure turned out something was wrong. Today small-caps, cyclicals, industrials, and technology are leading. These are more risk-on areas and their strong performance is another sign of underlying health.
We wouldn’t suggest blindly investing based on January’s performance, but the returns provide another clue that conditions have changed and higher stock prices in 2023 could be quite likely.
More Strong Economic Data
The latest GDP growth numbers for the fourth quarter of 2022 came in at 2.9% quarter-over-quarter (annualized rate), which was higher than expectations for a 2.6% reading. This is only slightly below the third quarter growth rate of 3.2%. The first two quarters of last year saw negative growth, so this is a nice bounce back.
Over the full year, GDP growth was up just 1% compared to the end of 2021. But this hides the fact that economic growth picked up in the second half of 2022. However, the first-half slowdown leaves the economy about 2.5% below its pre-pandemic trend.
The big picture: The economy is more than 5% higher than it was at the end of 2019, which shows how strong the recovery has been despite the early slowdown in 2022. The employment data corroborate this as well.
Details Matter
GDP is measured as:
GDP = Consumption (68%) + Investment (18%) + Government Spending (17%) + Net Exports (-3%)
Note that net exports are exports minus imports, and since the U.S. imports more than it exports, net exports tend to be a drag.
The table below shows how the various components contributed to GDP growth in the third and fourth quarters. Consumption contributed close to the same amount in both quarters. But in the third quarter the other big driver of GDP growth was net exports, whereas in the fourth quarter it was “change in private inventories.” These are the two most volatile elements of GDP, which is why it helps to look under the hood.
The details also help us to consider how the markets and economy will behave in 2023. For that let’s start with the most important category — consumption, which makes up just under 70% of the economy.
Consumption Stays Solid, Even as Services Normalize
Consumption barely slowed from the third quarter, but there were important differences. Services consumption eased, rising 2.6% in the fourth quarter compared to 3.7% in the third. But that 2.6% pace is well above the 2015-2019 average of 1.9%.
The good news is goods spending picked up in the fourth quarter and offset some of the services slowdown. This was almost entirely due to increased auto sales, gas, and grocery purchases — the latter two thanks to lower prices. This is important because we believe this trend will continue into early 2023, especially with auto sales and production picking up. Further good news: Consumers have more money in their pockets due to falling inflation, which will be a tailwind for consumption.
Housing Slowed, Thanks to the Fed
The Fed’s aggressive rate hikes had barely any impact on consumption last year. They did have an impact on investment, specifically residential investment, i.e., housing. Higher interest rates led to higher mortgage rates, and that led to a crash in housing activity. Housing pulled economic growth down by about 1.3-1.4 percentage points in the third and fourth quarters. Across 2022, residential investment fell 11%, which is the largest drop since 2009 when it fell 22%.
The good news is housing data appear less bad. In fact, mortgage activity has even picked up recently with rates pulling back from peak levels. So, there is sound reason to think housing will be less of a drag in 2023.
Nonresidential investment also slowed, which is concerning because it indicates businesses are investing less. However, it turns out the pullback in the fourth quarter was due to businesses spending less on communications equipment, which may simply be a reversal of spending that occurred after the pandemic hit when employees had to shift to their homes.
Government Spending No Longer a Drag
Investors forget that government spending makes up about 17% of the economy, and it matters. Over the last two quarters, government spending has picked up, reversing the drag from the prior five quarters. This has helped offset some of the pullback in private investment. It also is in sharp contrast to what happened after the 2008-2009 recession, when government spending was slashed and remained a drag on GDP growth all the way through 2014.
Government spending should continue to add to GDP growth in 2023. Congress passed some big spending bills over the past year and half: a $1 trillion infrastructure bill, the Inflation Reduction Act, and a $1.7 trillion government budget, which increased spending significantly. The money will really start to flow into the economy in 2023.
Still No Sign of a Recession
As we wrote in our recently released 2023 outlook, we don’t expect a recession in 2023, and the latest data corroborate that story.
Our reasoning is simple: Inflation is slowing, and if employment and incomes hold up (as they seem to be doing), real incomes will rise. Considering goods consumption is likely to recover on the back of vehicle purchases, we’re expecting consumption to remain solid.
Beyond that, housing should be less of a drag in 2023, especially as the Fed eases rate hikes, which looks likely to happen. So, the peak negative impact of aggressive rate hikes may be behind us.
Non-residential investment, especially in structures and equipment, may remain weak. However, recovering auto production, and even aircraft orders, should help U.S. manufacturing. That will be enhanced as the global economy starts to strengthen later in 2023, which should also help exports.
GDP growth data may be volatile due to unpredictable inventories and net exports, as we saw in 2022. But the underlying message is there still is no sign of a recession.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Compliance Case # 01640562
[post_title] => Market Commentary: As Goes January, So Goes the Year
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[post_content] => Stocks sold off early in the week on disappointing retail sales and industrial production numbers, but they staged a nice bounce on Friday to close out the week. Although some recent data has been disappointing, inflation data continues to show fast improvement, with producer-level inflation coming in lower than expected last week. Additionally, prices-paid components of regional surveys and supply chain data continues to quickly improve. All this matters, as lower inflation opens the door for the Fed to end its aggressive rate-hiking regime (more on this below).
Good News for Rental Inflation
The Carson Investment Research Team just released its 2023 outlook, which we titled “The Edge of Normal.” The big theme for 2022 was higher-than-expected inflation, which surged to the highest level seen since 1981. This resulted in the Federal Reserve embarking on its most aggressive rate-hike cycle in 40 years, which led to an ugly 2022 for investors, with stocks and bonds falling more than 10%.
However, we are optimistic about 2023, mostly because we believe this year may be disinflationary, with several factors that drove inflation higher last year reversing. Amongst the three major drivers of lower inflation in 2023:
On a year-over-year basis, market rents peaked at 18% at the end of December 2021. The pace was down to under 4% as of last month. Now, as we have discussed in the past, official shelter inflation data is not going to capture this deceleration for another 8-10 months (see here and here). That is because private data reviews only market rents as related to new leases. But renters do not renew their leases every month. So official data considers both existing and new leases, which means there is a lag. On top of that, official data also averages the numbers over several months to smooth them out.
But there is even better news on the horizon for shelter inflation.
More Rental Supply is Coming
The housing data looks awful, thanks to activity cratering amid the surge in mortgage rates. However, this has mostly been concentrated in the single-family housing segment. Dynamics within the multi-family sector have been markedly different.
Multi-family units under construction are well outpacing completions and are currently at their highest level since 1973. Typically, construction outpacing completions would be a sign of over-building, as in the mid-2000s amid the housing bubble. This time around, it is due to supply-chain issues and labor shortages. But these are improving.
That means a lot more rental units will come onto the market, perhaps by late 2023 and early 2024. We believe that will put even more downward pressure on rental prices.
Of course, all of this is going to take a while to show up in the official data, but it further strengthens our view that disinflation is coming, with the largest component of the CPI basket, i.e., shelter, driving that downtrend in late 2023 and even into 2024.
Critically, the timing will also likely coincide with a period when the impact of lower goods prices begins to wear off (barring any unexpected shocks). And with shelter inflation on the decline, the Fed will be less likely to argue that disinflationary trends are “transitory.”
As a result, the Fed could start to cut rates in response, although this is unlikely until the very end of 2023, if not early 2024 — unless the economy plunges into recession. But that is not our base case currently, for all the reasons we discuss in our outlook.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Sonu Varghese and Ryan Detrick are non-registered associates of Cetera Advisor Networks.
Compliance Case # 01632615
[post_title] => Market Commentary: New Market Highs are Possible in 2023
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[post_content] => After one of the worst years ever for investors in 2022, we are quite happy to report that 2023 is off to a much better start. The S&P 500 is already up more than 4% for the year and flirting with the round number of 4,000. Optimism that the economy can avoid a recession (more below) and clear signs that inflation has peaked, thus forcing the Fed’s hand on continued interest rate hikes, have led to a great first half of the first month of the year.
Why is Everyone Predicting a Recession?
Most outlooks are forecasting a recession in 2023. In contrast, we on the Carson Investment Research Team believe the economy can avoid a recession this year.
The recession calls are all predictions and clearly not reflections of where the economy is right now. The NBER’s preferred list of economic indicators, which is used to determine a recession, shows every single indicator grew over the past three months and year-to-date (2022). In fact, four out of the six indicators have exceeded their pre-pandemic growth rates over the past three months (comparing the yellow bars against the dark blue bars).
Of course, this is 2022 data and the question is what will happen in 2023. So far this year, inflation has fallen, and with relatively strong wage growth that means higher real incomes. Lower gas prices, lower energy prices (utilities), and lower food prices mean consumers will have more money in their pockets. Just as higher inflation is effectively a tax on income, falling prices are akin to a tax cut. And unless households choose to save this excess income, consumption will stay up.
In addition, 38 states have significant tax changes that took effect Jan. 1. As the Tax Foundation notes, most represent net tax reductions, which are the result of a wave of tax cuts over the past two years as state revenues surged and governors/legislatures looked to ease the impact of higher prices on residents.
Also, Social Security recipients are slated to receive a cost-of-living adjustment of 8.7% to their incomes in 2023, a function of last year’s high inflation but coming just as inflation starts to pull back. Seniors will get another break from Medicare premiums, which are slated to fall this year.
These are all tailwinds for consumption, which makes up 70% of the economy.
So, Why the Recession Calls?
In short, forecasters are expecting the Fed’s aggressive rate hikes of 2022 to hit the economy in mid-2023 and beyond. The idea is that monetary policy impacts the economy with “long and variable lags,” as Milton Friedman said. Even Fed Chair Jerome Powell and other Fed officials have cited the uncertainty around the lagged impact of their rate hikes as a reason for stepping down the pace in December. They want to wait to see the impact of the 425 bps of rate hikes they implemented last year.
However, the reality is monetary policy impacts the economy through financial conditions. Higher interest rates can crimp household demand for mortgages, and tighter credit conditions can curb business spending, including hiring, capital expenditures, and mergers and acquisitions.
In fact, because of the Fed’s forward guidance and other commentary (including leaks to the press), financial conditions can tighten well in advance of actual rate hikes, as investors anticipate future Fed actions. The chart below illustrates this point. Across 2022, financial conditions tightened well ahead of the Fed’s rate hikes.
This means financial conditions can impact the economy sooner than most people expect. The steep falloff in housing activity is a good example of how tighter financial conditions can be felt almost immediately. Residential investment has been a significant drag on GDP growth since the second quarter of 2022, which is when financial conditions started to really tighten in anticipation of the Fed’s aggressive turn. On an annualized basis, residential investment fell 18% in the second quarter of 2022 and 27% in the third.
So, we may be beyond peak negative impact of rate hikes on the economy. Most of the tightening in financial conditions occurred during the first three quarters of 2022. In fact, financial conditions have eased since October (coinciding with a stock market rally). That is even more positive for economic growth, as the drag from tight financial conditions declines.
Good News on the Inflation Front
We now have a trend! Headline inflation fell 0.1% in December, the slowest pace since May 2020. Inflation has now decelerated to 6.5% year-over-year, quite a pullback from the 9.1% level six months ago.
As the chart shows, the big driver has been falling energy prices. In fact, gas prices at the pump fell 9.4% in December and are 1.5% lower than a year ago. Even better news is inflation is falling more broadly now.
The good news from the report is hourly wages rose less than expected. Hourly wages were up only 0.3%, compared with a huge initial 0.6% jump the previous month. The other bit of good news is November’s initial 0.6% rise was revised down to 0.4%. This matters because the Fed needs to see signs that wage growth is slowing, which are finally appearing. Is there farther to go? Or course. But this lowered trend is quite welcome.
The jobs report had a Goldilocks feel to it. Just like the fairytale, the data was not too hot nor too cold. The economy creating more than 200,000 jobs but hourly wages slowing down is a pretty good combo at this stage of the cycle.
A Bad December
Many market watchers have said the stock market’s poor performance in December could be a warning sign. Historically, the last month of the year is quite strong for stocks. But as with much of last year, that wasn’t the case in 2022. In the end, the S&P 500 fell 5.9%, marking one of the worst Decembers ever and the worst since 2018. So, how worried should investors be?
It turns out that very poor final months of the year haven’t typically been the warning signs we might expect. December 2018 for instance was the worst December ever for stocks, and they went on to gain nearly 30% in 2019. In fact, the last four times the S&P 500 fell 4% or more in December, the following years were up three times for gains of 38%, 26%, and 29%. There are many worries out there, but a big drop in December apparently shouldn’t be one of them.
Santa Came to Town
Let’s end on some good news.
Santa Claus did come to town, as the seven days that encompass the well-known Santa Claus rally were indeed higher. Although many people think the Santa Claus rally takes place during the whole month of December, in reality it is the final five days of the year and first two days of the new year. These seven days sported a gain of 0.8%, the seventh consecutive year stocks were higher during this historically strong period.
These seven days are higher about 80% of the time, and no period is more likely to be positive. At Carson, we take note when the rally does not occur as this typically is a warning sign, such as it was in 2000 and 2008.
The markets present many worries, but the large drop in December and the Santa Claus rally should not be among them.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Compliance Case # 01616683
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[post_content] => As poor as last year was for investors, 2023 has fortunately been a near mirror image. Stocks and bonds have both made solid gains to kick off the new year. The economy is in better shape than most expected, and overall inflation is also coming down, making a very nice combo.
The Labor Market is Defying Recession Forecasts
Let’s keep it simple: The economy created 517,000 jobs in January, well above expectations for a slowdown to 175,000.
The unemployment rate is 3.4%, the lowest level since May 1969.
It’s like the labor market, i.e., America’s employers, are on a mission to upend forecasts of a recession in 2023.
Also, revisions suggest payroll growth was stronger than we thought in 2022. The Bureau of Labor Statistics now says the economy created 4.8 million jobs in 2022, as opposed to the previous estimate of 4.5 million.
Forget recessions and landings; these numbers suggest an employment boom!
Strong Numbers Under the Hood
The data corroborate what we’ve been seeing in leading employment indicators, such as weekly initial claims for unemployment, which fell to the lowest level in nine months last week. January data typically tend to be quite noisy, due to seasonal effects. But even accounting for that, let’s not miss the big picture, which is that the labor market is very resilient, if not outright on fire.
The huge payroll gain in January was not due to outsized gains in one sector either. Cyclical sectors, such as manufacturing, construction, and wholesale/retail trade services, all added a total of 85,000 jobs. That contradicts the narrative of a significant slowdown in these areas.
Meanwhile, the service industry is growing rapidly. Americans are spending, and employers are responding, including by adding 113,000 net jobs across accommodation, restaurants, and bars.
Information processing, which includes technology and utilities, were the only sectors that saw job losses, and not many.
What Does This Mean for Monetary Policy?
The Federal Reserve raised rates by 0.25% last week, taking the federal funds rate to the 4.50-4.75% range. This is the slowest pace of increases since last March and a welcome downshift after the aggressive pace last year.
Fed officials also said ongoing interest rate increases will be appropriate to return inflation to their 2% target over time, suggesting they’re not done with rate increases yet. But the extent of future increases will take the totality of rate hikes so far plus incoming data, which indicates they are close to peak rate, perhaps around 5%.
Mainly, the Fed is waiting to see disinflation in the “core services inflation, ex housing” category. This is closely tied to wage growth, and there’s good news on that front. Wage growth is decelerating. The employment cost index, which is perhaps the most stable measure of wage growth, showed a sharp deceleration in the fourth quarter, corroborating other measures.
The best news is that wage growth is slowing even as the unemployment rate is at 50+ year lows. This is not what textbook theory or forecasters would predict. But we’ll take reality over that. And Fed Chair Jerome Powell’s comments after the Federal Open Market Committee (FOMC) meeting suggest the Fed might be inclined to do the same. In other words, they don’t need to be convinced that inflation is coming down and will remain low only if the unemployment rate surges. They just need to see the data, i.e., continued deceleration in wage growth, and disinflation in core services ex housing.
Of course, stronger economic growth means the Fed is likely to keep interest rates higher for longer, which is contrary to market expectations of rate cuts in the second half of 2023. But we believe the economy is strong enough to handle higher rates currently.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Compliance Case # 01649284
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[post_content] => Published by Kevin Oleszewski
As the end of the year approaches, we start to think more and more about our tax picture. What boxes can we check to reduce our taxable income?
Tax-loss harvesting is one such approach. A tax-efficient way to rebalance your portfolio, tax-loss harvesting can help you offset earnings and get back to your target allocation. Tax-loss harvesting is traditionally thought of as an end-of-year event, because it can help you minimize your tax bill.
Consider tax-loss harvesting now, before you ring in the new year. And as you head into 2022, revisit this tax-efficient tactic at least quarterly to make the most of this strategy.
Here’s what you need to know about tax-loss harvesting, including the wash sale rule.
What Is Tax-Loss Harvesting?
Tax-loss harvesting is a strategy that lowers your taxable earnings after you sell taxable investments and use those losses to offset the gains you have to claim as income. It can also allow you to push your capital gains further out, allowing you to save on your taxes in future years when your tax bill might be higher.
For example, if you sold some of your investments this year at a loss, but your portfolio is doing well, you can lower your taxable income by claiming that loss. Also, if your losses exceed your gains, you can claim up to $3,000 on your taxes to offset ordinary income.
Let’s look at a specific, strategic and tax-efficient example. Say you have stock in Verizon that you want to sell and purchase stock in another cell phone company, AT&T. If you had a big loss in Verizon, you want to capture that loss while maintaining exposure to a cell phone company.
Or, you might want to sell Verizon stock while it’s down to lower your tax footprint and soon after repurchase, because you believe it will rebound.
A savvy investor might turn to either of those strategic scenarios. But before you move on this strategy, remember the wash sale rule.
The Wash Sale Rule
Let’s talk about the wash sale rule for a minute. This Internal Revenue Service (IRS) rule prevents you from taking a tax deduction for a security sold in a wash sale.
A wash sale occurs when you sell or trade securities at a loss and you also do three things within 30 days before or after the sale:
Market Commentary
Market Commentary
Market Commentary: More Positive Signs
Market Commentary: As Goes January, So Goes the Year
Market Commentary: New Market Highs are Possible in 2023
Market Commentary: Welcome, 2023!
Market Commentary: The Goldilocks Jobs Report