The Week on Wall Street
A late week sell-off sent stocks broadly lower as investors took some profits after stocks reached all-time highs earlier in the week.
The Dow Jones Industrial Average slid 1.82%, while the S&P 500 slumped 2.31%. The Nasdaq Composite index dropped 3.27% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.62%.
FACT OF THE WEEK
On October 26, 1966, UNESCO pronounced September 8 as International Literacy Day (ILD). Since 1967, ILD has been celebrated around the world, encouraging and supporting literacy everywhere.
Stocks hit a wall late last week as the technology companies, which had led the market higher, slipped in Thursday and Friday trading, dragging down the overall market.
Gravity Reasserts Itself
The week began on an upbeat note as August momentum continued into the start of September. While participation in the rally on Tuesday and Wednesday was reasonably broad, technology stocks continued to focus on market strength. But that sentiment changed quickly on Thursday.
With little warning and no apparent catalyst, it remains unclear whether the technology sell-off last week resulted from market technicals or a fundamental change in investor outlook. The coming weeks may provide some clarity in this regard.
Labor Market Recovery Sputters Forward
Last week saw a series of employment-related reports that evidenced a continued labor market recovery.
The Automated Data Processing (ADP) employment survey results showed that private payrolls increased by 428,000 in August, falling short of consensus expectations of over 1.1 million.
Recent news turned more favorable as new jobless claims checked in at 881,000—an improvement from the over one million claims the prior week. Americans receiving unemployment declined by 1.24 million to 13.3 million—half the peak number in May.
Finally, the monthly jobs report indicated that nearly 1.4 million nonfarm jobs were added last month, with the unemployment rate declining to 8.4%. The progress was predominantly attributable to government hiring, primarily of new Census workers, though the retail, leisure, and hospitality sectors saw gains in new hiring.
FINANCIAL STRATEGY OF THE WEEK
Reviewing Your Retirement Plan Contribution Limits for 2020
Consider using tax-advantaged accounts to help lower your tax bill.
Even in the wake of complex tax provisions, a simple key to lowering your tax bill: report lower taxable income. Since few of us want to earn less, the next option is to stash as much income as you can into tax-advantaged accounts.
If you haven’t contributed the maximum amount to a qualified retirement plan at work throughout 2020, consider adding money before it’s too late.
Contribution limits for 401(k) and other retirement plans for the 2020 tax year are $19,500 or $26,000 if you’re 50 or older. Consider making some additional salary deferrals if you are eligible to participate in an employer supplemental employee retirement plan (SERP).
Additional deferrals will help you further maximize contributions to reduce your taxable income now and defer more compensation into later years when your tax rate may be lower. Also, consider contributing to a solo 401(k) retirement plan, SEP IRA, or SIMPLE plan if you work for yourself.
Another savings option to weigh in on is a pre-tax basis for healthcare. You can accumulate funds on a tax-deferred basis to pay for healthcare expenses through employer-sponsored savings plans. Your workplace may offer either single or multiple programs, so check with your employer.
Health Savings Account (HSA): Contribution limits in 2020 are $3,550 for self-only and $7,100 for families, with an additional $1,000 catch-up contribution allowed for individuals age 55 or older.
Flexible Savings Account (FSA): Individual contributions are limited to $2,750; employer contributions do not count toward this maximum. Once you maximize employer retirement plans, consider contributing to an IRA ($6,000/year limit, or $7,000 if you’re 50 or over).
Traditional IRA: Contributions are tax-deductible if your modified adjusted gross income is under $75,000 for individuals (phase-outs begin at $65,000) or $124,000 for joint filers (phase-outs begin at $104,000). You must establish a new IRA account by April 15, 2021, for 2020 contributions, and you have until then to make 2020 contributions to an IRA.
As always, please contact my office with any questions you may have or if you would like to find out more information on how we can help you develop a retirement account contribution strategy that works for your situation.