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Bob’s Journal for 1/6/21

Published on: Jan 06 2022

Some Notable Events That Grabbed My Attention This Week

Welcome to the first Bob’s Journal of 2022.

We had a busy year in 2021, and I expect more changes and volatility throughout 2022. I look forward to helping you improve your financial independence and security through all the changes.

Don’t forget to listen to or watch my appearances on the “Fun with Annuities” podcast hosted by Stan Haithcock (“Stan the Annuity Man”). You can find my latest appearance and a link to the previous appearance here.

2021’s Stock Markets in Review

2021 was a good year to be invested in U.S. stocks, but the gains didn’t accrue to every investor. For those who didn’t buy and hold index funds, returns depended on the stocks purchased and when they were bought and sold.

The S&P 500 had positive returns on about 57% of trading days in 2021, according to Bespoke Investment Group. The winning percentage also was about 57% in 2020, and 59.5% in 2019.

To put that in some historic perspective, there were only two other times since 1945 that the S&P 500 had positive trading days 55% or more days during the year for three consecutive years. The other periods were 1963-1965 and 2004-2006. Both of those periods preceded serious bear markets.

The 11 sectors in the S&P 500 each had a return for 2021 of at least 14% for the first time since 1995.

Another sign of the strength of the stock indexes in 2021 is that the S&P 500 reached a new high 70 times during the year. Also, 2021 was the third consecutive year of double-digit-percentage gains, marking the first time that’s happened since the technology stock bubble in 1999.

A meaningful share of 2021’s gains were packed into the “Santa Claus Rally” in the last week or so. On Dec. 20, the SPDR S&P 500 ETF (SPY) closed at 454.98. On Dec. 31, SPY closed at 474.96. That’s a 4.39% gain in a few trading days. The year-end gain was even higher before SPY slumped the last few days of the year.

More evidence of the importance of the late-year surge is that SPY gained almost 11% in the last quarter of the year.

Much of the gains in the indexes resulted from increases in technology stocks. The technology sector did so well the last three years that it now is almost 30% of the S&P 500, its highest level since the technology stock bubble. Technology increased its share of the S&P 500 by 1.29 percentage points in 2021.

Initial public offerings (IPOs) were popular during 2021. Special purpose acquisition companies (SPACs) were an especially popular way to go public. SPACs raised about $162 billion during the year, more than they raised cumulatively during the previous decade.

But the most popular IPOs aren’t successful companies, at least not yet. About 70% of the companies that went public through traditional IPOs in 2021 were losing money on their operations.

Investors started to be wary of the money-losing companies late in the year. Many IPOs ended the year trading below their initial prices.

More than 300 unprofitable companies that went public declined 50% or more from their peak prices by the end of the year, according to The Wall Street Journal. Only 34% of the year’s IPOs were trading above their initial prices at the end of the year. Most of the price declines occurred in the last two months of the year.

Financial technology stocks also had a turn of fortune. They soared in 2020 as people embraced them as part of the new pandemic economy. But they joined other “pandemic economy” stocks among 2021’s big losers, with most declining 20% or more and many declining much more than 20% from their highs.

On the other hand, banks and traditional energy companies, which investors ignored for much of 2020, had strong returns in 2021.

Investors who invested through an index fund or other diversified fund did well. Investors who targeted sectors of the market to maximize returns either did very well or very poorly, depending on their choices.

The stock markets changed a lot during the year, often due to factors outside the companies and markets. Expect volatility again in 2022 and expect outside events to be the most important influences again.

Retirement Plan Changes Still High on Congress’ Agenda

Congress can’t agree on much, but there is bipartisan agreement to make changes to retirement plans.

Four different bills changing retirement plans were introduced in Congress in 2021, and another is likely to be introduced soon. The bills made some progress in 2021 but were sidelined by the push for multi-trillion dollar spending bills.

There are a lot of similarities in the retirement proposals, which are known collectively as SECURE Act 2.0. They try to build on changes made in the original SECURE Act, enacted at the end of 2019.

Supporters of the legislation believe there is bipartisan agreement on many of the proposals and that there’s a good chance of passage in 2022. They plan to try for passage early in 2022.

I kept you updated on the proposals and their progress during 2021.

While the proposals contain many benefits to encourage retirement savings, the benefits have to be paid through some combination of tax increases and benefit cuts. The original SECURE Act, for example, eliminated the Stretch IRA. While most reports focus on the benefits of the proposals, I’ll also let you know how Congress plans to pay for those benefits.

I’ll be studying the proposals and their progress and will report back to you on final details and any actions you should consider.

The Data

The labor market remains friendly to workers and hostile to employers.

Hiring soared in December, according to the ADP Employment Report. ADP indicated private jobs increased by 807,000 in December. That’s up from 505,000 in November and about double what economists expected.

The job growth was broad-based, but the leisure and hospitality sector led the way with 246,000 new positions. Businesses with more than 500 employees added 389,000 jobs, more than either medium-sized or small employers.

The report covers data through mid-December, so it might not account for the full effects of the surge in the Omicron variant.

The Job Openings and Labor Turnover Survey (JOLTS) report for November found that workers quit their jobs at the highest rate in the 20 years of the report.

The quits rate was 3%, an increase from 2.8% in October and bringing the rate back to the high reached in September. Another way to look at it is that a record 4.5 million workers quit jobs in November. The numbers include people who quit for any reason, whether to take new jobs or to leave the work force.

Quitting was most prevalent in accommodations and food services, health care and social assistance, retail and professional and business services.

About 6.7 million people were hired in November, which is about the same as in October, according to JOLTS. There were 10.6 million job openings at the end of November, which is down from 11 million at the end of October.

New unemployment claims declined to 198,000 in the latest week. That’s near the lowest levels of the last five decades. The four-week moving average declined to the lowest level since October 1969.

Continuing unemployment claims decreased to 1.716 million.

The General Activity Index derived from the Dallas Fed Manufacturing Survey fell to 8.1 in December from 11.8 in November. The Production Index declined a little to 26.7 from 27.4. Both indexes indicate manufacturing growth remains strong in the region.

The Richmond Fed Manufacturing Index rose to 16 in December from 11. The index declined sharply from July through September but has been improving steadily since.

The ISM Manufacturing Index found growth slowed in December. In November the index was 61.1, but it declined to 58.7 at the end of December. Despite the decline, the December level still indicates growth is strong in the sector.

The final PMI Manufacturing Index for December showed the sector stayed steady in the second half of the month but slowed from November’s growth rate. The index was 58.3 at the end of November, but it fell to 57.8 at mid-December and 57.7 at the end of December.

The PMI Services Index increased slightly in December to 57.6 from 57.5 in November. The Composite Index for the economy increased to 57.0 in December from 56.9 in November.

The S&P Corelogic Case-Shiller Home Price Index rose 0.9% in October after rising 1.0% in September. The 12-month increase was 18.4%, down from 19.1% in September.

Both the month-to-month and 12-month increases were lower than they’ve been over the previous 14 months. While home prices still are increasing, they’ve started to increase at lower rates.

The FHFA House Price Index for October increased 1.1%, greater than the 0.9% increase in September. The 12-month increase was 17.5%.

The Pending Home Sales Index from the National Association of Realtors (NAR) for November declined by 2.2% in November after rising 7.5% in October. Over 12 months, the index was down 2.7%.

The main cause for the low sales numbers continues to be a low inventory of homes for sale compared to the number of potential buyers.

The Chicago PMI rose to 63.1 in December from 61.8 in November. Both numbers indicate high rates of growth.

The Markets

The S&P 500 rose 0.14% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 1.07%. The Russell 2000 increased 1.00%. The All-Country World Index (excluding U.S. stocks) added 0.53%. Emerging market equities are 0.57% higher.

Long-term treasuries lost 3.10% for the week. Investment-grade bonds fell 1.28%. Treasury Inflation-Protected Securities (TIPS) declined 0.47%. High-yield bonds sank 0.53%.

In the currency arena, the U.S. dollar rose 0.16%.

Energy-based commodities increased 0.70%. Broader-based commodities rose 0.72%, while gold gained 0.52%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on Amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on Amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my Amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

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