The Bottom Line
● With the Fed turning hawkish, equity markets retreated from their record highs set last Friday, both domestically and across the pond in Europe.
● Yields fell with equities for the week, the yield on the 2-year dropping slightly, down -1bps and the yield on the 10- year falling -7bps.
● Economic data for the week showed that inflation is still hitting manufacturers hard with PPI coming in hotter than expected and housing data showed that the real estate market is still running red hot with both Housing Starts and Building Permits come in above expectations.
Fed Turns Hawkish
Retreating from last Friday’s record high, the S&P 500 was in the red almost everyday for the week, except for Wednesday when Fed Chairman Powell made remarks after the Federal Reserves meeting. To combat runaway inflation, Powell announced that the Fed will accelerate the pace at which they are tapering their asset purchase program, increasing the reduction from $10 billion to $20 billion per month starting next month. After the dust had settled, the S&P 500 lost -1.94% for the week, with Small Caps, as measured by the Russell 2000, right behind it, down -1.71% for the week. The tech heavy Nasdaq faced the worse of the selling pressure, falling -2.95% for the week. European equities, as measured by the STOXX Europe 600, were down slightly -0.35% for the week after the European Central Bank (ECB) also announced a tapering to their asset purchases, but also promised that additional stimulus would be coming. Japanese equities, as measured by the Nikkei-225, was able to cling onto positive territory for the week, up +0.38%. With the week turning negative, a Santa Claus rally is in jeopardy, but not impossible. Looking out the next week, market participants will be looking to GDP numbers, as well as personal income and spending data releases.
Digits & Did You Knows
EVERYBODY IS PAYING LESS – The Tax Cuts and Jobs Act of 2017 was signed into law by President Trump on 12/22/17 and became effective on 01/01/18. The average tax rate paid by the top 1% of taxpayers, i.e., federal income tax paid divided by adjusted gross income, dropped from 26.76% in 2017 to 25.57% in 2019. The average tax rate paid by the bottom 90% of taxpayers dropped from 8.38% in 2017 to 7.36% in 2019 . (source: IRS, BTN Research).
AS LONG AS I’M HERE – Just 1 out of every 11 employees (9%) who were auto-enrolled in their companies’ 401(k) plans opt out of their participation in the pre-tax retirement plan. (source: Fidelity, BTN Research)
Source: Bloomberg. Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange‐traded funds recommended by the Prime Capital Investment Advisors. The performance of those funds may be substantially different than the performance of the broad asset classes and to proxy ETFs represented here. U.S. Bonds (iShares Core U.S. Aggregate Bond ETF); High‐YieldBond(iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 ValueETF);MidGrowth(iSharesRussell Mid‐CapGrowthETF);MidValue (iSharesRussell Mid‐Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares U.S. Real Estate ETF). The return displayed as “Allocation” is a weighted average of the ETF proxies shown as represented by: 30% U.S. Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4%Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.
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