May Recap and June Outlook
 
In reference to the Wizard of Oz, the Fed lion has found the courage to increase interest rates drastically, the inflation tiger is still ambushing the economy, and now the stock market is flirting with bears. The question for investors is: Are we still deep in the forest? Or is that the Emerald City on the horizon? To extend the metaphor – that wizard wasn’t much help, and the solution to the problem turned out to be a liquidation.
 
Just to be clear, they melted the witch. We’re not suggesting melting your portfolio.
 
Let’s recap the recent data releases as we head into the big one – May inflation – which will be released on June 10th
 

• The National Association for Business Economics reported a lower projection for GDP. The median forecast for inflation-adjusted gross domestic product (real GDP) for the fourth quarter (Q4) of 2022 is an increase of 1.8% from Q4 2021, compared to a median forecast of 2.9% in the February 2022 survey.
• The survey also addressed respondents' outlook on recession. More than half (53%) of respondents assign a more than 25% probability of a recession occurring within 12 months.
• The Bureau of Labor Statistics released the May non-farm payrolls on June 3rd. The economy beat expectations and created 390,000 jobs.
• A key manufacturing sector index is still positive. The Institute for Supply Management Purchasing Managers' Index for May was 56.1. Any number above 50 indicates expansion, while numbers below 50 show shrinkage.
• And consumers are still spending. The Conference Board said on May 31st that its consumer confidence index dipped to 106.4 in May, from 108.6 in April. This is still a strong reading. 

 
What Does All of That Data Add Up To?
 
The Fed is trying to contain inflation by slowing economic growth. The key inputs are consumer demand for goods, which of course, is driven by strength in consumer balance sheets. And that is driven by full employment and rising wages. The Fed is increasing interest rates, which makes money more expensive.
 

• Business investment depends on access to capital. Less capital means less growth and fewer jobs.
• Mortgage rates have increased more than 200 basis points. This has already slowed the booming housing market, which will have a knock-on effect on several job sectors.
• Consumer credit is more expensive, which should result in a slowdown in consumer demand.

 
The Fed is aggressively raising rates at a stated – and unusual -- pace of 50 basis points at each of the next several meetings. Even before rates go up, the market begins to price in where rates will be months down the road.
 
That's part of what is contributing to the pullback in equities we've seen this year. The market is also reacting to uncertainty. There's no way to know if the Fed will be successful.
 
Lowering Inflation Requires Slowing Economic Growth – But How Slow Is Too Slow?

The Fed’s stated belief is that the long-term potential growth rate of the U.S. is around 1.8%. Growth at this level would be likely to keep inflation at the Fed’s preferred level of approximately 2%.
 
How Did the Markets React?
 
After tickling the bear mid-month, the S&P 500 managed to close in positive territory by a hair of 0.01%. After seven consecutive weeks of declines, the index saw the best weekly performance since November 2020.
 
All eyes are on inflation. After declining slightly last month, markets will be looking for more evidence that the Fed’s aggressive rate moves are working. Gas prices have bounced back up to levels not seen since the first weeks of the Ukraine invasion. Headline CPI includes energy – so the pressure is on.
 
It’s probably hard to understate the impact of the inflation number as a market mover. The belief that the Fed would need to be even more aggressive in raising rates – with a potential 75 basis point increase – was in part responsible for the sustained negativity about equity markets. With even a small decrease in inflation, market sentiment moved back to positive as investors displayed more confidence that rate increases would be at the levels the Fed has outlined.
 
Chart of the Month: Manufacturing is Still Expanding
 
Institute for Supply Management – Purchasing Managers Index

Summer will officially be here soon, but before kids get out of school and all the vacation planning you did begins to come to fruition, it can be a good idea to take stock of your financial picture and make updates where necessary. Below are a few things you should consider to keep your plan in shape. We've organized them by life stage, from having small kids to being closer to retirement. We've also included charitable giving, as that happens at every stage.

College Savings Plans
If you haven’t started one yet – the sooner you get saving, the better. You can fund a 529 plan with up to $16,000 per year and still qualify for the annual gift tax exclusion – but you can also fund five years at once if you're behind and want to catch up. If you have a 529 plan set up, it’s a good idea to revisit your allocation as your child gets closer to college age, to make sure you’re not taking too much risk.

Risk Management
Life insurance is critical to keeping your family’s lifestyle and goals on track. For most people, a term life policy offers the ability to cost-effectively replace your salary during your prime earning years. The rule of thumb is the policy should be 5-10 times your annual pre-tax income. It may also be time to think about an umbrella liability policy to protect your assets over and above your existing coverage.

Retirement Savings
Volatility in the markets has increased and is likely to remain elevated. If you're within ten years from retirement, you may want to revisit your asset allocation and potentially dial back the risk.If you turned fifty during the last six months, you are now eligible to make the additional “Catch Up Contribution” to your IRA or 401(k) of $6,500. This not only adds significantly to your retirement savings, it’s a good way to lower your tax bill in the year you make the contribution.

Long-Term Care Insurance
It's generally sooner than you think to start thinking about long-term care insurance, either for your parents or yourself. Since policies are basically impossible to get once you need the insurance, it's better to have a plan a place at a younger age. It's also less expensive. Long-term care insurance is more customizable and offers a lot more options now, so finding a plan that works for your situation can be beneficial.

Charitable Giving
If you haven’t yet sorted your plan for charitable giving for 2022, the slower pace of summer can be an excellent time to think about what is meaningful to yourself and your family and where you would like to see your contributions go to make a difference. Come up with a plan now, so you aren't up against year-end deadlines during the busy holiday season.

Setting up a donor-advised fund allows you to contribute now, but you can postpone the decision of what charities you want to give to. A qualified charitable distribution from a tax-deferred retirement account can allow you to donate and meet your required minimum distribution (RMD) for the year, which can be an advantage in keeping income at low enough levels to avoid the Medicare IRMAA surcharge. 

The Bottom Line
Thinking about your financial picture holistically and keeping all the different pieces tuned up is important to make sure you and your family are achieving your goals and staying protected. Taking the time to check in with some of the bigger items before you turn to the lazy, hazy days of summer will have you in great shape when Fall rolls around. 

There's a lot involved in moving to a new company, and normal for some to put some of the more tedious housekeeping items on the back burner. Besides all the job-related changes, you need to understand your new health insurance and set up your new 401(k) to continue your annual contribution.
 
But what happens to your old 401(k)? It stays where it is for many people, and they end up with multiple 401(k) accounts. There may be some benefits if the old plan offers investments that you prefer to keep or provide diversification from the new plan. However, it can also make record-keeping onerous, and it can become challenging to understand your accurate risk exposure.
 
A better approach is to understand your options and make the best decision based on your tax status and the rest of your financial plan.
 
The Options for 401(k) Portability 
You generally have four options for the vested assets in your 401(k) plan. Many employers allow you to leave the plan where it is. However, any unvested assets won’t continue on a vesting schedule. Vesting ends with your termination date, so your plan balance will be the amount you've contributed, any employer contributions that have vested, and any growth of the investments.
 
There are three main options when it comes to portability:

1. If you decide to roll the plan over, you may be able to transfer the assets directly to your new employer's plan if they accept transfers. This is straightforward. It's called a "direct transfer," and the amount you have invested rolls over intact, with no taxes deducted, if the old plan administrator makes the check payable to the new plan.
   
   
2. If the check is made payable to you, it's called an "indirect rollover," and the old plan will deduct taxes. You have 60 days to deposit the amount (along with any additional funds to make up for the taxes that were withheld) into your new plan. You may see this as an opportunity to make a short-term loan to yourself, and there are some circumstances where it might work – but it can be costly from a tax standpoint. If you miss the window and don’t contribute the funds to your new plan, you’ll get hit with penalties if you’re under 59 ½. Taking money out of your plan may also mean you fall short on retirement goals.    
   
   
3. The final option is to cash out. At least 20% of taxes will be withheld, and you'll get hit with a 10% penalty at tax time if you are under age 59 1/2. The extra income may also bump you into a higher tax bracket.

 
Creating Diversification
 
Thinking about your 401(k) investments as part of your comprehensive financial plan can help you create enhanced diversification. Take a careful look at the plan choices offered in each plan. You may decide that you can craft a more diversified strategy by keeping both plans. You could replicate your risk strategy in each or set up a new strategy by selecting different asset classes and funds in each that create a total risk profile you are comfortable with. Or you may prefer the investments offered in the new plan and choose to simplify your strategy by keeping everything in one place.
 
If you are invested in a target-date fund, you may want to consider the rollover. The two funds may have the same target date, but the risk profile can differ from plan to plan. It's hard to get a sense of what you are holding, so it may be beneficial to roll over the assets and consolidate them into one target-date fund.
 
An Opportunity for Tax Planning
 
If you have been out of work for some time and have lower income, it may make sense to do a Roth conversion. Pulling money out of your 401(k) to convert it while you are still working doesn't usually make sense because it can create a costly tax burden, so investors typically wait until early retirement.
 
There are income limits on employer-sponsored Roth 401 (k) accounts, but you can convert to a Roth IRA without any income limitation. You'll need to pay the taxes you deferred when you contributed to the traditional 401(k) account, plus the growth of the investments will also be taxed. But once you pay the taxes and deposit the funds into the Roth IRA, they grow tax-free, and you will not be subject to required minimum distributions starting at age 72.
 
This can be a significant advantage for income planning in retirement, as it may help keep you in the lower tax brackets.
 
The Bottom Line
 
Thinking through your 401(k) rollover strategy should be part of the financial housekeeping you do when you join a new company. Understanding what you have and your risk profile can provide you with assurance during market volatility. It also ensures you stay organized. There are many options, so investing the time to identify what is right for you makes good sense.

April Recap and May Outlook
 
COVID concerns took a definitive backseat as mask mandates on flights ended, and the concerns about the economy turned to how bad things will get. The concerns over the disruption of the ongoing war in Ukraine, 40+ year record inflation, and the resulting amping up of the Fed’s intentions on rate increases moved distinctly into the foreground. Let’s look at some headlines:

• The IMF released projections for the impact of the war in Ukraine. Global growth will likely slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than projected in January.

• The war isn’t just impacting growth. The IMF also reported that war-induced commodity price increases and broadening price pressures have led to 2022 inflation projections of 5.7% in advanced economies and 8.7% in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected last January.

• In remarks at a panel discussion at the IMF on April 21st, Chairman Powell reiterated that it is appropriate “to be moving a little more quickly” on rate hikes. That translated into guidance on the first 50-bps rate increase in 22 years.

• Economists began talking about “stagflation.” Stagflation is high inflation, high unemployment, and slow or negative real economic growth. Stagflation fears rise out of the potential for the Fed to overshoot and tip the economy into recession. Another way to think of stagflation is a circular firing squad. In stagflation, the moves the central bank makes to rescue the economy push it further into recession.

 
Chairman Powell Steps Up to the Plate – and the Mic
 
We’ve come a long way from a Federal Reserve that would speak as obtusely as possible, and exclusively to economists and bond market people.
 
Powell spoke “directly to the American people” in his remarks. He was clear about his view of where inflation is and what the Fed’s intention is: "Inflation is much too high and we understand the hardship it is causing, and we’re moving expeditiously to bring it back down.”
 
Powell was also careful to stake out what the Fed sees as under its purview, as opposed to governmental control: "It's really the Fed that has responsibility for price stability."
 
How Did the Markets React?
 
The increasingly negative numbers all months speak for themselves. And it wasn’t just equities – bond market prices suffered as yields hit levels they haven’t seen in years. However, there were some bright some spots.
 
There is some indication that the 8.5% March inflation number may be the peak. Core inflation, which is CPI ex food and energy, fell in March. The Atlanta Fed tracks what they call “sticky-price” inflation. This is a weighted basket of items that change price relatively slowly. It increased 5.8 % annualized in March, following a 6.5 % increase in February.
 
So even though inflation is up, “sticky” inflation is trending down. Added to a strong labor market and an economy that is still growing, even if slower, the potential for both stagflation and a prolonged recession – or any recession – may be lower than headlines are shouting now.

After the rate increase on May 4th, and Powell’s remarks, the market initially reacted positively as rate increases of 100 basis points over the next two meetings were not as drastic as some feared. As rates continue to climb, and we see how inflation responds, volatility will continue to be with us.
 
However, it’s important to keep in mind that the market overall, especially as measured by earnings, is healthier than many might think. Q1 2022 earnings are up 8.5% year-over-year, although lower than Q4 2021. The market is down from the all-time high seen in January, but it’s still higher than it was prior to the pandemic.

Chart of the Month: Yields Are Sharply Up as the Fed Increases Rates
​

Equity Markets
 

• The S&P 500 was down 8.80% in April, bringing its YTD return to -13.31%
• The Dow Jones Industrial Average lost 4.91% for the month and returned -9.25% YTD
• The S&P Mid-Cap 400 decreased 7.18% for the month resulting in a -12.02% YTD return
• The S&P Small-Cap 600 declined 7.87% in April, putting the YTD return at -13.34%

Source: All performance as of April 30, 2022; quoted from S&P Dow Jones Indices.
 
The S&P 500 traded in a high/low range of 11.38%, compared with the pre-COVID-19 historical monthly average of 6.86%. The index ended the month with its worst one-day return (-3.63%) since June 11, 2020, and is in correction territory. Intra-day volatility is up, trading volume is down, and breadth not only declined, but it also turned negative as only 05 issues gained, compared with March’s 315 gainers.
 
Bond Markets
 
The 10-year U.S. Treasury ended the month at 2.93%, and the 30-year U.S. Treasury ended at 3.00%, up from last month’s 2.45%. The Bloomberg U.S. Aggregate Index was down, returning -3.79. As represented by the Bloomberg Municipal Bond Index, Municipal bonds returned -2.76%. High yield corporate bonds struggled with rising rates, with a return of -3.55% for the Bloomberg U.S. High Yield Index.
 
The Smart Investor
 
One point that has been consistently made over the past decade-plus of record stock market returns is that the market has been boosted by artificially low interest rates. Rates had not recovered to normal levels after the Global Financial Crisis, and the pandemic resulted in a second slashing of rates and an enormous increase in the Fed’s balance sheet asset, which pushed long-term yields down.  

With the 10-year U.S. Treasury at just below 3%, mortgage rates at more than 5%, and the market pricing in a short-term rate of nearly 3% by year-end, normalization is happening fast. What does that mean for investors?

Well, some basics: Higher interest rates mean that profits now are more valuable than more-illusory profits in the future. And all that venture capital money sloshing about? That sound you hear is the collective shriek of start-up workers realizing that firm outings to Coachella maybe weren’t the best way to spend the cash, because there might not be as much of it in future. What is back in style? As old school as it gets: Berkshire Hathaway bought $51 billion of stocks in the first quarter.
 
As for the other workhorse of long-term investing, S&P Global reports that dividends continue on a slow upward trend, with few decreases and measured increases.
 
Volatility is likely making itself at home, but strong employment, a growing economy and a more engaged and accountable Fed may mean we stave off or control recession, along with inflation.

March Recap and April Outlook
 
Ukraine’s fierce response to and subsequent repulsion of Russian troops surprised everyone, not least Vladimir Putin. As March came to a close, negotiations were beginning to be more realistic, and the evidence on the ground was that Russia was retreating and reassessing.
 
The Federal Reserve held the monthly FOMC meeting and raised the key short-term interest rate by 25 basis points. What wasn't expected was Fed Chairman Powell's subsequent remarks about the pace of rate increases. Powell has worked to be transparent and proactive in communicating the Fed's intentions.
 
The change in the pace of rate increases was clear in his language that "There is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability."
 
Markets interpreted that to mean that 50 basis point hikes would be deployed at the next round because the language change was from raising rates "steadily" in January, which the Fed translated to 25 basis point rate increases.
 
What Powell is attempting with the return of monetary policy to a "neutral level" is to raise rates as high and as quickly as possible, to take excess liquidity resulting from stimulus out of the system while the labor market continues to be very strong. If further rate hikes are necessary to lower inflation, in theory, the Fed will have more control as it balances rate increases and supporting a growing economy.
 
The reaction?
 
Equity Markets: Cool. Growth. We’re Good.
Bond Markets: Not the 50 bps - INVERT THE YIELD CURVE!
 
The New Recession Obsession
 
After flirting with the flip for the last week of March, the yield curve inverted on April 1st.
 
What does this mean?
 
A normal curve of the different yields related to the maturities of U.S. Treasury securities rises as durations get longer, so the 30-year U.S. Treasury pays a higher yield than the 3-month U.S. Treasury because of the risk of holding the longer-term instrument. The yield curve "flattens" when the spread narrows between a pair of rates, for example, the 5-year and the 30-year. When the shorter-term rate rises above the longer-term rate, the curve is said to "invert." 
 
Essentially, when short-term rates are higher than long-term rates, bond investors are betting that the economy will slow in the future. Markets appear to think that the Fed will overshoot, stall out the economy, and increase rates all over again.
 
Why do people that aren’t bond traders care?
 
When the yield curve inverts for an extended period, a recession tends to follow. Not right away – it's usually months or even years before the economy catches up to the bond market's signal of no confidence. But as an indicator, it's pretty accurate.
 
What About This Time?
 
The inversion was triggered by the release of the very strong March employment number. The March non-farm payroll increase was 431,000 jobs, which pushed the unemployment rate to 3.6%, from 3.8%. The fifty-year low unemployment rate is 3.5%, which we hit just before the pandemic. The idea is that the strong labor market means that the Fed will be forced to enact a series of 50-basis point cuts, leading the economy into recession. The significance of the 50-basis point cut is that we haven't seen one in 22 years. But that's just one scenario.
 
Rates all along the curve are not inverted. The Atlanta Fed plots the markets’ expectations for the Fed funds rate. The calculations show a rate that peaks at 3% in the fall of 2023, then drifts slowly downward to 2.5% by the spring of 2025. This looks like the 2019 yield curve inversion, which was followed by some gentle "mid-cycle" rate cuts that worked.
 
 
Chart of the Month: GDP Expectations Have Been Revised to Reflect Ukraine
 
Projected GDP Change in G-7 Countries

Equity Markets
 

• The S&P 500 was up 3.58% in March, bringing its YTD return to -4.95%
• The Dow Jones Industrial Average rose 2.32% for the month and returned -4.57% YTD
• The S&P Mid-Cap 400 increased 1.21% for the month resulting in a -6.22% YTD return
• The S&P Small-Cap 600 gained 0.18% in March, putting the YTD return at -5.93%

Source: All performance as of March 31, 2022; quoted from S&P Dow Jones Indices.
 
Volatility is on the increase: In March, 14 of the 23 days posted at least a 1% change while 10 of 19  did so last month, and 8 of the 20 the month before that. Q4 2021 preliminary earnings and sales have not just beat expectations (as they did in Q1, Q2 and Q3 of 2021), but they are setting new quarterly records.  For the quarter, 378 (75.6%) have beaten operating estimates. All 11 S&P 500 sectors were positive for the month as the market traded past higher interest rates and inflation, with limited impact from the Ukrainian situation. 
 
Bond Markets
 
The 10-year U.S. Treasury ended the month at 2.34%, and the 30-year U.S. Treasury ended at 2.45%. The Bloomberg U.S. Aggregate Index was down, returning -2.77. As represented by the Bloomberg Municipal Bond Index, Municipal bonds returned -3.24%. High yield corporate bonds struggled with rising rates, with a return of -1.14% for the Bloomberg U.S. High Yield Index.
 
The Smart Investor
 
Volatility is likely to remain elevated. As an investor, this means deploying dollar-cost averaging strategies if you intend to contribute an annual bonus or tax refund to your investment accounts. While the Fed is series about fighting inflation, it will take time. So be sure you have enough cash in your accounts to cover the cost of higher spending.
 
While your debt has likely already become more expensive, don't expect interest rates on savings, checking, or money markets account to jump up overnight. Cash is still costing you money, so anything beyond what you need for expenses may be better put to work in other investments.   
 
This isn’t the time to make big changes to your long-term investment plan, but tweaking it may be a good idea. Bond yields aren’t high enough to outpace inflation and rate increases mean the prices of longer-duration bonds are struggling. Reviewing your bond allocation may make sense.

Tax season is upon us! Even though Uncle Sam thinks it’s the most wonderful time of the year, in the real world, we know it can be stressful and we wanted to provide a guide for our clients with some resources to help you prepare.

The most common questions we receive about tax forms are listed below:

Lastly, if you are having trouble logging into any of your accounts or finding your tax documents, please feel to call our office at 209-857-5207 and we will be more than happy to assist you.

We hope you find this guide helpful and wish you a blessed and prosperous year ahead!

Gary Blom
Michael Howell, CFP®
​Blom & Howell Financial Planning

What to know as markets look forward.
 
Are you having a tough time keeping track of inflation's mixed signals? You’re not alone.
 
Consumer prices in July climbed at their fastest rate since August 2008. Worse, producer prices, which can be an indicator of future price changes at the consumer level, rose at the highest rate since tracking began.
 
However, in recent weeks, the stock market has shrugged off the inflation news, believing that the worst is over and rising prices will moderate in the future.
 
It’s important to remember that the stock market is a discounting mechanism, which means it’s always looking forward. Put another way, the stock market’s price today represents all available information about current and future events. How far forward is the stock market looking? Most would agree it’s “discounting” activity six to nine months into the future.
 
Does that mean inflation will be lower in six to nine months? That’s what the stock market is suggesting. But the stock market also has a less-than-perfect record as a discounting mechanism, largely because the future is somewhat unknowable.
 
Inflation is just one factor to consider when making adjustments to a portfolio. But if you’re unsure, thanks to the mixed messaging I've seen lately, please reach out. We’d welcome the chance to hear your perspective.

You've got plenty of choices these days.
 
Have you ever heard the Wall Street expression, "markets climb a wall of worry?"
 
It's the idea that financial markets are constantly on edge. Traders fret about how long a market rally can continue before it runs into trouble. Worry shifts from one news event to the next as traders attempt to build a case whether it's time to go "risk-off" with a portfolio strategy.
 
If you're looking for something to worry about, you've got plenty of choices these days: the Delta variant, inflation, jobs, vaccines, Fed policy, taxes, unemployment, and so on. There's no shortage of headlines to help boost investors up the wall.
 
But by early August, the Standard & Poor's 500 index notched its 42nd record closing of 2021. And while past performance is no guarantee of future results, it's important to keep in mind the S&P 500 has moved higher despite the wide range of economic and financial concerns.
 
Our role as financial professionals is to help guide and equip clients with the tools they need regardless of what news "worries" the financial markets. We work with professionals who monitor the economy and interpret how the recent news may influence the overall trends. 
 
If you find yourself worried about the financial markets, please reach out. We'd welcome the chance to hear your thoughts.

U.S. Markets
Last month, the stock market posted a solid gain, overcoming investors’ fears of higher inflation and an increase in COVID-19 cases. 

The Dow Jones Industrial Average picked up 1.25 percent, while the Standard & Poor’s 500 Index gained 2.27 percent. The Nasdaq lagged, climbing 1.16 percent.
 
A Wall of Worry
Climbing a wall of worry, investors weathered a choppy month as markets digested a jump in consumer prices and the continued spread of the Delta variant.

Inflation, which has been an increasing concern, hit levels not seen in decades. Consumer prices in June rose 5.4 percent, the biggest monthly gain since 2008. Meanwhile, producer prices, often a harbinger of future consumer prices, surged 7.3 percent from a year earlier. But both reports were primarily met with a collective shrug by investors.

More troubling, however, was the global spread of the Delta variant. Throughout the month, investor anxiety grew around fears that a resurgence of COVID-19 cases could stall further economic recovery.
 
Corporate Profits
As July closed, 221 Standard & Poor’s 500 companies had reported earnings, with 91 percent of those companies beating Wall Street’s estimates. Companies also reported strong sales, topping estimates by nearly 24 percent.
​
Stocks took a breather in the final week, despite the Federal Reserve's renewed assurances that its near-zero interest rate policy would remain in place.
​
Sector Scorecard
Energy was the only industry sector that fell last month, declining 5.68 percent. Otherwise, gains were posted in Communication Services (+1.92 percent), Consumer Discretionary (+3.26 percent), Consumer Staples (+2.82 percent), Financials (+0.77 percent), Health Care (+4.76 percent), Industrials (+1.92 percent), Materials (+1.94 percent), Real Estate (+3.47 percent), Technology (+3.84 percent), and Utilities (+5.02 percent).
 
What Investors May Be Talking About in August
The rise in global COVID-19 cases last month unsettled investors, who worried about what it could mean for economic growth.
 
Some expect the recent surge to peak in August, while others see a peak in mid-September to early October.
 
Any new surge is unlikely to mirror the experience in 2020. However, some investors may remain watchful as local, state, and federal entities weigh further restrictions.

World Markets
The MSCI-EAFE Index trended higher, picking up 1.60 percent in July. However, different parts of the globe showed mixed results.

In Europe, France was under pressure, dropping 1.69 percent, while Germany (+0.09 percent) and the U.K. (+0.07) posted modest gains.

Australia rose 1.09 percent to lead the Pacific Rim markets. But Hong Kong dropped 9.94 percent as Chinese regulators continue their push to rein in large companies for reasons that include data security, corporate behavior, financial stability, and curtailing private-sector power.

Indicators
Gross Domestic Product: The economy grew by an annualized rate of 6.5 percent in the second quarter. The growth rate, however, was well below economists’ expectations of 8.4 percent.

Employment: Employers added 850,000 new jobs in June, marking the most significant increase since August 2020. However, the unemployment rate ticked higher to 5.9 percent due to a larger number of Americans seeking employment.

Retail Sales: Retail sales rose 0.6 percent, despite a two percent decline in auto sales. Sales were particularly strong at restaurants, bars, and clothing stores.

Industrial Production: Industrial production increased 0.4 percent, though manufacturing output declined due to reduced automobile production.

Housing: Housing starts rose 6.3 percent in June, exceeding economists’ expectations. Sales of existing homes rose 1.4 percent after four consecutive months of declines. Inventories ticked higher, while demand softened a bit.

 New home sales slumped 6.6 percent, suggesting that high prices are cutting into demand.

Consumer Price Index: Consumer prices jumped by 5.4 percent in June, registering the highest 12-month rate of change since August 2008. The core CPI, which excludes the more volatile food and energy sectors, increased by 4.5 percent.

Durable Goods Orders:  New orders for durable goods rose 0.8 percent in June. This is the thirteenth month out of the last 14 in which durable goods orders registered a gain.

The Fed
The Federal Reserve reaffirmed that its monthly bond purchase program would continue until the Fed sees substantial progress in its inflation and employment goals.

“Our asset purchases have been a critical tool,” Fed Chair Jerome Powell stated. “They helped preserve financial stability and market functioning early in the pandemic and, since then, have helped foster accommodative financial conditions to support the economy.”

Some analysts have suggested that the Federal Reserve’s assessment of economic progress was potentially a hint that the tapering of bond purchases may be close.

Gary G. Blom | Financial Advisor
Michael Howell CFP® | Financial Advisor
Address: 3340 Tully Rd. Ste B4, Modesto, CA 95350
Website: www.blomandhowell.com
Office: (209) 857-5207 | Fax: (209) 857-5098

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How to keep track of your savings bonds’ maturity dates.
 
Did you buy U.S. Savings Bonds decades ago? Or did your parents or grandparents purchase them for you? If they’re collecting dust in a drawer, you may want to take a look at them to see if any of your bonds have matured. If your bonds have matured, that means they are no longer earning interest, and it also means you may want to consider cashing them in.
 
This article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your tax professional when you’re considering any move with a U.S. Savings Bond.
 
You want to keep track of the maturity dates, the yields and the interest rates on your bonds, as that will help you to figure out what bond to redeem when. Fortunately, you’re able to check the maturity dates online now so it’s relatively easy to determine if it's time to cash-in your bonds.
 
Use savings bonds for educational purposes. If you’ve been holding onto Series EE or Series I savings bonds, the interest paid is tax-exempt, so long as the money is used to pay for qualified educational expenses. There are other considerations, so if you discover you have these types of bonds to cash in. A tax professional may be able to provide some guidance.
 
Interest accumulated over the life of a U.S. Savings Bond must be reported on your 1040 form for the tax year in which you redeem the bond or it reaches final maturity. This must be done even if you (or the original bondholder) chose to have the interest on the bond accumulate tax-deferred until the final maturity date. Failure to report such interest may lead to a federal tax penalty.
 
Remember, U.S. Savings Bonds are guaranteed by the federal government as to the payment of principal and interest. However, if you sell a savings bond prior to maturity, it could be worth more or less than the original price paid.
 
U.S. Savings Bonds are taxed in one of two ways. Bondholders choose to defer the tax until the bond matures. Once they redeem the bond, they report the interest through a 1099-INT form. Some choose to pay the tax annually prior to cashing the bond in, reporting the increase in the value of the bond as taxable interest each year.
 
What if you find out you have held a U.S. Savings Bond for too long? Another note about reporting interest: if a U.S. Savings Bond has matured and you have failed to redeem it, you will not find a Form 1099-INT for it in your records. Only redemption will bring that 1099-INT your way. (The accumulated interest for the bond should have been reported to the IRS regardless.) After you cash in that old bond, you will thereafter receive a 1099-INT. It will record that the interest on the bond was earned in the year of the bond’s final maturity.
  
Plan ahead & keep track. U.S. Savings Bonds were issued on paper for decades and were often purchased on behalf of children and grandchildren. Now, U.S. Savings Bonds are issued electronically. While the interest on U.S. Savings Bonds is taxed by the IRS, it is exempt from state and local taxes.