The Week on Wall Street
Rising bond yields dampened investor enthusiasm for high-multiple growth companies last week, sending market averages mostly lower in a holiday-shortened week of trading.
The Dow Jones Industrial Average gained 0.11% for the week. But the S&P 500 fell 0.71% and the Nasdaq Composite index slid 1.57%. The MSCI EAFE index, which tracks developed overseas stock markets, declined 0.26%.
FACT OF THE WEEK
February 28, National Tooth Fairy Day, encourages us to take look back on the history of one of dental care’s little helpers.
In the mid-1920s fairies were used for all sorts of health education, from bath fairies to fresh air fairies as a way to get kids to remember to eat their vegetables, stay clean, and get a good night’s rest. Like toothpaste, today that advertises fruity flavors and sparkles to get kids excited to brush their teeth, in 1925 it was probably quite a bit more difficult considering the pastes were mostly just peroxide and baking soda.
Then in 1927, Esther Watkins Arnold printed an eight-page playlet for children called "The Tooth Fairy." It was the same year Sir Arthur Conan Doyle “proved” his claim that fairies and gnomes are real and “verified” with pictures of two little girls surrounded by fairies. The world was ripe with imagination and primed to have a tooth fairy about to come collect the lost teeth of little boys and girls and leave a coin or two behind.
Children’s author, Katie Davis, created the February 28 observance of National Tooth Fairy Day. While there is also an August 22 observance, it is interesting to note the two observances are six months apart and the American Dental Association’s recommendation to have cleanings twice annually.
MARKET MINUTE
Mixed Signals
The 10-year Treasury Note yield hit its highest level in a year last week on worries of a pick-up in inflation, while the 30-year Treasury Bond yield ticked over 2.0%. Rising yields weighed on the high-valuation growth stocks, most specifically the big tech names, in addition to dragging down interest rate sensitive sectors, like utilities and real estate investment trusts (REITs).
Economic data painted a mixed picture of the economy. Jobless claims reflected a still-struggling labor market while a strong retail sales number and an above-consensus PPI (Producer Price Index) reflected strong consumer spending and building inflationary pressures.
Stocks were flat as the week came to a close, as traders wrestled with the crosscurrents of positive economic data and a further rise in yields.
Inflation Worries
After a long period of low inflation, concerns are growing that higher consumer prices may return as a result of an accommodative Federal Reserve monetary policy and fiscal spending in response to the pandemic. Tensions heightened last week with the release of January’s PPI report, which saw a jump of 1.7%, the biggest monthly increase since 2009.
While the Fed believes that any price increases will be fleeting, the market appears to view inflation a bit differently. The prospect of further stimulus and more re-openings are adding to investors’ unease, which may revive an old Wall Street practice—inflation watching.
FINANCIAL STRATEGY OF THE WEEK
Each fall the Treasury Department announces inflation adjustments to tax-advantaged retirement accounts and income limits for the following tax year. They recently announced contribution limits and changes for the 2021 tax year.
For the most part, contribution limits for employees will remain unchanged, while limits for the self-employed and small business owners will increase. IRA savers will see slightly increased income limits for deducting contributions, and phase-out income limits for contributing to Roth IRAs. Here are the Retirement Plan Contributions limits for 2021:
401(k)s & 403(b)s - Contribution limits will remain at $19,500, with a catch-up contribution amount of $6,500 for those age 50+.
SIMPLE IRAs - Contribution limits will remain at $13,500, with a catch-up contribution amount of $3,000 for those aged 50+.
Traditional & Roth IRAs - Contribution limits will remain at $6,000, with a catch-up contribution amount of $1,000 for those aged 50+.
Combined Overall Contributions - Combined overall contribution limit will increase from $57,000 to $58,000.
SEP IRAs & Solo 401(k)s – Contribution limits increase from $57,000 to $58,000 for the amount that can be saved in SEP IRAs and Solo 401(k)s. The employee compensation limit for calculating contributions increases to $290,000.
There are also changes to income limits for 2021 to be aware of:
Traditional IRA - The income range limits for deducting contributions to a traditional IRA will increase by $1,000. The AGI phase-out range will be $66,000 and $76,000 for singles and heads of household covered by a workplace retirement plan. The range for married couples filing jointly, where the spouse who makes the IRA contribution is covered by a workplace retirement plan, will be $105,000 to $125,000.
Roth IRAs - The income eligibility limits for contributing the maximum to a Roth IRA will increase from $124,000 to $125,00 for singles and from $196,000 to $198,000 for married couples filing jointly. The AGI phase-out ranges will increase by $2,000 as well to $198,000 to $208,000 for married couples filing jointly, and to $125,000 to $140,000 for singles and heads of household.
Saver’s credit - The saver’s credit that’s designed to help low- to moderate-income workers save for retirement will also see an income limit increase for 2021. For singles it will increase from $32,500 to $33,000; for heads of household it will increase from $48,750 to $49,500; and for married couples filing jointly, it will increase from $65,000 to $66,000.
If you have questions on the 2021 contribution limits, let’s set aside some time to discuss to see how these changes may affect your financial goals.
As always, please let us know if there is anything we can help with along the way or any financial concerns you may have.