Broker Check
June 2021 Windsor Brief

June 2021 Windsor Brief

| June 02, 2021

WindsorBrief for June 2021

Investing: Despite the bumpy ride, there still appears to be gas in the tank
Planning: Will Secure Act 2.0 make it through this time?
Market Snapshot

In this month’s Windsor Brief, given the recent market volatility we discuss the outlook for the back half of the year. Despite recent macroeconomic concerns, we believe the market still has some gas in the tank and an opportunity to finish higher by the end of the year.

Our financial planning discussion focuses on retirement, and specifically the Secure Act. The original Secure Act raised the Required Mandatory Distribution age to 72. Now there is talk of Secure Act 2.0, and we discuss this below.

If you’d like to talk to us about these issues, or about any of your financial planning or investment goals, please don’t hesitate to get in touch.


Investing: Despite the bumpy ride, there still appears to be gas in the tank

May has proven to be an interesting month from an investing perspective. The bears have tried to roar, causing volatility and consternation in the marketplace. The reasons cited for why the bull market is over have varied, and here are just a few:

  • Employment growth stalled
  • Rising yields on the 10-year treasuries (economic growth too strong)
  • And, ironically, falling yields on the 10-year treasuries (slowing economic growth)
  • Inflation spiking
  • Potential tax increases on corporations and individuals
  • Technology leadership has waned
  • Stock valuations are extended
  • “Sell in May and go away”

However, most of these concerns have not been lasting, and have faded into the background for the time being. Each of the concerns listed are worth keeping a close eye on and watching for increased evidence that it could have a lasting impact. But for now, these have all been more bark and less bite. For instance, the 10-year yield remains range bound, despite some volatility. Inflation, which was always expected to be up this year, seems very much in check despite some areas of over heated pricing that appear transitory. In short, not much to see here…. for now.

On the contrary, there are plenty of positive developments that have much more bite associated with them. Some examples include:

  • Covid-19 cases are declining rapidly, allowing broad economic re-opening nationwide
  • US economic momentum is strengthening
  • Corporate earnings continue to be revised upward
  • Household cash levels have increased significantly
  • Institutional investors are holding $3.065 trillion in cash, nearly the levels from May 2020
  • The conference board Leading Economic Indicators (LEI) are accelerating

The economy is rapidly reopening across the country. This is a function of the Covid-19 virus cases declining to levels not seen since early 2020.

US Daily New Cases

Source: Fundstrat

The drop in Covid-19 cases is allowing the economy to begin to reopen and allowing consumers to get out and spend money on goods, at restaurants, on travel, etc. This has manifested itself in many companies delivering better than expected earnings. This has resulted in the overall earnings forecast for the S&P 500 to continue to rise, a positive for the stock market and overall GDP.

This spending should accelerate from here. “Jefferies U.S. economics team estimates that households have accumulated U.S. $2.2 trillion in additional savings since the beginning of 2021 – above and beyond what they would have saved assuming a 7.5% savings rate” said a team led by global equity strategist Sean Darby. This could lead to aggressive spending from pent up demand on both goods and services. Wells Fargo Economist Tim Quinlan recently wrote “our forecast puts the level of services spending roughly $700 billion higher than it was in the first quarter of this year by the end of 2021. Matching the growth rate from the prior expansion, that’s equivalent to more than four and a half years of typical spending packed into nine months”.

Despite the strong stock market and upcoming potential economic growth, institutional investors have increased the level of cash sitting on the sidelines. Cash levels have increased $330 billion for the year, to a level of $3.098 trillion. This is a bullish development, as it indicates investors are not aggressively positioned and have plenty of cash to support the market on any weakness.

Source: Fundstrat, ICI

In addition, the consumer board’s leading economic indicators (LEI) continues to accelerate. As the name states, these leading economic indicators point to a continuing acceleration in the economy and are indicative of an economy in the early to mid-phase of the economic cycle.

Based on these points, as well as other research we have done, we believe the outlook for the economy, and thus the stock market, remains positive. There may be different leadership of the stock market for this next phase, and the continued rotation from factors such as growth to value. These are changes and adjustments we are always focused on.

These are all powerful signs that the outlook for the economy, and by default the stock market, remains positive. We continue to focus on where we see the best opportunities in the market and are constantly looking for market rotations and changing leadership. The stock market has been strong the past year, and valuations have moved up. But strong economic growth, upwardly revised corporate earnings, and the re-opening of the economy all would indicate that for now, we still have some gas in the tank. But we are always watching to make sure the tank does not run too low.


Planning: Will Secure Act 2.0 make it through this time?

In December 2019, the original Secure Act was passed that raised the Required Mandatory Distribution age to 72 (along with other changes to retirement plans). Last year, there were rumblings in Washington about expanding that act with Secure 2.0. Even though Secure 2.0 had bi-partisan support, it was not passed last year.

Secure 2.0 is active again. On May 5, 2021, the House Ways and Means committee passed their version of Secure 2.0 named Securing a Strong Retirement Act of 2021. The bill now moves to the full House. The Senate is taking up their narrower version called Improving Access to Retirement Savings Act. If passed by the full House and Senate, the two versions will need to go through the reconciliation process to sort out the differences. Then the compromised legislation could go on to the President’s desk for signature to become law.

While we do not know if all the provisions will survive, we wanted to share what may be on the horizon. Some of the key provisions of the House Secure 2.0 include:

  • Increasing RMD Age to 75 – the increase would happen in steps. Age 73 starting Jan 1, 2022, Age 74 starting Jan 1, 2029 and Age 75 starting Jan 1, 2032.
  • Index IRA Catch-Up limits – currently the catch-up contribution for those age 50 and over is $1,000 not indexed for inflation. Secure 2.0 would provide that this additional contribution would be indexed for inflation starting in 2023.
  • Higher Retirement Plan Catch-Up contributions – employees age 50 and over can currently make an additional $6,500 catch-up contribution. The Act would increase this amount to $10,000 for those age 62, 63 and 64. (SIMPLE plans catch-up contribution of $3,000 would be increased to $5,000.) The catch-up contribution would also be indexed for inflation. In addition, all catch up contributions would be designated as Roth contributions.
  • Allow for Additional Roth Contributions – Allow SIMPLE and SEP plans to accept Roth contributions from employees like currently allowed in 401k and 403b plans. Permit employees to elect that 401k matching contributions be treated as Roth contributions (and therefore included in gross income).
  • Employer matching on Student Loan Payments – employers could make matching contributions into a 401k, 403b or SIMPLE plan based on qualified student loan payments made by the employee.
  • Expands Auto Enrollment in Retirement Plans – newly established 401k and 403b plans would require participants to be automatically enrolled once eligible unless the employee opted out. The initial automatic enrollment is at least 3% but no more than 10%. Each year the percentage is increased by 1% until it reaches 10%. Exceptions for small business, new business, church plans and government plans.
  • Create a National Online Database for Retirement Plans – to make it easier for past employees to find an old employer that has merged or been bought out to find lost plan benefits.

Windsor will continue to monitor changes in Washington to see how it will affect planning to achieve your goals.

Thank you for allowing the Windsor Wealth Management Team to continue to earn your trust and confidence in the services we offer. We appreciate your loyalty and always welcome your feedback.

Dream boldly. Plan wisely.


Market Snapshot as of 5/31/2021