It was one year ago when we were at the depths of the COVID health crisis and COVID crash in the stock market. Easy to say now, but investors were well-served to hold-fast to a long-term focus. The crash lasted just over four weeks from the February 19, 2020 peak in stocks to the March 23 low.
Returns since the bottom have been stellar across nearly the entire spectrum of stocks. The worst thing an investor could have done this time a year ago was to panic-sell amid the fear. “Buy when there is blood on the streets” is the old Wall Street adage.
Stock market returns since the March 2020 low
Another bad strategy was to watch the financial news last March! You would have thought the world was ending. Well, maybe it almost did had it not been for the drug-makers getting vaccines out so quickly. A little financial stimulus help from Congress and Federal Reserve kept things afloat, too.
The past is the past though. What else is going on that might be concerning you? How about all that talk of higher interest rates and inflation risks? Let’s stay cool and keep things in perspective.
Below is a long-run chart of the US 10-year Treasury rate. See that little blip at the bottom-right? That’s this ‘massive surge in interest rates’ everyone is harping about (which we circled in red).
US 10-Year Treasury Interest Rate since 1963
We highlighted the opportunity homeowners had last year as rates were quite low, but even today the average 30-year fixed-rate mortgage is 3.09% according to Freddie Mac’s latest survey released last Thursday. As usual, the pundits on TV and the financial writers in the papers like to make a mountain out of a molehill. Bottom line: interest rates are still quite low.
And there is a benefit to higher interest rates and inflation for those who locked-in a good mortgage rate – higher inflation means your debt becomes less burdensome as inflation pecks away at the “real” value of what you owe. Higher interest rates also mean a better yield on your bond portfolio.
Let’s turn to the exciting world of taxes. I’m sure you are as giddy as we are about being in the heart of filing season. Not that any of our clients are procrastinators, but the IRS announced last week that the new deadline to file your 2020 returns has been pushed back to May 17 from the usual April 15 deadline. Small business owners must still make their quarterly estimated payments by the usual dates though. Also, the October 15 extension deadline holds, but the last day to make 2020 IRA & HSA contributions moved to May 17.
A final item you should know – if you had unemployment income in 2020 and already filed your 1040 return, you should consider filing an amended return as the first $10,200 of unemployment income was just announced to be free from income tax liability.
The economy continues to pick up steam with all that stimulus floating around. The national unemployment rate will be updated this coming Friday morning, and the market expects the figure to improve to about 6.2% according to Bank of America.
Michigan’s current unemployment rate is below the national average at 5.7% as of January. Michigan had the biggest statewide percentage drop in the jobless rate from December to January at 2.5%. So there’s some good news! The hope is this latest jump in COVID cases across our state is temporary and does not cause harm to local businesses.
State-by-state unemployment rates (January 2021)
Back to the topic of that latest round of stimulus. While many Americans did not receive a direct payment due to being above the income limits, there are some interesting trends with how folks are using the money. Sure, some of it is pouring into the ‘meme stocks’ like GameStop and AMC, but more of it is going to better use – paying off debt!
The below chart from BofA Global Research shows that credit card balances are on the decline, as reported by the major credit card companies. As personal finance nerds, we like to see this!
Credit card balances reported by major credit card companies
We’ll be updating you each week with the goings-on in the fun world of finance and the world in general. We try to be the translators of financial mumbo jumbo while cutting through all the nonsense heard on financial, and national TV. Bear with us as we work on a title for these weekly updates, if you have any suggestions let us know. Have a great week!