3 Things You Need to Know This Week | Midterm Miracle, US Jobs, Tax Planning

Transcript

Hello, and welcome to 3 Things You Need to Know This Week, our regular series, designed to help you sift through the noise across financial media and understand what really matters for markets. To stay up-to-date with our latest market insights, subscribe to our YouTube channel or visit fisherinvestments.com. And with that, here are three things you need to know this week. First, the midterms. The US midterm elections aren't until November, but primary season is well underway. With just four months to go, we can expect plenty of big promises and media hype as candidates compete for their party's nomination. As the rhetoric becomes increasingly heated, we think it's important for investors to keep one thing in mind: No matter the outcome, midterms usually set the stage for what we call the "Midterm Miracle". That's the nine-month period starting in Q4 of the midterm election years and extending through the first two quarters of the following year, when US stocks rise about 90% of the time. Now, some may believe markets do better under one party or another. The truth is, there's no evidence that one party or political ideology is automatically better or worse for stocks. Markets thrive on stability, and midterms usually provide that in the form of a gridlocked government. That might sound counterintuitive, but bear in mind—we said stability, not harmony. When Congress and the White House are controlled by different parties, sweeping policy changes become harder to pass. We understand that legislative gridlock can be increasingly frustrating for many. However, from an investment perspective, it reduces the risk of disruptive policy changes, We recommend investors not to let the noise of a contentious primary season drive short-term investment decisions. Political uncertainty is a normal part of markets and not a reason to retreat. History shows staying invested through election cycles rather than trying to time them is often the best course of action. Next, US jobs. On Thursday, we'll get a fresh look at the state of the US labor market with the release of June's jobs report. This comes on the heels of May's readings, which saw non-farm payrolls rise by 172,000 jobs and unemployment remain at 4.3%. That marks three consecutive months of job growth, with steady unemployment throughout. If June continues this trend, it points to a resilient labor market. Headlines will likely speculate on how this report will impact the Fed's remaining decisions this year, as some continue to view rate cuts as necessary, while others fear the Fed may raise rates to combat inflation. We do believe monetary policy errors are worth watching out for, but incremental rate cuts or hikes aren't make- or-break for markets either way. Others may speculate on what job figures will mean for the previously mentioned midterm elections. How voters feel about the economy can very well inform their voting behavior. But we caution that anything can happen between now and election day. Also, data shows that voters' perceptions of the economy are highly influenced by the party they already support. For those who support President Trump, strong job numbers would confirm what they already believe, while those who oppose the president may be skeptical of a strong reading. For investors, it's important to remember—whether the latest job numbers exceed expectations or fall short, labor data reflects what's already happened. We caution against attempting to draw sweeping, forward-looking conclusions from the report. Finally, tax planning for retirement. Whether you're looking forward to traveling or spending time with family, or finally working on your favorite hobby, retirement is where your money is supposed to work for you. A key part of your retirement plan is optimizing tax efficiency based on your goals, financial situation and planned retirement age. Efficient tax planning begins well before retirement. For example, contributing to a Roth account or doing a Roth conversion may be beneficial for you. With Roth accounts, you pay taxes at the time of contribution or conversion, but the advantage is that the funds then grow tax-free. Having funds in Roth account can also help mitigate the impact of the required minimum distributions, as Roth IRAs are not subject to RMDs. Contributing funds to a taxable brokerage account may also make sense depending on your situation. Unlike IRAs or 401ks, brokerage accounts do not have age restrictions for accessing your funds. If you plan to retire before 59.5, placing funds in a brokerage account may be a tax-efficient option. Having retirement funds and accounts with different tax treatments also gives you the flexibility when planning withdrawals. For example, you may want to start with taxable brokerage accounts and then tax-deferred accounts, like IRAs or 401k plans, and finally, post-tax accounts, like Roth IRAs. This allows you to preserve tax-deferred or tax-free growth as long as possible. These are just some of the ways to help optimize your taxes and retirement. To learn more, we recommend speaking with a tax professional and deciding on a strategy together that meets your financial goals and needs for years to come. And that's it for this episode of 3 Things You Need to Know This Week. For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit fisherinvestments.com. Thanks for tuning in, and don't forget to hit like and subscribe.