Our April Market Commentary was titled, The Opposite of Cabin Fever. In short, we expected social and business activity to resume abruptly as vaccines were distributed and the threat of the COVID-19 crisis receded. The caption seemed somewhat bold at the time. Admittedly, we were rather proud of it. In hindsight, we still underestimated the pace at which activity would resume. Pent-up demand for goods and services, the desire to get out of the house (though not necessarily back to the office), and record levels of cash on personal and business balance sheets have combined to fuel the highest level of U.S. economic growth since the early 1980s.
“Let the good times roll, let the good times roll. I don't care if you're young or old. Get together, let the good times roll. Don't sit there mumblin', talkin' trash. If you wanna have a ball. You gotta go out and spend some cash, and. Let the good times roll, let the good times roll.” - B.B King
At the same time, once in a generation demographic, cultural, and secular business shifts are unfolding before our eyes. Higher wages, coupled with improved household balance sheets, have meant workers are quitting or retiring at a record pace. Technology continues to change the way we work, shop, and coming this fall, support our favorite college football players/teams. Moreover, when measured in trillions of dollars, the range of policy proposals on the table in Congress are as wide as we have ever seen.
"If you're feeling good, don't worry. You'll get over it." - Yogi Berra
Judging from increased pedestrian traffic and the return of pedal taverns and party barges, signs of life in downtown Nashville are emerging. While certainly tepid relative to recent years, and despite the enormous challenges still facing the major arts and entertainment venues, the activity is encouraging. More broadly speaking, business and social activities around the country are returning at a rapid pace. As the chart below reflects, spending by Millennials and Gen Z is already ahead of pre-pandemic levels.
“Spring is nature’s way of saying, “Let’s party!” – Robin Williams
Unprecedented financial liquidity and government stimuli, a desire to catch up on life, and some sunny spring weather are proving a potent combination. With increasing supplies and availability of vaccines, we remain hopeful emerging coronavirus variants won’t send everyone back to the cabin.
Solo 401(k) vs SEP-IRA
As a small business owner, reviewing the array of retirement accounts at your disposal can be daunting. In this brief, we seek to help business owners sort through these options and identify some opportunities you can discuss with your CPA.
While there are several retirement savings vehicles available to sole proprietors and contractors, the two favorites in terms of flexibility and savings potential are the SEP-IRA and solo 401(k). SEP-IRA’s were the preferred vehicle of choice up until the passage of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001. The EGTRRA broadly expanded the features available within a 401(k) plan to the self-employed, offering the same advantages of a conventional 401(k) plan without being subject to the complex ERISA rules intended to protect non-owner employees. As solo 401(k) plans have gained popularity in the past several years, costs and complexity of establishing a plan have been dramatically reduced, making them a robust contender against the more traditional SEP-IRA.
2020 has been a tumultuous year and arguably the most consequential since 1969. While the year’s uncertainties could have paralyzed us all, Americans pressed forward. The stock market’s recovery from the March lows and strong gains for 2020 certainly point to investors’ willingness to look beyond the challenges of the day and toward a robust economic recovery. We too remain hopeful for the future and for long-term investment gains for investors who can endure volatility and appreciate how ingenuity and determination are powerful offsets to even the most daunting of obstacles. These investment principles certainly applied in 2020, and as we know, history tends to repeat itself.
This summer, the financial markets sprinted ahead at a record pace. Improved treatments for COVID-19, the prospects of a vaccine, and hopes for a V-Shaped economic recovery brought retail and institutional investors out in force. Small investors, many of whom were sheltering in place, opened millions of accounts at new online trading entrants such as Robinhood and Webull. While many of these first-time investors chased the stock of the day, others became active in financial derivatives, or as Warren Buffett calls them “weapons of mass financial destruction.” Not to be outdone, some institutional investors were active in the derivatives markets as well. Softbank, a Japanese conglomerate, reportedly bought $4 billion of call options tied to a basket of high-profile tech stocks. Many believe this unusually large derivatives activity contributed to August’s strong gains, particularly among large-cap tech stocks.