January 2021 – MarketWatch Newsletter

As 2020 ended, Wall Street was clearly feeling optimistic about the new year. Stock prices hit all-time highs on the last day of trading, and the S&P 500 finished the year up 16.3% while the Nasdaq grew by nearly 44%. In fact, the stock market has been booming since November, hitting new record highs despite many growing challenges that have carried over into 2021. These include surging Covid-19 cases, high unemployment, lingering worries about the recovery, and a vaccine rollout that’s moving slower than expected.*

However, there have also been some positive developments that investors have focused on instead, such as the approval of two effective vaccines. Another big one was the release of a second round of federal aid, which many economists see as vital to keeping the recovery moving forward. What’s more, many believe Joe Biden will introduce another relief package sometime soon after his inauguration.** Big investors clearly like the idea of more federal aid, as shown by fact that the Dow and S&P both shot to new record highs in response to the surprise results of the Senate runoff race in Georgia on January 5th.*** Democrats gained majority power in the Senate, which improved the odds that Biden’s plan for more relief will be approved. At the same time, though, the prospect of full Democratic power and more stimulus did trigger some nervousness in the bond market, sending long-term interest rates higher. The yield on the 10-Year Treasury rate topped 1% for the first time since last March.****

We may see more nervousness in the weeks and months ahead, and there are several issues that could trigger it. One is the release of earnings reports for 2020’s fourth quarter. Another is the weekly release of unemployment data, which began trending in the wrong direction last November. There is also the question of what Joe Biden’s presidency will mean for the financial markets going forward. Though he’s unlikely to propose any tax hikes while the pandemic is still an issue, raising corporate and payroll taxes are ultimately part of his economic plan.

The bottom line is that any of these issues could quickly undercut investor optimism and send the markets back into correction territory. Some analysts believe it could happen before April, which—as I’ve noted before—could create a good buying opportunity for certain investors with the right risk tolerance. In the meantime, it remains essential to know that your financial strategy is still aligned with your personal risk tolerance, and set up to help you protect your downside and/or take advantage of potential new opportunities in the coming year!

Portfolio Transactions:

When managing your portfolio at SIS, we look for one of four possible “enhancement” trades while reviewing securities and possible transactions. Income generation is our primary goal for our clients, and we consider the following four portfolio enhancements before transacting: current yield, yield to worst (minimum projected annualized total return), interest rate risk, and default risk. The intents of these transactions are categorized as follows:

  • Pay Me Now – Enhancing current yield
  • Pay Me Later – Enhancing yield to worst
  • Cover My Assets I. – Managing interest rate risk
  • Cover My Assets II. – Managing default risk

We evaluate the transactions by determining whether they meet one, two, three, or all four enhancements. A baseball analogy for this: SINGLES, DOUBLES, TRIPLES, and HOME RUNS.

  • Pfd partial swap
    • Sold CHARLES SCHWAB CORP – SCHW-C 6% Perp , Baa2/BBB @ $25.33, 5.89% CY & -16.63% YTC (callable 2/08/21)
    • Purchased ATHENE HOLDING LTD- ATH-B 5.625% Perp, BBB- @ $26.90, 5.34% CY & 4.37% YTC (callable 9/30/24)
    • Purchased UMH PROPERTIES INC- UMH-C 6.75% Perp Cumulative, NR @ $25.42, 6.70% CY & 6.17% YTC (callable 7/26/22)


*“January 2021 Stock Market Outlook,” Forbes, Jan. 4, 2021
**“New Stimulus Package vs. CARES Act: What’s Different,” cnet.com, Dec. 22, 2020
***“Stocks Rally Amid Georgia Runoff Results,” Yahoo Finance, Jan. 6, 2021
****“10-Year Treasury Yield Jumps Above 1% for First Time Since March,” MarketWatch, Jan. 6, 2021

Note: The above trades were recent block trades and do not reflect all trades done on an individual specific basis. Sound Income Strategies, LLC is a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Past performance is not an indication of future results. Be sure to first consult with a qualified financial advisor or tax professional about your specific financial situation before implementing any strategy discussed herein.

You are advised to give independent consideration to, and conduct independent investigation with regards to the information above in accordance with your individual investment objectives. Use of the Information is at the reader’s risk, is strictly intended for informational purposes in conjunction with the recipient’s due diligence, and should not be construed as a solicitation by Sound Income Strategies, LLC. Past performance will never indicate or guarantee future behavior. Sound Income Strategies, LLC does not represent or warrant that the contents of the document are suitable for you from compliance, regulatory, legal, or any other perspective. We shall have no responsibility or liability for your use or non-use of the document or any portion thereof.

Sound Income Strategies, LLC is registered as an investment advisor under the Investment Advisers Act of 1940 and is regulated by the SEC. Sound Income Strategies, LLC and its affiliates may only transact business or render personalized investment advice in those states and jurisdictions where we are registered or otherwise qualified to do so.