March Market Commentary

The economy came into March roaring like a lion, with the Institute for Supply Management (ISM) reporting an increase in the February Manufacturing Purchasing Managers’ Index (PMI), indicating expansion in the overall economy. This is the ninth consecutive month of growth for this index, in spite of absenteeism, short-term shutdowns in order to sanitize facilities, and hiring challenges related to the pandemic. In order to maintain economic momentum, the Senate approved a $1.9 trillion COVID-19 relief bill on March 8th. This legislation sends direct payments of up to $1,400 to many Americans and extends a $300 per week unemployment insurance boost until September 6th. While there are many details in this bill, it is expected to provide further stimulus to an economy already in recovery mode.

In mid-March, the Federal Open Market Committee (FOMC) voted to keep short-term interest rates near zero. Nearly one year earlier, the FOMC held emergency meetings to cut the fed funds rate to 0%, when the pandemic initially shut down the US economy. Over the past year, the Federal Reserve has added over $3 trillion to its balance sheet with financial asset purchases to sustain market liquidity. These emergency actions, coupled with more than $5 trillion in fiscal stimulus spending, have provided significant healing to the US economy. In fact, the Federal Reserve now expects Gross Domestic Product (GDP) to expand 6.5% in 2021 and 3.3% in 2022.  This is quite an improvement from a year ago!

With the US economy on the road to recovery, the Biden administration is now focused on an infrastructure bill targeted at $3 trillion. This legislation is expected to take longer to debate and has long-term implications for the economy. One must look no further than the effects of a crippling winter storm that ravaged Texas and its power grid in mid-February to demonstrate the infrastructure needs in our country. This bill will more than likely be tied to individual and corporate tax increases to pay for a substantial investment in our infrastructure. We expect a contentious battle in Washington with this legislation, as politicians begin to debate the significant US federal debt accumulated during the pandemic and the need for fiscal discipline in the future.  

The massive fiscal and monetary stimulus over the past year have investors concerned about inflation. This became evident when the yield on the 10-Year US Treasury recently spiked to 1.75%, up from approximately 0.9% at the beginning of the year. The quick acceleration in interest rates has created increased volatility in both the stock and bond markets. We expect volatility will remain in financial markets, as economic recovery creates inflation fears for investors. The change in the direction of interest rates is causing a rotation in many sectors of the stock market as well. For example, higher interest rates allow banks to lend money at higher rates than they pay depositors. This means banks will earn higher margins on their loan portfolios; therefore, financial stocks have performed well. On the other hand, as growth reappears in economically sensitive companies, last year’s strong performers, technology stocks, have underperformed the market year-to-date. Although earnings growth will likely continue for these technology companies, their strong financial results last year have created a headwind for comparisons this year.  

While there are financial and personal challenges ahead, as of March 25th, approximately 87 million US adults have received at least one COVID-19 vaccine dose, representing over a third of adult Americans. In addition, approximately 173 million doses of COVID-19 vaccines have been delivered in the US. The momentum of vaccine distribution and inoculations has accelerated in the US, leading us to feel optimistic about life returning to some semblance of normalcy in the not-too-distant future. We hope you and your families are staying healthy and will soon be able to enjoy the great outdoors in the days and weeks ahead! As always, please feel free to contact us at 513.791.9258 (Blue Ash) or 513.863.4015 (Hamilton) or inquire about arranging a video call!    

*Note: This month’s market commentary was written prior to the end of the month to provide pertinent tax filing information on a timely basis.

Tax Season Update

We wanted to provide a quick update to the email we distributed on March 22nd. While the IRS announced it is postponing the filing deadline for individual tax returns until May 17th, this relief only applies to 2020 individual tax returns, Form 1040, and any tax due on those 2020 returns. It does not extend the deadline for 2021 Q1 estimated tax payments. Thus, it actually doesn’t provide much relief, as those estimated tax payments are typically calculated based off the prior year tax return. Therefore, you need to calculate the 2020 tax liability in order to accurately establish the 2021 estimated tax payments.

The IRS does allow for an automatic 6-month extension of time to file the return. Even with the new May 17th deadline, the extension would only apply to October 15th. However, this extension does NOT extend the time to pay your 2020 tax. All 2020 tax projected to be owed is due May 17th. If you extend, and there is tax still owed at that time, you will be subject to some late payment of tax penalties. The relief also does not apply to C corporations that file Form 1120. Those returns are still due April 15th (with 6-month extension available). Since the IRS’ announcement, states have been scrambling to update their position on the matter. Many states, including Ohio, Kentucky, and Indiana, are following the IRS and extending the deadline for 2020 individual returns and related payments. However, like the IRS, most are not adjusting the April 15th deadline for 2021 Q1 estimated tax payments. Please check with your tax preparer for state deadlines.

If we are your tax preparer, we ask that you continue to provide us your tax information as soon as possible. While we may not be able to finalize your 2020 tax return by April 15th, it will assist in determining the need and amount of any required 2021 Q1 estimated tax payments due April 15th. Also, if you are expecting a refund, obviously sooner is better to file your return, even if that is after April 15th. If there are further updates to the IRS’ position on this, we will issue an update via email. If you have any questions, please contact us at 513.791.9258 (Blue Ash), 513.863.4015 (Hamilton), or 513.829.4500 (Fairfield).

Congratulations Matt and Jacob!

Matt Tarka, AAMS and Jacob Petrie, CFP, MBA successfully passed their examinations for the Chartered Retirement Plans Specialist (CRPS) designation. This is a credential for those who create, implement, and maintain retirement plans for businesses. It is awarded by the College for Financial Planning. The Chartered Retirement Plan Specialist (CRPS) is generally a business-focused retirement plan advisor. These professionals typically advise firms and help them implement and maintain retirement plans. The examination requires rigorous study and the passing of a comprehensive written exam. Additionally, CRPS professionals must keep up with current trends and any new laws in order to better serve our clients. Finally, they must also complete continuing education every two years in order to maintain their designation.