Financial Insights- April 15, 2021

Written by V. Raymond Ferrara, CFP®

On April 15, 2021

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Financial results for the first quarter of 2021 kicked off this week with the banks leading the way as usual. Historically, stocks have reacted positively to earnings results when companies beat Street analyst expectations but last quarter that was not the case. In fact, companies that beat 4Q20 earnings expectations actually saw their stocks decline on average. We would attribute this rarity to the unprecedented difficulty in estimating the pace of earnings recovery after the depths of the pandemic as well as a general lack of forward guidance across sectors.

Expectations are high for first-quarter results. Some of the highest growth sectors include apparel, auto manufacturers, banks, and mining companies. Energy and industrials are expected to decline. Earnings estimates have steadily increased from 16% growth back in December to the current 24% estimate as some of the growth expected to come in 4Q20 was pushed back into 2021 amid another round of some state and local lockdowns, and gridlock in Washington over additional fiscal stimulus. Forward guidance from corporate management teams is essential at this point in the recovery as stocks are relying more on earnings growth rather than multiple expansions. Street expectations are even higher for the second quarter, with estimates forecasting growth of 53%.


Normally, today would be the last day to file individual income taxes without an extension that could delay it until October 15th. However, because of the pandemic, taxes at the federal level do not have to be filed until May 17th. For those that have a state income tax, not all states have followed the IRS, so be sure to double-check. To add to the confusion, for those who make estimated tax payments on a quarterly basis, you still must make your Q1 estimated tax payments today (April 15th), if you have not already. Another tax change for 2020 that was a result of the pandemic involved unemployment pay. Anyone who received unemployment last year and whose income was less than $150,000 would not have to pay income taxes on the first $10,200 of their benefits. Also, for those that use the standard deduction and made charitable gifts, you may take an additional $300 deduction for last year.


For those that are over age 70, you probably remember the TV show that ran from 1955 to 1960 called “The Millionaire”.  It was a show that told the story of people who received $1 million (about $10 million today) tax free and in 30 minutes we discovered how their life changed – mostly for the better, but certainly not always. Well, that paltry sum doesn’t hold much weight when you consider the number of billionaires today. Forbes just came out with their new list of a record 2,755 billionaires based on net worth at the end of 2020. Collectively, they have $13.1 trillion, which was about 60% of the U.S. GDP. More impressive was the fact that 493 were new billionaires. It will come as no surprise that Jeff Bezos (Amazon) is the world’s richest person according to the 35th list from Forbes with a staggering $177 billion, and that was even after his divorce a few years ago. Elon Musk, riding the wave of Tesla stock, came in at $151 billion primarily based on the growth of this stock. Bernard Arnault and family are a close third with $150 billion, while Bill Gates was 4th with $124 billion and Mark Zuckerberg rounded out the top 5 with $97 billion. The U.S. still led with the most billionaires at 724, but China is closing fast with 698.


 Back in the days before the financial crisis, the housing market was so hot, it seemed that it would never stop. Of course, nothing continues forever, and it came crashing down in 2009 and 2010.  Today, many are wondering if this is happening again. Over the past 12 months ending in March, real estate prices across the U.S. have increased by 17%, according to Redfin. This is the fastest year-over-year gain since 2012 when we came out of the Great Recession. Almost half of the homes that have listed are selling within one week and usually with multiple offers, often above the listing price. Many of these offers are all cash. What is driving this growth? First, and most obviously, is low interest rates. It isn’t so much about the cost of the home, it’s about the amount of the monthly payment. Next, many people have accumulated lots of cash during the pandemic because of both the stimulus checks and the lack of spending over the past year. Also, consider that many folks, especially younger ones, now want to move out of the close quarters of the “city” and are moving to the suburbs. As prices continue to increase and interest rates eventually rise, the pace will slow. Will prices crash? Perhaps not, but they could decline. Only time will tell.


Bankrate once again has provided some interesting data on the housing market across the country. Based on the following criteria, they came up with the best and worst real estate markets across the USA: annual home price appreciation; share of mortgages past due; annual unemployment and job growth; and cost of living index and state tax burden. The best in ascending order were: Indiana, Idaho, Nebraska, Montana and Utah. The worst in descending order were: Illinois, Louisiana, New York, District of Columbia and Hawaii.


The SECURE Act eliminated the concept of a stretch IRA for both a traditional and Roth for most beneficiaries (not a spouse, a minor child of decedent, a disabled or chronically ill individual, or someone less than 10 years younger than the decedent). Instead, the SECURE Act said all other beneficiaries must take the money within 10 years. The entire financial planning community interpreted it as meaning that a beneficiary could take it all upfront or wait the entire 10 years before taking anything and every possibility in between. In a surprise move, the IRS issued IRS Publication 590B for comment. Essentially, the IRS is proposing that RMDs will be required based on the life expectancy of the beneficiary over the first nine years and then whatever is left over in the 10th year. Things may change after the comment period, so don’t panic yet if you became the beneficiary of an IRA beginning in 2020. Previous beneficial IRAs are exempt.


How does your future care affect your financial plan?

Caring for a loved one who is ill or disabled can be one of life’s biggest challenges. Would you be surprised that women are twice as likely to assume this role? Would you believe that 31% of women are balancing caregiving responsibilities with their careers?

For women who step into the caregiver role, it has a two-fold impact, both personally and professionally, on their lives. Often, they spend less time in the workforce, which could negatively impact their earning power and their retirement savings as well as their own physical and mental well-being.

At ProVise, we cannot stress enough the importance of planning early and having frequent conversations. Research shows that 69% of aging adults have never discussed long-term care with their family members. However, aging adults do have expectations of who will care for them:

1) 26% expect their children to assume caregiving responsibilities, and

2) 47% expect their spouse or partner to step up into the caregiving role.

(PLANSPONSOR March 2018)

As financial planners, we are committed to bringing caregiving to the forefront of conversations held with loved ones. As women are thrust into this role, they are often left vulnerable with no articulated plan about their loved one’s wishes or how to pay for them. We encourage you to ask questions and to think about your future care.