2023 | February 6

The Markets

Stocks Mixed

At the height of quarterly earnings season, the NASDAQ posted its fifth weekly gain in a row, lifted by strong results from selected technology stocks. The S&P 500 posted a more modest gain; the Dow fell slightly.

The latest week’s stock market performance extended this year’s sharp divergence between the NASDAQ and the Dow. For the week, the NASDAQ was up 3.3% while the Dow was down 0.2%. Year to date through Friday, the NASDAQ was up nearly 14.8% compared with the Dow’s 2.4% gain. 

For the first time in four years, the S&P 500 posted a positive result in January, as the index rallied to a 6.2% gain for the month. Across the S&P 500, consumer discretionary and communication services were the top-performing sectors, as they added 15% and 14%, respectively; utilities and healthcare were the weakest, with both falling around 2.0%.  

As expected, the U.S. Federal Reserve lifted its benchmark rate by a quarter-percentage point—smaller than the half-point hike approved in November—while acknowledging that inflation has recently eased. The next day, the European Central Bank and the Bank of England both lifted their key rates by a half-percentage point.  

Friday’s monthly labor report sharply exceeded economists’ expectations, as the economy added 517,000 jobs in January—the most since last July—and initial job gain estimates for November and December were revised upward by a total of 71,000. The unemployment rate slipped to 3.4%, the lowest since 1969. 

Halfway through earnings season, the proportion of S&P 500 companies that have beaten analysts’ earnings expectations remained slightly smaller than usual. About 70% had exceeded net income expectations as of Friday, trailing the five-year average of 77%, according to FactSet. Overall, earnings are expected to decline about 5% relative to a year ago.

The yield of the 10-year U.S. Treasury bond was little changed overall for the week at around 3.53%, but that flat result wasn’t indicative of its volatility. On Thursday, the yield fell to as low as 3.33%—the lowest in about five months. It rebounded sharply following Friday’s release of better-than-expected monthly job numbers.

The price of U.S. crude oil fell nearly 8% for the week to around $73 per barrel—the lowest level in about a month. An increase in U.S. crude supplies was among the factors that weighed on oil prices. 

Source: John Hancock Investment Management

Tax Talk With Tana Recording

A New Law May Affect Your Retirement Plan

Late last year, Congress passed the SECURE 2.0 Act into law. Many provisions of the new law are expected to help improve retirement readiness in the United States. For example, the law changes the rules that apply to required minimum distributions. Here are a few of the highlights:

• Retirement savers can keep their savings invested longer. Many Americans save for retirement in employer-sponsored retirement plans, Roth and Traditional IRAs, and other tax-advantaged investment vehicles. The government requires participants to begin withdrawing money from these plans at a certain age. The new law raises the age for required minimum distributions (RMDs) from 72 to 73 in 2023 and to age 75 in 2033.

That may not seem like a big deal, but it could be. Hypothetically, a person with a million dollars saved for retirement could be required to withdraw about $36,500 in RMDs at age 72. In contrast, a person with a million dollars for retirement who didn’t have to take RMDs until age 75, could see the value of their savings increase by about $191,000 over three years, if they earned 6 percent a year, on average, and the interest compounded annually.

• Roth accounts are exempt from RMDs. Many people choose to contribute to Roth accounts in their employer-sponsored retirement plans (i.e. 401k) even though the contributions are taxable. They prefer Roth accounts because any distributions are tax-free. The new law says that, starting in 2024, Roth account owners will not have to take RMDs.

• RMD penalty taxes have been reduced. When retirement plan accountholders fail to take full RMDs, they owe a tax penalty. In the past, the penalty was 50% on insufficient or late withdrawals. Now, the penalty will be 25% if the issue is not corrected quickly, and 10% if it is.

The new law includes dozens of provisions. If you would like to talk about how the changes may affect your retirement or estate plans, give us a call.

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