THE WEEK ON WALL STREET
Stocks moved higher last week, continuing to build on the momentum generated after the Federal Reserve decided to cut short-term rates by 0.50 percent.
The S&P 500 Index gained 0.59 percent, while the Nasdaq Composite rose 0.95 percent. The Dow Jones Industrial Average added 0.62 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, gained an eye-catching 3.53 percent.
FACT OF THE WEEK
On October 1, 1958, the American Express Company issues its first charge card in the U.S. and Canada to give traveling customers more flexibility. The purple paperboard card—which later becomes the iconic green or gold plastic card—pre-dates a new era of paying for purchases with revolving credit cards, with MasterCard and Visa following years later.
With the American Express card, users could purchase airline, steamship and cruise tickets, with one caveat: They had to pay back the balance in full every month. By the time the new card launched, American Express had issued 250,000 cards, and 17,500 businesses had signed on to accept them. Then, in May of 1959, American Express issued the first plastic charge card.
Before entering the charge card business, American Express began in 1850 as a freight-forwarding company, formed through the consolidation of three companies involved. The business gained trust among customers while transporting some of their most valuable possessions. By 1862—during the Civil War—American Express had 890 offices, more than 1,500 employees, and nearly 10,000 miles of railway and express routes in the northeast and Midwest. In 1891, American Express introduced the Travelers Cheque to help customers traveling internationally feel more secure with their money. In 1915, the company started offering customers travel services.
MARKET MINUTE
Congress Passes Spending Bill
Stocks started the week tepidly but in the green, as investors mostly shrugged off Tuesday’s weak consumer confidence report. Then, at midweek, markets put on the brakes as investors appeared to take profits after a four-day winning streak.
On Thursday, markets rallied on news that the final Q2 gross domestic product estimate showed the economy increased at an annual rate of 3.0 percent. Then Friday, the PCE, or Personal Consumption and Expenditures Index, showed inflation had cooled slightly more than expected in August, which some believe may influence the Fed’s decisions on short-term rates at its November meeting.
Finally, a continuing resolution was passed by both houses of Congress last week and signed by President Biden Friday morning, assuaging concerns over a government shutdown. The resolution funds the government until December 20.
China’s Stimulus Package
This week, the head-turning performance came from outside the U.S. As measured by the MSCI EAFE (Europe, Australia, and Far East) Index, international stocks rose more than 3 percent following news of China’s stimulus package, which could be as much as 2 trillion yuan, or $284 billion. China’s program also cut banks’ reserve requirements and lowered a key short-term interest rate. While the EAFE Index doesn’t track stocks from Mainland China, the stimulus package had far-reaching implications for other countries.
FINANCIAL STRATEGY OF THE WEEK
A Decision Not Made Is Still A Decision
Whether through inertia or trepidation, investors who put off important investment decisions might consider the admonition offered by motivational speaker Brian Tracy, "Almost any decision is better than no decision at all."
This investment inaction is played out in many ways, often silently, invisibly, and with potential consequences to an individual’s future financial security.
Let's review some of the forms this takes.
Your 401(k) Plan
One of the worst decisions may be the failure to enroll. Not only do non-participants miss out on one way to save for their retirement, but they also forfeit any potential employer-matching contributions. Not participating can be a costly decision. But under the SECURE 2.0 Act, employers will be required to automatically enroll employees in retirement plans starting in 2025.1
The other way individuals let indecision get the best of them is by not selecting the investments for the contributions they make to the 401(k) plan. When a participant fails to make an investment selection, the plan may have provisions for automatically investing that money. And that investment selection may not be consistent with the individual’s time horizon, risk tolerance, and goals.
In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 73. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10 percent federal income tax penalty.
Non-Retirement Plan Investments
For homeowners, "stuff" just seems to accumulate over time. The same may be true for investors. Some buy investments based on articles they have read or based on the recommendations of a family member. Others may have investments held in a previous employer’s 401(k) plan.
Over time, we can end up with a collection of investments that may have no connection to our investment objectives. Because of the dynamics of the markets, an investment that may have once made good sense at one time may no longer be advantageous today.
By not periodically reviewing what we own, which would allow us to cull inappropriate investments – or even determine if the portfolio reflects our current investment objectives – we are making a default decision to own investments that may be inappropriate.
Whatever your situation, your retirement investments require careful attention and may benefit from deliberate, thoughtful decision-making. Your retired self will be grateful that you invested the time … today.