First Quarter 2021 Newsletter

INVESTMENT QUARTERLY

2020: THE YEAR THAT WASN'T

Who could have ever imagined we would have to live through a year like 2020? The economic impact of over 23 million individuals losing their jobs, over 50% of restaurants being either temporarily or permanently closed, airlines and hotels operating at a fraction of full occupancy, with people feeling trapped in their homes for safety, couldn’t have been imagined in our wildest hallucination. The second quarter of 2020 offered a horrendous economic result and despite a strong rebound in the third quarter, the fourth quarter will, although positive, leave us with a negative GDP for the year. The results will likely be the worst year since 1946. For 2021 the consensus seems to be just over 4% growth. Goldman Sachs is far more bullish with a recent upward revision to a plus 6.6% forecast, albeit with some significant caveats. Interestingly, their concerns are primarily COVID-19 related, but not significant enough to temper their projections.

Looking back at 2020 it seems that economic results hardly influenced the market at all. After the initial COVID-19 scare in the first quarter, the market took off like an Elon Musk rocket and ended up 9.7% on the Dow and 18.4% on the S&P 500 for the year. The difference between the two indices is due to the impact the FAANG stocks had on the S&P average. The construction of the S&P 500 average results in the FAANG stocks having a 25% weighting and their extraordinary, combined performance greatly influenced the final S&P average.

The major cause of the stock market’s performance in 2020 was the fiscal and monetary policies of the government. The Federal Reserve continued its Quantitative Easing Policy of adding liquidity to the market through its monthly purchases of government securities. Congress added to this through its broad-based financial program for business stimulus and restrictions on evictions for failure to make rent or mortgage payments as well as other support. Additionally, some of the unemployed were enjoying greater income than when they were employed. This made it hard to call back laid off employees, particularly in the service area. All this was not sufficient to comfort the worried citizenry. With a great deal of consumer insecurity, much of this government largesse did not end up in the economy but did stimulate the stock market. With bond yields at record lows, the only attractive investment opportunity left was the equity market. The result was a market that soared to higher price earnings ratios despite significant declines in earnings of the underlying companies. With dreams of additional stimulus and increased spending by the Biden administration the market has continued to move to new highs early in 2021.

The Biden economic plans look to be a combination of selected industry disruption, an increase in corporate and individual taxes, and dramatic increases in spending for new programs, as well as economic stimulus payments to perk up a slowing economy. US government debt, already at highs, will probably set new records as politicians are no longer afraid to go to the well to fund new programs. Biden will have two years with control of both the House and Senate, although he will have smaller margins than prior administrations. So, the success of the progressive overhaul may not be as easily accomplished as originally thought.

The argument for renewed stimulus by putting cash in citizen hands raises some interesting questions. In recent rounds the stimulus funds have been evenly split amongst savings, paying down debt, and actual spending. The immediate economic benefit of a debt dollar used for stimulus is now only thirty-three cents under this scenario. The stimulus does not have a multiplier effect. In earlier periods a dollar of debt would multiply to three dollars of economic benefit. This decline in efficacy is the predicted result of a significant increase in debt financing of our economy. A second measure of an increasing, but less effective, money supply is the continuing decline in the velocity of money. The decline in velocity to new recent lows reflects the ineffectiveness of pumping more money into the economy. The US needs to find new policies that will have a more direct effect on the economy if we are to work our way out of this situation.

Speculation is on the rise and is reminiscent of the late 2000s as the dot.com dream became a nightmare. Stimulus money ending up in the market because there is no demand for it in other areas has elevated prices to very high and risky levels. New trading platforms, like Robinhood, have brought new, unsophisticated investors into the game resulting in unprecedented and unwarranted price action of some nearly bankrupt companies. At some point these speculators are going to painfully lose, like speculators in similar periods of investment history. The speculators actions can affect the overall markets and, through imbalances they create, cause the markets to crater. Hopefully, this trend will end before it overwhelms fundamentally sound investment activity. With markets already forcing investors into riskier investments to get acceptable returns, any additional speculative action could have a significantly negative impact on the markets and investors.

In summary, it looks like COVID-19 and its variants will control the outlook for the markets for a good part of 2021. The variants of the virus that have already started to move around the world will likely take longer to get under control than the original. The longer it takes, the harder it will be for the world’s population to get back to normal activity, and the more stress our already weakened and debt laden economies will have to endure. I think the recovery will happen but more slowly than Goldman Sachs is predicting. Even with a bright forecast for 2021 Goldman is looking for a significant decline in 2022, followed by a further decline in 2023. Successful investing will require analysts to pay close attention to earnings progress and balance sheet development.

In 2020 the Dow returned 9.7%, the S&P 500 18.4% and the Russell 3000 20.9%. The Bloomberg Barclays US Government/Credit 1-5 yr. index returned 4.7%. All these returns came in the face of a poor economic year but with a huge financial stimulus from the Government.

Robert B. Needham, CFA

< Older Post Newer Post >

8 Financial Steps to Finish 2024 Strong with Needham Advisory

September 16, 2024

As we enter the final 100 days of 2024, there's still plenty of time to make this year count. At Needham Advisory, we've compiled a list of eight essential steps to help you finish strong and set yourself up for success in the new year. These actions can provide a financial cushion, streamline your investments, and give you a head start on your 2025 financial goals. 1. Save $1,000 with Daily Contributions By setting aside just $10 every day for the rest of the year, you can save $1,000. This simple strategy creates a financial cushion or helps you reach a specific savings goal with minimal daily effort. 2. Max Out Your Retirement Accounts Make the most of your retirement accounts by contributing the maximum allowable amounts. In 2024, the contribution limit for a 401(k) is $23,000 (or $30,500 if you're 50 or older). For Roth IRAs, the limit is $7,000 (or $8,000 if you're 50 or older). Maximizing these contributions not only boosts your retirement savings but also takes advantage of potential tax benefits. 3. Roll Over Old 401(k)s If you have any old 401(k) accounts from previous employers, now is the perfect time to track them down and consider rolling them over into a current retirement account. This can streamline your investments and potentially reduce fees. However, keep in mind that rolling a 401(k) into a post-tax account like a Roth IRA means you will have to pay taxes on the 401(k) balance. 4. Research High-Yield Savings Accounts Consider moving some cash from your checking or savings account into a high-yield savings account (HYSA). HYSAs typically offer higher interest rates, which can help your savings grow faster, maximizing the returns on your emergency fund or other cash reserves. 5. Take Advantage of Gift Exclusions This year, you can give up to $18,000 per person without incurring any gift tax. Consider giving financial gifts to family members as a way to help them financially while also reducing your taxable estate. 6. Review Your Budget Take a fresh look at your budget to identify areas where you can cut back or reallocate funds. Even small adjustments can lead to significant improvements in your financial health. If you anticipate receiving end-of-the-year bonuses, plan now for how you will use those funds wisely. 7. Start Preparing for the Holiday Season Early Set aside a little money each week for holiday expenses. Consider affordable gift options, such as homemade gifts or experiences, and start organizing any travel plans to secure better deals and ensure a smoother season. 8. Check in with a Financial Advisor Schedule a quick call or meeting with a financial advisor to enter 2025 with a clear, up-to-date plan and some financial planning momentum. Whether it’s refining your budget or optimizing your investment strategy, getting expert advice now can set the tone for a successful new year. These steps can significantly impact your financial stability and preparedness as we approach the end of the year. If you need help with any of these strategies, we at Needham Advisory are here to assist you. Let’s make the most of the remaining days of 2024 together!

Understanding the Massachusetts Wage Act: Protecting Workers' Rights

By duda • August 17, 2023

In the realm of labor laws, ensuring fair compensation for employees is a cornerstone of workers' rights. The Massachusetts Wage Act, consisting of Massachusetts General Laws Chapter 149, sections 148, 149, and 150, stands as a crucial piece of legislation that safeguards the rights of workers in the Commonwealth. Enacted to address wage-related issues and promote fair employment practices, the Massachusetts Wage Act plays a pivotal role in creating a just and equitable work environment for employees across various industries. The Basics of the Massachusetts Wage Act The Massachusetts Wage Act encompasses three key sections: 148, 149, and 150. Each section addresses specific aspects of wages, penalties, and legal recourse for employees facing wage-related violations. Section 148: This section focuses on timely payment of wages. It mandates that employers must pay their employees all earned wages within a certain timeframe, often weekly or bi-weekly. In the case of involuntary separation, employers are required to pay all wages due to the employee on the day of termination. If an employer fails to meet these requirements, they may be held liable for treble damages, which could amount to three times the unpaid wages. Section 149: Section 149 pertains to minimum wage regulations. It establishes the minimum hourly wage that employers must pay to their employees. This provision ensures that workers receive a fair wage that aligns with the cost of living and prevailing economic conditions. Employers are obliged to adhere to the minimum wage requirement, and failure to do so can result in penalties. Section 150: Section 150 deals with legal actions and remedies available to employees in cases of wage violations. If an employer unlawfully withholds wages, an employee has the right to file a complaint or bring a civil action to recover the unpaid wages. Moreover, employees who prevail in their legal claims under this section can recover not only the unpaid wages but also reasonable attorneys' fees and costs. Significance and Impact The Massachusetts Wage Act serves as a powerful deterrent against wage-related abuses and unfair labor practices. By establishing strict guidelines for payment of wages, minimum wage standards, and legal remedies, the Act empowers workers to seek recourse when their rights are violated. This legislation not only supports individual employees but also contributes to a more equitable labor market and promotes a healthier employer-employee relationship. Challenges and Controversies While the Massachusetts Wage Act is a commendable effort to protect workers' rights, challenges and controversies have emerged. One area of contention is the determination of what constitutes "wages." Some employers might argue that certain forms of compensation, such as bonuses or certain benefits, are not covered by the Act, leading to disputes over what is legally owed to employees. Additionally, enforcement and compliance can pose challenges, especially for small businesses with limited resources for administrative tasks. The Massachusetts Wage Act stands as a testament to the Commonwealth's commitment to ensuring fair and just compensation for its workforce. By outlining clear guidelines for payment of wages, setting minimum wage standards, and providing legal remedies for violations, this legislation bolsters employee rights and contributes to a more equitable workplace. As workers continue to play a pivotal role in the state's economic growth, the Massachusetts Wage Act remains a cornerstone of labor law, championing the rights of employees and fostering a more balanced employer-employee relationship.

Understanding the Massachusetts Independent Contractor Statute

By duda • August 17, 2023

In the modern gig economy, the classification of workers as either employees or independent contractors has become a significant legal and economic concern. In Massachusetts, the issue is addressed through the Massachusetts Independent Contractor Statute, found under Mass. Gen. L. c. 149, s 148B. This statute plays a pivotal role in determining a worker's classification, affecting their rights, benefits, and the obligations of employers. In this blog post, we will delve into the key aspects of the Massachusetts Independent Contractor Statute, exploring its implications for both businesses and workers. Understanding the Massachusetts Independent Contractor Statute The Massachusetts Independent Contractor Statute, often referred to simply as Section 148B, was enacted to prevent worker misclassification and protect individuals by ensuring proper classification and fair treatment. Under this statute, individuals are presumed to be employees unless all three prongs of the "ABC Test" are met: A: The worker is free from control and direction in performing the service, both under the contract for the performance of service and in fact. B: The worker performs services that are outside the usual course of the business of the employer. C: The worker is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed. Implications for Businesses For businesses operating in Massachusetts, correctly classifying workers as employees or independent contractors is essential. Misclassification can lead to legal consequences, including back payment of wages, taxes, and potential fines. By adhering to the requirements outlined in the ABC Test, businesses can ensure compliance with the law and avoid potential liabilities. Additionally, businesses must be cautious about reclassifying employees as independent contractors without substantial changes in the working relationship, as this may be seen as an attempt to evade employment-related responsibilities. Implications for Workers Workers in Massachusetts who are classified as employees enjoy various legal protections and benefits, including minimum wage guarantees, overtime pay, workers' compensation coverage, and access to unemployment benefits. On the other hand, independent contractors may not be entitled to these benefits, but they have the advantage of greater flexibility and control over their work. It's crucial for workers to understand their classification accurately, as misclassification can lead to them being denied their rightful benefits and protections. Challenges and Controversies The Massachusetts Independent Contractor Statute has been the subject of debates and challenges, particularly regarding its potential impact on businesses and the gig economy. Critics argue that the ABC Test can be too restrictive, making it difficult for some businesses to classify workers as independent contractors even if the working relationship genuinely aligns with such a classification. Proponents, however, emphasize the importance of protecting workers' rights and preventing exploitation through misclassification. The Massachusetts Independent Contractor Statute, Mass. Gen. L. c. 149, s 148B, plays a vital role in defining the working relationship between businesses and workers in the state. Its implementation through the ABC Test ensures that workers are correctly classified, granting them the appropriate benefits and protections. Businesses must be diligent in understanding and adhering to the statute's requirements to avoid legal consequences, while workers should be aware of their classification to assert their rights effectively. As the world of work continues to evolve, the statute's significance remains undeniable in maintaining a fair and balanced labor landscape.