Bob’s Journal for 12/9/21
Some Notable Events That Grabbed My Attention This Week
I recently joined Stan Haithcock (Stan the Annuity Man) for another of his “Fun with Annuities” podcasts.
We discussed taxes, including proposed tax changes and how to reduce taxes on your retirement income. Click here to have a listen or go to his YouTube channel to view the interview.
For an update on the latest tax proposals in Washington and how to adjust your plans, visit The Art of Legacy Planning podcast. Participants include David Phillips and Todd Phillips of Estate Planning Specialists and Richard Durfee of The Durfee Law Group.
The Big Losers Among Stocks in 2021
Stock indexes are just below record highs and surged through most of 2021. But not all stocks participated in the gains.
In fact, a number of stocks that did very well before 2021 tumbled most of this year. These are the stocks that were known as meme stocks, unicorns and pandemic stocks. They benefited from the unusual things that happened in 2020 but their investors suffered as things returned to something closer to normal.
The peak for most of these stocks was Feb. 12, according to Bespoke Premium. The research service compiled a list of the stocks that lost the most since that date, excluding biotechnology stocks.
Though many of the stocks had market capitalizations of $1 billion or more on Feb. 12, most now have capitalizations of a few hundred million dollars or less. Many of the stocks had short-term gains exceeding 100% back in February, but investors lost most of those gains while waiting for the one-year holding period that would turn the gains into tax-favored long-term gains.
The biggest loser was Aterian, a consumer discretionary stock that uses a technology-enabled platform to sell consumer products. From the peak on Feb. 12, the stock lost almost 89%.
Most of the stocks with steep losses aren’t household names. But you might recognize Lordstown Motors, Virgin Galactic, Peloton, Lemonade and Zillow. Bespoke listed 39 stocks that lost 70% or more from Feb. 12.
Another way to look at the unevenness of stock returns during this period is to compare the gain of a Russell 3000 sector with the average return of the stocks in that sector.
The technology sector gained more than $1.5 trillion in market cap since Feb. 12, but the average stock in that sector is down 4.2%. Health care, communication services and consumer staples also gained as sectors but had negative returns for the average stock.
The story was different in some other sectors. For financials, the average stock gained 20.27%, while the sector increased only $868 billion. The energy sector increased by only $275 billion, while the average stock in the sector rose more than 27%.
Looking at the market indexes gives the impression that 2021 was a great year for all stock investors. But results varied greatly, according to the stocks or indexes an investor held.
Compensation Increases Likely to Drive Inflation Higher in 2022
Companies are planning to increase compensation more in 2022 than they have in any year since the financial crisis, according to a survey by The Conference Board.
Companies on average are budgeting for compensation increases of 3.9% of total payroll.
The survey indicates the compensation increases are likely to be broad-based, stretching across the entire workforce of most companies.
The planned increases won’t maintain purchasing power if inflation continues at recent rates. But it will give households enough buying power to maintain their recent purchasing patterns.
Demand for goods and services will continue to exceed supply, pushing prices higher, until businesses are able to increase supply to meet demand.
Robo-Advisors Fail SEC Exams
Financial services technology, also known as fin tech, grew rapidly over the last 10 or so years. But the Securities and Exchange Commission (SEC) said the tech firms fail to comply with regulatory and fiduciary obligations.
The SEC said in a risk alert released in early November that it sent deficiency letters to almost all the fin tech advisors and investment firms it examined.
The shortcomings of the robo-advisors were broad-based, including marketing, performance advertising and the fiduciary duty to provide advice in each client’s best interest, among other areas.
Of particular concern to the SEC was most firms lacked written policies and procedures that would allow the investment firm to ensure that advice was in the client’s best interest. In other words, many of the firms give cookie cutter investment advice under which most clients receive the same recommendations despite significant differences in their circumstances.
Many of the firms also failed to follow up with clients to determine any changes that might warrant a change in advice.
The SEC also said that more than 50% of the firms had problematic marketing and advertising, including misleading statements and vague and unsubstantiated claims, among other defects.
The Data
Factory orders increased by 1.0% in October, and September’s orders were revised higher to a 0.5% increase from the 0.2% rise initially reported.
Over 12 months, orders jumped 17.1%.
Orders for core capital goods increased by 0.7% in October, following a 0.6% climb in September. This is considered a good measure of business investment.
The ISM Services Index increased in November to 69.1 from 66.8 in October. The November reading marks the 18th consecutive month the index indicated growth in the services sector. The 69.1 level also is an all-time high for the index, the fifth record high in 2021.
New unemployment claims increased by 28,000 in the latest week to 222,000. The previous week’s number, which set a new pandemic period low, was revised even lower by 5,000 to 194,000. That number was a five-decade low.
Continuing claims declined to 1.96 million from 2.063 million the previous week.
The final PMI Composite Index for November was 57.2, an increase from 56.5 in the mid-month preliminary estimate. But the composite at the end of October was higher at 57.3. Supply chain problems for manufacturers were the main reason for the decline from October to November.
Last week’s Employment Situation reports were below expectations. Payrolls increased by only 210,000, compared to expectations of 550,000 new jobs. It also was the lowest monthly number of new jobs in 2021.
Leisure and hospitality gained only 23,000 jobs. Strong gains in the sector in recent months led to expectations of strong growth in November.
But the labor force participation rate increased, indicating higher wages might be enticing some people back into the job market.
Average wages now have increased 4.8% over 12 months.
The second estimate of third quarter productivity said productivity declined by 5.2%. The first estimate put the productivity drop at 5.0%.
That caused unit labor costs to increase 9.6%, a jump from the 8.3% rise in the first estimate.
The JOLTS (Job Openings and Labor Turnover Survey) report found little change in the labor market in October.
Total job openings increased to 11.0 million. By far, the industry with the largest number of openings was accommodation and food services.
The number of hires during this month was about the same as in September, and there were small declines in the number of separations and quits.
The Markets
The S&P 500 rose 2.79% for the week ended with Tuesday’s close. The Dow Jones Industrial Average gained 3.72%. The Russell 2000 increased 2.72%. The All-Country World Index (excluding U.S. stocks) added 2.79%. Emerging market equities are 2.54% higher.
Long-term treasuries lost 0.27% for the week. Investment-grade bonds increased 0.62%. Treasury Inflation-Protected Securities (TIPS) lost 0.10%. High-yield bonds gained 1.74%.
In the currency arena, the U.S. dollar rose 0.47%.
Energy-based commodities increased 3.57%. Broader-based commodities rose 0.87%, while gold gained 0.83%.
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 Series, click 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.
