Bob’s Journal for 10/21/21

Some Notable Events That Grabbed My Attention This Week

This past Tuesday, Oct. 19, marked 34 years since the S&P 500 had what is still the largest decline in a single day. The index lost more than 20% of its value on that day in 1987.

An investor who bought at the close on that day and held through this week would have had a 9.2% annualized return. Someone who bought the index at the market close the day before the big decline and held through this week would have had an 8.5% annual return, according to Bespoke Investment Group.

Fed Officials Admit They’re Behind the Inflation Curve

Members of the Federal Reserve Open Market Committee realized in September that inflation could rise higher and last longer than they had anticipated, according to a summary of the September meeting reported last week.

Most Fed officials had been saying consistently that they believed the increase in inflation that began in late 2020 and accelerated in 2021 would be “transitory.” They believed the inflation was the result of short-term supply and demand imbalances that would be resolved quickly.

Until September, only a few members thought there was a significant risk of higher inflation and that the Fed should curb the extraordinary measures it introduced early in the pandemic. The number of members with that viewpoint increased at the September meeting.

Fed officials now expect they will start reducing their purchases of treasury bonds and other securities in mid-November. The reduction will be gradual, with a goal of ending the purchases by July 2022.

Reducing or ending the bond purchases doesn’t mean the Fed will increase interest rates at the same time. Most Fed officials said they expect to increase short-term interest rates before the end of 2022, and markets indicate rate increases will begin in September 2022.

Even if inflation rises above current levels or persists at high levels, the Fed isn’t likely to accelerate this schedule. Most Fed officials are more worried about ending monetary support too soon and triggering a recession than they are about inflation.

Two Big Announcements from Social Security

The Social Security Administration (SSA) doesn’t make news often, but recently SSA did so twice.

You probably saw the news that the 2022 cost of living adjustment (COLA) for Social Security beneficiaries will be 5.9%. Each of the 64 million Social Security beneficiaries will have monthly benefits increased by 5.9% starting January 1, 2022.

That the largest COLA in 39 years. Over the past 10 years, COLAs averaged 1.65%. The 2022 COLA will increase the average benefit by $92 per month to $1,657 monthly, and the average married couple’s joint monthly benefits will rise to $2,753, up $154.

The maximum beginning benefit for a worker who retires at full retirement age in 2022 will be $3,345.

About half of senior households receive 50% of their income from Social Security. For 25% of senior households, it is all or almost all their monthly income, according to SSA.

Changes to Medicare premiums and other costs should be announced within a month.

The other news from SSA is the redesigned benefit estimate statement, or what it calls the Social Security Statement.

The statement tells people the current estimates of what their monthly benefits would be if they claimed at different ages, plus other information.

SSA says the new statement is shorter, has more visuals and uses plain language compared to the previous statement. The revised statement went through extensive testing, and SSA believes most people will find it easier to understand and will be able to find the information they want faster.

Each beneficiary can view his or her new statement on demand by creating a “my Social Security” account at www.ssa.gov and logging into the account. A paper copy can be obtained by calling SSA.

Who’s More Likely to Sell Stocks in a Panic?

Middle-aged men who consider themselves financially sophisticated are the ones most likely to sell stocks during a panic, according to an MIT study.

The study’s authors said they analyzed more than 600,000 brokerage accounts. They concluded that the investors most likely to “freak out” are male, over 45, married, and consider themselves to have “excellent investment experience.”

Other types of investors also are likely to sell during a market decline, especially those who have less than $20,000 in their portfolios.

The researchers said they did the study to help financial professionals and investment firms identify those investors who are most likely to sell in a panic and perhaps take measures to prevent the sudden sales.

The Data

New unemployment claims declined to their lowest level since the start of the pandemic. In the latest week, only 293,000 new claims were filed, a decline of 36,000. That’s the first week since the pandemic began in which new claim filings were below 300,000.

The number of continuing claims declined by 134,000 to 2.59 million, another low since the pandemic began.

The Producer Price Index jumped another 0.5% in September to bring the 12-month increase to 8.6%.

Excluding food and energy, the PPI increased a less-than-expected 0.2% for September but is up 6.8% over 12 months.

Retail Sales in September jumped 0.7%, and August’s increase was revised higher to 0.9% from the 0.7% initially reported. Economists were expecting a slight decrease in September.

Excluding vehicles and gas, sales still increased 0.7% for the month, and August’s increase was revised slightly higher to 2.1%.

Retail sales increased 13.9% over 12 months. The retail sales numbers aren’t adjusted for inflation. So, the sales increase represents a combination of higher prices and more buying by households.

The Empire State Manufacturing Index continued its recent volatility. The index for October declined to 19.8 from 34.3 in September. The new level is considered to indicate very strong growth instead of the exceptionally strong growth recorded in September.

Industrial Production declined in September because of the lingering effects of Hurricane Ida and supply shortages.

Production declined 1.3% in September, and August’s number was revised to a 0.1% decline from a 0.4% increase.

A 7.2% decline in motor vehicle production due to parts shortages was a major cause of the production decline. Excluding vehicle production, industrial production declined only 0.3% in September.

Manufacturing output declined 0.7% in September, and August’s number was revised to a 0.4% dip from a 0.2% increase.

Home builder confidence improved in October. The Housing Market Index from the National Association of Home Builders (NAHB) rose to 80 from 76 in September. The index was a record high 90 in November 2020.

Home builders report their main problems remain higher prices for supplies and problems obtaining them. Despite that, demand for new homes is strong.

Consumer Sentiment for the first half of October, as measured by the University of Michigan, declined to 71.4 from the end-of-September level of 72.8.

Both the current conditions and expectations components of the index fell. The index had reached a 10-year low in August and remains just above that level.

Confidence in government policies declined about 19% in early October and was a major factor in the index’s decline.

Housing starts in September declined 1.6% from August’s level but were 7.4% higher than 12 months earlier. Single-family home starts were unchanged.

The decline in September starts was due to lower multi-family housing starts. But multi-family housing starts were 38% higher than 12 months earlier.

The Markets

The S&P 500 rose 3.93% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 3.14%. The Russell 2000 increased 1.96%. The All-Country World Index (excluding U.S. stocks) added 3.35%. Emerging market equities are 4.04% higher.

Long-term treasuries lost 0.17% for the week. Investment-grade bonds decreased 0.02%. Treasury Inflation-Protected Securities (TIPS) added 0.03%. High-yield bonds gained 0.68%.

On the currency front, the U.S. dollar declined 0.87%.

Energy-based commodities increased 1.82%. Broader-based commodities rose 1.41%, while gold gained 0.48%.

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.

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