Insights

The adage, “actions speak louder than words” is true for many of life’s important lessons. But when it comes to learning about money, actions without words—the absence of open and candid conversations—can create gaps in our confidence and competence regarding money matters.

Howland Capital’s “family” roots run deep. The firm was founded by Dusty Howland to help steward and grow the family’s wealth, and throughout our 55-year history, we have been privileged to work with and learn from hundreds of families to help them harness their financial resources to achieve their family goals. 

As we enter the new year, Congress is still deliberating on legislation that could impact the 2022 tax year. The Build Back Better plan was passed by the House in late 2021 but ultimately was not signed into law by the end of the year. The bill has gone through several revisions and could be passed in early 2022. While the act was not passed before the start of 2022, it could still have retroactive tax implications this year.

Because bond prices typically move in the opposite direction of changes in interest rates, rising rates pose a potential headwind to expected bond returns. In cases where bonds are held until final maturity, this is not a risk. The benefit of rising interest rates to bond investors is that maturing bonds can be reinvested at higher rates. If economic and employment conditions remain favorable, Fed rate hikes will likely continue into next year. After living with short-term rates at or close to zero for years, this is welcome news.

Global stock markets rallied through the fourth quarter to finish 2021 with a bang, capping off an unexpectedly strong year. U.S. equities, as measured by the S&P 500 Index, returned nearly 11% in the fourth quarter alone, including dividends, bringing year-to-date performance to a whopping 29%. Non-U.S. stocks, as measured by MSCI’s All Country Worldwide Ex-U.S. benchmark, returned 2% in the fourth quarter including dividends, ending the year up a respectable 8%.

The fourth quarter is likely to exceed 7% once the official data is finalized. If this expectation is correct, 2021 would be the most robust year of economic growth since 1984. The overall level of output now exceeds levels achieved in 2019. So there is good news to celebrate, and real progress in the ongoing recovery. Looking ahead, we expect growth in 2022 to slow but not stall. The path forward will be impacted by a number of key factors.

Happy Holiday Greetings to you! We hope that you and your loved ones are safe and well.

Because the Act contains a large number of spending provisions, the tax provisions generally go in one direction – up. We begin with a discussion of the proposed changes that could impact individuals and families.

First, they will begin to curtail their purchase of government bonds sometime this year, perhaps as early as November. In anticipation of this announcement, intermediate and long-term bond yields have risen in recent weeks, with the 10-year U.S. Treasury Note yield rising to 1.53% vs. 0.68% a year earlier, as of September 30. The Fed has also stated it is willing to tolerate a temporary period of inflation above their target of 2% before raising short-term rates. The Fed is now guiding the market and investors to expect a hike in the federal funds rate sometime in the second half of 2022. After many years of ultra-low (or zero) interest rates, a gradual rise in rates would be welcome for bond investors. Higher yields would translate to more income generated from bond investments, and would also signal a return to more normal financial conditions.

U.S. equities, as measured by the S&P 500 Index, returned less than 1% in the quarter, including dividends, bringing year-to-date performance to +16%. Non-U.S. stocks, as measured by MSCI’s All Country Worldwide Ex-U.S. benchmark, fell 3% including dividends, ending the third quarter up 6% on a year-to-date basis.

As stimulus measures wind down, we expect economic growth to slow, but remain firmly positive. This is good news, as it means the economy is healthy enough to expand on its own, buoyed largely by business and consumer spending.