On It with Offit - August 2021

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The Offit Family 
Welcomes Baby #2!
Our family is growing! My wife and I are delighted to announce the birth of our second child, a beautiful boy named Nathan Brooks Offit. Nathan was born healthy and happy late last month at Howard County Hospital on July 23rd at 2:26 AM, and just as with Reed, Amanda was and is truly incredible.
A would-be homebuyer in Bethesda, MD, pledged to name her first-born child after the seller in a written offer. She lost. Morning Brew, July 29, 2021

Fifty-two percent of Wharton’s incoming MBA class is female, the first time a Top 7 business school has admitted more women than men. The Wall Street Journal, July 28, 2021

Apple’s profits from the past three months ($21.7 billion) was nearly double the combined annual profits of the five largest U.S. airlines in pre-pandemic 2019. New York Times, July 29, 2021

In the United States last year, renewables became the second-most prevalent energy source, second only to natural gas. Accounting for 21% of all electricity generation, renewables topped both nuclear and coal for the first time. Morning Brew, July 28, 2021

While sitting on the porch with her husband, a woman was sipping on a glass of wine, and she says, “I love you so much, I don’t know how I could ever live without you.” Her husband asks, “Is that you talking or the wine talking?” She replied, “It’s me…talking to the wine.”

Changes in the Student Loan Landscape

by Jamie Callighan | Wealth Management & Student Loan Specialist at Offit Advisors
 
You may have recently heard that there are more changes coming to the student loan industry.  As of December 2021, FedLoan Servicing will no longer be servicing student loans.  This will impact millions of borrowers but more importantly, those who are pursing PSLF should be on high alert.  Currently, there is little information as to who will take over the management of these loans but there are things you can do to protect yourself in the meantime.  The following are our recommendations and we will send out updates as we receive them.  
 
If your loan servicer is NOT FedLoan Servicing: it is unlikely that anything will change with your loans.
 
If your loan servicer IS currently FedLoan Servicing:
  • download all payment history.  Historically when loans have transferred to other servicers, the loan terms do not change, but the new servicer does not know your history with the previous lender.
  • Prior to FedLoans termination (December 14, 2021), note (screenshot) your current balance AND accrued interest balance.  You want to be sure that when your loan is with the new carrier, the outstanding interest is not capitalized (added to the principal balance).
  • Be on the lookout soon for communication from a student loan company that they will be your new servicer.  This will tell you when and how you can access your loans.  (signs point to MOHELA becoming your new provider but there is nothing currently stating that)
  • continue making your payments to FedLoan until you hear otherwise
If you work for a 501c(3) or a government institution and are pursuing Public Service Loan Forgiveness (PSLF):
  • do everything stated above
  • download ALL Employment Certification Forms (ECF) that have been previously submitted
  • note your current income-based payment plan and your re-certification date
  • send in a new ECF by November 1 to get the most up to date certification possible
  • when you receive communication from your new servicer, if they do not initially indicate it, reach out to them quickly to ensure that they will be processing certifications and applications for PSLF customers
  • DOCUMENT EVERYTHING.  Unfortunately, student loan servicers notoriously make mistakes and transitions haven't run smoothly.
One last thing to note, the temporary pause on student loan payments is set to expire on September 30th.  Advocates have been pushing to extend this pause further once again.  The loan industry expects things to be difficult and busy when millions of borrowers begin making payments again and figuring out how to get back on track.  To add the challenge of transferring millions of loans to another company only adds more stress to the chaos.  It is possible another extension will be made.  Hope for the best, prepare for the worst, but do not panic!
 
We will send out updates as we learn them but do not hesitate to reach out or schedule an appointment if you have additional questions.  
 

U.S. Large-Caps and Bonds Gain to Kick Off the Second Half of 2021



Highlights
  • The S&P 500 Index, NASDAQ Composite, and Dow Jones Industrial Average each posted new all-time highs in July. Small-caps fell for the month and growth continued its recent trend of outperformance compared to value.
 
  • With small-caps moving lower for the month, the year-to-date leadership has shifted to large-cap companies. Value still maintains a lead over growth year to date, but that lead has narrowed. International stocks also struggled in July.
 
  • The 10-year U.S. Treasury yield continued its recent slide lower in July. After closing June at 1.45%, it ended July at 1.24%. Most bond sectors continued their recovery in July after a rough first quarter.
 
  • The U.S. economy is still solidly recovering, but some economic data points showed moderating growth. The initial estimate of Q2 GDP was released and it disappointed at a 6.5% annualized rate compared to expectations of 8.4%.
 
  • The Delta variant continues to spread more widely in the U.S. and globally. It is yet to be seen whether this might have an impact on the economic reopening.
 
  • We expect ongoing economic improvements and continued above trend growth in the second half of 2021. However, volatility could increase in the months ahead with markets near all-time highs and pandemic issues ongoing.
Equity Markets

Growth continued its recent trend of outperformance compared to value in July. However, even more dramatic was the dominance of large-cap stocks compared to small-caps for the month. While most major U.S. equity indices enjoyed solid gains in July, small-caps fell rather sharply and relinquished their year-to-date leadership role.

After hitting a 52-week intra-day low near the end of June at 14.1, the VIX Index generally trended higher in July. It spiked above 25 at one point during the month (although it did not close at that level) and by the end of July, the VIX Index stood at 18.24. Despite volatility picking up during the month, stocks were generally higher. We believe investors should be prepared for ongoing periods of volatility over the next several months with stocks near all-time highs and after such a strong first half of 2021.

Style mattered once again in July, but market capitalization was a more significant driver of returns during the month. Although there will be times when growth rallies, we still believe that the value/growth disparity that reached a peak last year will likely continue to shift in 2021 with value improving on a relative basis. 

The numbers for July were as follows: The S&P 500 gained 2.38%, the Dow Jones Industrial Average advanced 1.34%, the Russell 3000 improved by 1.69%, the NASDAQ Composite rose 1.19%, and the Russell 2000 Index, a measure of small-cap stocks, declined by -3.61%. This drop in the Russell 2000 Index in July now causes it to lag the large-cap indices so far this year. Year-to-date returns in the same order were as follows: 17.99%, 15.31%, 17.06%, 14.26%, and 13.29%, respectively.

We will continue to monitor how trends shift in the coming months and whether the recent gains in large-cap growth stocks develop more footing, or whether small and mid-cap stocks, along with value, return to their recent leadership roles.

Looking closer at style, the headline Russell 1000 Index gained 2.08% in July. The Russell 1000 Growth Index drove results as it had in June, up 3.30%, while the Russell 1000 Value Index gained only 0.80%. Year-to-date returns were 16.71% and 17.98%, respectively. Value is still outperforming growth so far in 2021, but that gap narrowed with the returns from last two months. The small-cap universe was down in July regardless of style, with both growth and value declining.

International markets struggled in July, and particularly within emerging markets. Asian markets were hard hit during the month as China ramped up regulatory restrictions. The MSCI Emerging Markets Index dropped -6.73% in July, wiping out most of its gains for the year, and the MSCI ACWI ex USA Index, a broad measure of international equities, fell -1.65%. For the year to date, those two indices now show gains of 0.22% and 7.36%, respectively. Following the trend of recent years, U.S. stocks have continued to outperform their international counterparts.


Fixed Income

After surging higher during the first quarter, the yield on the 10-year U.S. Treasury has declined over the last four months. The yield closed the month of June at 1.45% and it slipped lower in July to end the month at 1.24%. Most bond sectors struggled in the first quarter, particularly the most interest-rate sensitive bonds, but they have been recovering from that point as yields have dropped.

High yield bonds have been the winner in fixed income so far this year, but Treasury Inflation-Protected Securities (TIPS) have surged of late, which has made them among the best pockets of the bond market. The ongoing and massive support from the Federal Reserve is keeping a lid on interest rates (particularly on the front end of the yield curve), but we did anticipate some steepening of the yield curve would occur in 2021. That steepening has happened, but as is typical, these moves are not just made in a steady manner. The yield curve has flattened somewhat in recent months with longer-term yields declining.

Fixed income returns for July were as follows: the Bloomberg Barclays U.S. Aggregate Bond Index gained 1.12%, the Bloomberg Barclays U.S. Credit Index advanced 1.30%, the Bloomberg Barclays U.S. Corporate High Yield Index rose 0.38% and the Bloomberg Barclays Municipal Index gained 0.83%. For the year to date, those index returns in the same order were as follows: -0.50%, 0.01%, 4.01%, and 1.90%, respectively. U.S. Treasuries enjoyed gains across the board as interest rates dropped with longer dated U.S. Treasuries showing the best results in July (the 30-year index was up +4.11% for the month), but it is still down -5.51% year to date.

As inflation concerns and expectations have increased in recent months, TIPS have had solid results. Over the last three months, the Bloomberg Barclays U.S. Treasury TIPs Index has gained 4.54%, which puts its year-to-date gain at 4.44%. We continue to maintain our long-standing position favoring credit versus pure rate exposure in this interest rate environment.
 



S&P 500 Index is an unmanaged group of securities considered to be representative of the stock market in general. You cannot directly invest in the index.

Dow Jones Industrial Average - The Dow Jones Industrial Average is a popular indicator of the stock market based on the average closing prices of 30 active U.S. stocks representative of the overall economy. 

NASDAQ Composite Index measures all NASDAQ domestic and international based common type stocks listed on The NASDAQ Stock Market. Today the NASDAQ Composite includes approximately 5,000 stocks, more than most other stock market indices. Because it is so broad-based, the Composite is one of the most widely followed and quoted major market indices.

Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index which includes the 3,000 largest companies in the U.S., based on market capitalization. As of the latest reconstitution, the average market capitalization was approximately $762.8 million; the median market capitalization was approximately $613.5 million. The largest company in the index had an approximate market capitalization of $2.0 billion and a smallest of 218.4 million. 

Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. 

Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. 

Government bonds are guaranteed by the U. S. Government and, if held to maturity, offer a fixed rate of return and fixed principal value.
Securities offered through Kestra Investment Services, LLC (Kestra IS), Member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Offit Advisors is not affiliated with Kestra IS or Kestra AS. Offit Advisory Services, LLC is a tax firm but neither Kestra IS nor Kestra AS provide legal or tax advice and are not Certified Public Accounting firms.For more information on the Five Star Wealth Manager and the research/selection methodology go to: www.fivestarprofessional.com. Investor Disclosures: https://bit.ly/KF-Disclosures
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Offit Advisors
9030 Red Branch Road Suite 130
Columbia, MD  21045
Phone + Text:  410 600 7526 (PLAN)
Fax: 410 826 7639
E – BOffit@OffitAdvisors.com
Wwww.OffitAdvisors.com

 
To schedule an appointment with us, click here!

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra IS or Kestra AS. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by Kestra IS or Kestra AS for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.


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