The Week on Wall Street
Stocks closed mixed last week as signs of continued economic recovery and upbeat earnings helped some sectors while the struggles persisted for high-growth companies.
The Dow Jones Industrial Average gained 2.67%, while the S&P 500 rose 1.23%. But the Nasdaq Composite index, home for many high-growth companies, lost 1.51%. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 1.20%.
FACT OF THE WEEK
On May 10, 1869, the presidents of the Union Pacific and Central Pacific railroads meet in Promontory, Utah, and drive a ceremonial last spike into a rail line that connects their railroads. This made transcontinental railroad travel possible for the first time in U.S. history. No longer would Western-bound travelers need to take the long and dangerous journey by wagon train, and the West would surely lose some of its wild charm with the new connection to the civilized East.
For all the adversity they suffered, the Union Pacific and Central Pacific workers were able to finish the railroad–laying nearly 2,000 miles of track–by 1869, ahead of schedule and under budget. Journeys that had taken months by wagon train or weeks by boat now took only days. Their work had an immediate impact: The years following the construction of the railway were years of rapid growth and expansion for the United States, due in large part to the speed and ease of travel that the railroad provided.
Energy, financials, materials, and industrials led the market higher on more upbeat news regarding the economic recovery.
But technology and other high-valuation companies didn’t participate in the rally, weighed down by Treasury Secretary Janet Yellen’s comments that interest rates may need to rise. Despite a decline in long bond yields, high growth stocks were under selling pressure for most of the week.
On Friday, a miss on April employment numbers seemed to dial back fears that the Fed might have to adjust interest rates. Stocks rallied on the news, especially some of the hard hit high-valuation companies.
Labor Market Puzzle
The labor market appears to be gaining momentum ahead of a fuller summer reopening. The Automated Data Processing National Employment Report showed that private payrolls rose by 742,000 jobs (the largest gain since September 2020), while new jobless claims fell to under 500,000, sending its four-week average to the lowest point since the pandemic began.
With expectations set very high, the April employment report (266,000 new jobs) came in well short of the consensus estimate of one million new jobs. Businesses have complained about difficulties in hiring workers, with individuals delaying their return to the workforce due to health concerns and ongoing school closings.
FINANCIAL STRATEGY OF THE WEEK
Retirement Income and the Traditional Portfolio
Taking withdrawals from a traditional portfolio exposes fixed-income investors to “sequence of returns” danger. In other words, experiencing negative returns early in retirement can deplete your portfolio more quickly than you planned and potentially undermine the sustainability of your assets. So you may want to consider a couple of strategies to help mitigate this concern.
The first is to have a pool of very liquid assets to fund two-to-three years of retirement spending; this may keep you from selling longer-term assets at an inopportune time. Through time, and depending upon market conditions, you may have the opportunity to replenish this cash reserve using gains from your retirement portfolio.
Another complementary strategy is to integrate annuities. This can help shift the risk of market volatility off your shoulders and onto the issuing insurance company.
The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).
Until retirement, portfolio optimization largely focuses on the blending of different asset classes in the appropriate measure to create optimal portfolios. But in retirement, investors must integrate different retirement investment vehicles to enhance income and manage risk.
A successful retirement is so much more than undertaking sound investment strategies. It also requires understanding "sequence of returns" danger and taking measures to mitigate the risk.
As always, please let us know if there is anything we can help with along the way or any financial concerns you may have.
Have a great week!