Midyear review

Market and personal finance updates for you

The first half of 2021 is behind us.

The economy is showing signs of recovery from the pandemic and the stock market has reached record-high levels.

But how much recovery has occurred and how long will it last? What about inflation? Will the market stay strong?

Our team of investment managers and financial planning professionals have put together an overview of what’s happening now, what you might expect in the near future and what it all could mean for you.

More than 60% of adults in the country have been vaccinated against Covid-19 and new cases have declined in most areas after nearly 600,000 deaths. With restrictions lifting on business operations and daily life, it finally feels like we’re getting back to normal, doesn’t it?

More than 60% of adults in the country have been vaccinated against Covid-19 and new cases have declined in most areas after nearly 600,000 deaths. With restrictions lifting on business operations and daily life, it finally feels like we’re getting back to normal, doesn’t it?

The economy

The U.S. economy is continuing its strong recovery from last year’s pandemic-driven contraction, due to further progress in fighting Covid-19 and the sizeable government stimulus.

Expectations have steadily improved, with economists now looking for 6.6% annual GDP (Gross Domestic Product) growth this year. If that comes to fruition, it will be the fastest pace of annual economic growth since 1984.

As the economy comes back to life, we are seeing higher prices in some areas, thanks to a pickup in spending and businesses rushing to meet increased demand. The Consumer Price Index rose 5% between May 2020 and May 2021, its largest yearly gain since August 2008. Some key drivers of the recent rise in consumer prices are directly related to more areas of the country reopening. Prices for car and truck rentals, motor fuel, hotel lodging and airline tickets have increased as travel and recreational activity picks back up.

So, is this a temporary rise in inflation as supply chains adjust to the economy moving toward normal, or the start of a longer period of higher inflation, which could put pressure on future spending plans?

The inflation we have seen so far, while higher than the last decade, is still low compared to the last 50 years. Many of the pressures creating higher prices are due to short-term factors – spikes in consumer spending, supply-chain issues and increased needs for more workers in some areas. Markets are constantly adjusting to new information and economic data, which is quickly reflected in prices. That means market prices reflect an outlook on both current and future levels of inflation. Looking at fixed-income markets, current prices for bonds predict that inflation will be modestly higher for the next year or two, and then decline toward the recent long-term average of 2% to 2.5%. If inflation turns out to be higher than expected, we can expect interest rates to increase, but if it is lower than predicted by the market, interest rates can fall (as they have recently).

In fact, we are already seeing price declines in some commodities, like lumber, that had previously spiked up. Many of the supply-chain issues that helped push prices higher are getting worked out, but progress may be slow in some areas (for example, computer chips). Given all that, it is fair to say that uncertainty about future inflation is higher than before the pandemic and you can expect to hear more about it in the news as the economy returns to life.

Overall, a healthy, growing economy should have some modest price increases over time, which is why a 2% annual inflation target is part of the Federal Reserve’s mandate. At its June meeting, the Fed left the Federal Funds Rate near zero, though projections from committee members signaled a rate hike may come sooner than markets had been expecting (sooner meaning one or two 0.25% increases in 2023). The Fed also signaled they may soon begin to talk about reducing monthly asset purchases put into place as part of their pandemic response. The market has taken this news in stride, suggesting that this view of the future was already largely considered by investors.

The second part of the Fed’s “dual mandate” is a focus on full employment; job growth has been strong, yet total employment is still 6.7 million jobs lower than pre-pandemic levels. That means total payrolls are currently around 95% of their February 2020 levels. The recovery has varied across sectors. For instance, jobs in professional and business service industries have recovered well, while areas harder hit by the pandemic (leisure and hospitality jobs, for instance) have a longer road ahead.

The June employment report was strong with the economy adding 850,000 jobs (against expectations for 720,000 jobs). Weekly claims for unemployment insurance remain elevated compared to pre-pandemic levels but well below last year’s highs. Supplemental unemployment insurance programs are beginning to phase out, though it will take more time for labor markets to adjust to the new equilibrium.



2021 inflation forecast

Consumer prices jumped


in one year

Economy adding


more jobs than expected

What does this mean for you?

The possibility of higher prices in the future is something we explicitly take into account when developing your financial plan. We know that current expectations are looking for strong economic growth and a modest increase in inflation, but expectations are not guarantees (inflation could be higher or lower in the future than currently expected). That is why we stress-test your plan against a wide range of future possible inflation rates. Our investment strategy for you – broad diversification, timely rebalancing, careful investment selection and long-term investing – is designed to help deliver across all possible scenarios. Please contact your Edelman Financial Engines planner if you have any concerns about your personal finances and expenditures or when you make job changes.

The markets

Just as the outlook for U.S. economic growth continues to improve, expectations for corporate earnings have also moved higher.

In January, analysts estimated S&P 500 company earnings would grow 22% in 2021 compared to last year. That estimate has increased to an annual earnings growth rate of 36%, as actual results have come in and estimates have been updated accordingly. Expectations for stronger earnings growth have helped push the S&P 500 to new heights; the index, which tracks large-cap U.S. companies, has closed at new all-time highs 34 times this year (as of June 30).

Some investors may grow apprehensive with markets at or near all-time highs, thinking there must be nowhere to go but down. In reality, there are any number of paths the market may take from here and trying to guess the next move is typically a losing proposition. Staying invested and diversified is the best course of action. Over the past 18 months, some shifts in market leadership – namely the back-and-forth performance of large-cap growth vs. small-cap value stocks – have helped illustrate that point.

Market volatility has fallen back to pre-pandemic levels, though current expectations are a slight increase back toward its longer-term average in the months ahead. We have seen some frenzied and isolated trading activity in companies like GameStop and AMC Entertainment grab headlines. However, that volatility should be of little consequence to long-term, diversified investors.

And what about all the buzz and volatility around digital assets and Bitcoin investments?

Well, the Securities and Exchange Commission has delayed approval of digital asset Exchange-Traded Funds, demonstrating the cautious approach of regulators and underlining the challenges in broadening access to what is still a mostly unregulated and sometimes chaotic market. The broader adoption of digital assets is complicated due to volatility, liquidity, fraud, trading restrictions and limitations of existing securities.


The S&P 500 has closed at new all-time highs


times this year (as of June 30)


invested and diversified

is the best course of action

Keep in mind that digital assets as investments are not appropriate for everyone, especially those with low to moderate risk tolerance

What does this mean for you?

Accurately and consistently predicting which area of the market will lead others over any given period is extremely difficult (if not impossible). That’s why we invest in broadly diversified portfolios with exposure to many different types of investments. Additionally, we are exploring ways to provide indirect exposure to the digital asset space via publicly traded securities, and we’ll keep you posted on our progress. However, keep in mind that digital asset investments are not appropriate for everyone, especially those with low to moderate risk tolerance. Talk with your financial planner if you have any questions.


A recent survey by the Federal Reserve revealed that 2.5 million affluent Americans who are 55 years of age or older say they plan to retire soon.

They found the number of people who are expecting to work beyond age 67 is at a record low of only 33%. Two-thirds of people say they’re going to quit before age 67. That has never happened before. This has resulted from a combination of affluence and the likely realization from the pandemic that life is short, and we should make the most of it. This is likely to put additional pressure on pension systems and Social Security. It’s the result of Americans living longer, fewer people working, and the large number of baby boomers reaching retirement age.

In May, eight retirement reform bills were introduced in the House and Senate – most having bipartisan support – that have a chance of being enacted as part of 2019’s SECURE Act. Among the proposed changes is raising the age for taking Required Minimum Distributions from 401(k) plans and traditional IRAs from 72 to 75 by 2032 (if it passes this year).

President Biden has proposed raising the top marginal income tax rate from 37% to 39.6%, to help pay for the American Families Plan.

That rate would apply to singles with taxable income of more than $452,700 and married couples filing jointly with more than $509,300 in income. (Note that the top rate is slated to increase to 39.6% after 2025 even if Congress doesn’t pass Biden’s current proposal.) Biden is also negotiating a large infrastructure plan that will focus on clean energy and exponential technology industries of the future; training for millions of workers; investments in affordable housing units; repairs to roads, bridges, rail lines and ports; and creating a network of electric vehicle charging stations. He’s also proposing a “human infrastructure” plan to invest in domestic priorities that boost the economy and don’t leave the unwealthy behind – including education, paid leave and child tax credit programs. To pay for much of this, he is proposing raising the corporate tax rate from 21% to 28%.



of Americans who are 55 years of age or older say they’re going to quit before age 67

Tax increases may be coming based on proposals to incomes taxes, capital gains and more

What does this mean for you?

Frankly, we don’t know exactly how or when tax policies will change. The only thing we know is that tax increases may be coming based on proposals to change income taxes, capital gains taxes and more. This is not a Republican or Democrat issue because there will be trillions of dollars needed in the coming years to pay for the government’s expenses for Covid-19 and needed investments in infrastructure. At the same time, it is not wise to make changes to your financial plans and investments based on mere proposals. There is a saying in Washington, D.C. – the president proposes and Congress disposes. All we can say is, we’ll help you be prepared for any changes. So, if you’re concerned, or would like to discuss how these changes might affect you, talk with your financial planner. And stay tuned for updates on policy and tax changes from us as they occur. In the meantime, investing in a broadly diversified portfolio for the long term, based on your tolerance for risk, remains our best approach.

Actions you can take now

Most importantly, as we navigate this new way of life with new perspectives, continue working with your Edelman Financial Engines planner to ensure your financial plan is up to date and on track.

Take these actions now to help protect your financial security:

Update your beneficiaries on life insurance, IRAs, annuities and retirement accounts.

Check your credit report. Look for fraudulent activity or incorrect information. If you spot an unusual item, contact the credit reporting agency.

Change your password for every online account and update your passwords regularly to prevent thieves from accessing your accounts. Be sure each account has a unique password that is at least 14 characters long.

If it’s been more than two years, review your insurance, including these policies:

a. Disability income insurance: During your working years, your income is your most important asset. This insurance provides you with income if you can’t work due to illness or injury.

b. Life insurance: If anyone is financially dependent on you, you want to make sure they’ll be financially cared for in the event you pass away sooner than expected.

c. Long-Term Care insurance: 70% of those 65+ will need care at some point, and the average cost of a nursing home is almost $100,000 per year. LTC insurance not only protects your money, but it protects your children, too, from using their hard-earned money for your care.

d. Umbrella liability insurance: This policy provides you with coverage in excess of what you get from your homeowners and auto policies. For just a few hundred dollars per year, you can obtain millions of dollars in protection.

Ask your financial planner about refinancing your mortgage while interest rates are still low. If you can reduce your mortgage rate by 0.75% or more, you might be able to cut your mortgage payment by hundreds of dollars per month.

If you’re not already doing so, maximize the contributions to your workplace retirement plan and IRA.

Maintain an appropriate savings plan and revisit income projections to ensure you are on track for your long-term goals.

Now is a good time to review or update your estate plan. Let your financial planner know if you need a referral to an estate attorney.

Consult with your tax advisor regarding potential impacts from proposed policy changes.

Investing strategies, such as asset allocation, diversification, or rebalancing do not assure or guarantee better performance and cannot eliminate the risk of investment losses. There are no guarantees that a portfolio employing these or any other strategy will outperform a portfolio that does not engage in such strategies. Funds and ETFs are subject to risk, including loss of principal. All investments have inherent risks. There can be no assurance that the investment strategy proposed will obtain its goal. Past performance does not guarantee future results.

An index is a portfolio of specific securities (common examples are the S&P, DJIA, NASDAQ), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance does not guarantee future results.

Neither Financial Engines Advisors L.L.C. nor its affiliates offer tax or legal advice. Interested parties are strongly encouraged to seek advice from qualified tax and/or legal experts regarding the best options for your particular circumstances.

Neither Edelman Financial Engines nor any of its affiliates, or their advisors, sell insurance products. Edelman Financial Engines affiliates may receive insurance-related compensation for the referral of insurance opportunities to third parties if individuals elect to purchase insurance through those third parties.


Have questions? Connect with your planner.