The year-end holidays approach and bring lots of things to do. Yet with holiday cheer there are financial plans to make, too.

Consider these financial opportunities before 2022 arrives.

MAKE FINANCIAL GIFTS

As we count our many blessings and share time with our loved ones, we can express our thanks through giving to others. Donate to your favorite charity before year-end.

Generally speaking, the amount of charitable cash contributions taxpayers can deduct on Schedule A as an itemized deduction is limited to a percentage (usually 60%) of the taxpayer's adjusted gross income. But did you know that the IRS has temporarily suspended limits on charitable contributions?

Sure it might change, but as of now, qualified contributions are not subject to this limitation and individuals may deduct qualified contributions of up to 100% of their adjusted gross income.

To qualify, the contribution must be a cash contribution and made to a qualifying organization. Contributions of non–cash property do not qualify for this relief. Taxpayers may still claim non–cash contributions as a deduction, subject to the normal limits.

You can gift assets or cash to your child, any relative, or even a friend, and take advantage of the annual gift tax exclusion. Any individual can gift up to $15,000 this year to as many other individuals as he or she desires a couple may jointly gift up to $30,000. Whether you choose to gift singly or jointly, you've probably got a long way to go before using up the current $11.7 ($23.4 million for couples) lifetime exemption.

Grandparents, aunts, uncles, and parents too can fund 529 college saving plans this way, but it is worth noting that December 31st is the 529 funding deadline.

MAX OUT RETIREMENT PLANS

Most employers offer a 401(k) or 403(b) plan, and you have until December 31st to boost your contribution. This year, the contribution limit on both 401(k) and 403(b) plans is $19,500 for those under 50 (it's going up by $1,000 next year) and $26,000 for those 50 and older. This year, the traditional and Roth individual retirement account contribution limits are $6,000 for those under 50 and $7,000 for those 50 and older.

But be careful because high earners face contribution ceilings based on their adjusted gross income level.

Remember IRA cash-outs. Once you reach age 72 you are required to take annual Required Minimum Distributions (RMDs) from your retirement accounts.

Your first RMD must be taken by April 1st of the year after you turn 72. Subsequent RMDs must be taken by December 31st of each year. If you don't take your RMD, you'll have to pay a penalty of 50% of the RMD amount.

Did you inherit an IRA? If you have and you weren't married to the person who started that IRA, you must take the first RMD from that IRA by December 31st of the year after the death of that original IRA owner. You have to do it whether the account is a traditional or a Roth IRA.

Consider dividing it into multiple inherited IRAs, thus extending the payout schedule for younger inheritors of those assets. Any co–beneficiaries receive distributions per the life expectancy of the oldest beneficiary. If you want to make this move, it must be done by the end of the year that follows the year in which the original IRA owner died.

If your spouse died, then, you should file Form 706 no later than nine months after his or her passing. This notifies the IRS that some or all of a decedent's estate tax exemption is carried over to the surviving spouse.

Business owners' retirement plans. If you have income from self-employment, you can save for the future using a self-directed retirement plan, such as a Simplified Employee Pension (SEP) plan or a one–person 401(k), the so-called Solo (k). You don't have to be exclusively self–employed to set one of these up – you can work full–time for someone else and contribute to one of these while also deferring some of your salary into the retirement plan sponsored by your employer.

Contributions to SEPs and Solo (k) s are tax–deductible. December 31st is the deadline to set one up, and if you meet that deadline, you can make your contributions as late as April 15th next year (or October 15th with a federal extension).

You can contribute up to $58,000 to a SEP and this rises to $61,000 next year.

If you contribute to a 401(k) at work, the sum of your employee salary deferrals plus your Solo (k) contributions can't be greater than the $19,500/$26,000 limits. But even so, you can still pour up to 25% of your net self-employment income into a Solo (k).

IRS INCREASES CONTRIBUTION LIMITS FOR NEXT YEAR

The Internal Revenue Service announced that the amount individuals can contribute to their 401(k) plans in 2022 has increased to $20,500, up from $19,500 for 2021 and 2020.

From the IRS website:

Highlights of Changes for 2022

"The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased to $20,500, up from $19,500. The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the Saver's Credit all increased for 2022.

Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or the taxpayer's spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor the spouse is covered by a retirement plan at work, the phase–outs of the deduction do not apply.) Here are the phase–out ranges for 2022:

• For single taxpayers covered by a workplace retirement plan, the phase–out range is increased to $68,000 to $78,000, up from $66,000 to $76,000.

• For married couples filing jointly, if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase–out range is increased to $109,000 to $129,000, up from $105,000 to $125,000.

• For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the phase–out range is increased to $204,000 to $214,000, up from $198,000 to $208,000.

• For a married individual filing a separate return who is covered by a workplace retirement plan, the phase–out range is not subject to an annual cost–of–living adjustment and remains $0 to $10,000.

The income phase–out range for taxpayers making contributions to a Roth IRA is increased to $129,000 to $144,000 for singles and heads of household, up from $125,000 to $140,000. For married couples filing jointly, the income phase-out range is increased to $204,000 to $214,000, up from $198,000 to $208,000. The phase–out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost–of–living adjustment and remains $0 to $10,000.

The income limit for the Saver's Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate–income workers is $68,000 for married couples filing jointly, up from $66,000; $51,000 for heads of household, up from $49,500; and $34,000 for singles and married individuals filing separately, up from $33,000.

The amount individuals can contribute to their SIMPLE retirement accounts is increased to $14,000, up from $13,500.

Key Employee Contribution Limits That Remain Unchanged

The limit on annual contributions to an IRA remains unchanged at $6,000. The IRA catch–up contribution limit for individuals aged 50 and over is not subject to an annual cost–of–living adjustment and remains $1,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $6,500. Therefore, participants in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan who are 50 and older can contribute up to $27,000, starting in 2022. The catch–up contribution limit for employees aged 50 and over who participate in SIMPLE plans remains unchanged at $3,000."

Quarterly Market Commentary: Third Quarter 2021 

Markets Struggle in the Third Quarter

Global equity markets had a mixed third quarter, but when the final Wall Street-bell chimed on September 30th, global markets had not moved very much, despite the final month of the quarter turning in dismal results.

For the third quarter of 2021:

• The DJIA ended 3Q with a loss of 1.5%;

• The S&P 500 ended 3Q with a gain of 0.6%;

• NASDAQ ended 3Q with a loss of 0.2%; and

• The Russell 2000 ended 3Q with a loss of 4.4%.

But many are trying not to focus on the mixed returns for 3Q (and dismal September returns) and are instead focusing on how the market performed for the first nine months of the year – and those numbers are solid, as:

• The DJIA is up 12.1% YTD;

• The S&P 500 is up 15.9% YTD;

• NASDAQ is up 12.7% YTD; and

• The Russell 2000 is up 12.4% YTD.

Interestingly, the themes that helped drive market performance have been on Wall Street’s worry list for a while and did not just appear on July 1st. Topping the worry list was rising inflation, the Federal Reserve’s schedule of remaining accommodative; declining consumer sentiment; overheating housing; concerns that the delta variant might stall economic activity; and disappointing economic data hampered by supply chain issues.

Further, we saw that:

• Volatility, as measured by the VIX, trended up in the third quarter, starting slightly over 15 and ending the month at 23.

• West Texas Intermediate crude did not move much in the third quarter, starting and ending just north of $75/barrel. Further, WTI has climbed more than 50% in six months, having started 2021 at $48/barrel.

Market Performance Around the World

Investors were not thrilled with the quarterly performance around the world, as 32 of the 35 developed markets tracked by MSCI were negative for the third quarter of the year. And of the 40 developing markets tracked by MSCI, 26 of them were negative too.

Source: MSCI. Past performance cannot guarantee future results

Again, the themes that helped drive market performance this month have been on Wall Street’s worry list for a long time and did not magically appear when the third quarter kicked off. 

In fact, the worries of rising inflation; the Federal Reserve’s schedule of remaining accommodative; declining consumer sentiment; overheating housing; the delta variant; and supply chain issues have all been around for many months (inflation has gone up every month in 2021, for example). 

But the third quarter did see a few more troublesome topics added to that long worry list, including:

• Treasury Secretary Janet Yellen warning of economic catastrophe if Congress did not raise the debt ceiling limit;

• A hotly-debated infrastructure bill that could carry a price tag of at least $1 trillion and up to $3.5 trillion;

• Skyrocketing shipping fees heading into the holiday season as container ships are anchored outside U.S. ports waiting to be unloaded;

• Rising unemployment applications for the last 3 weeks of the month; and

• China’s Evergrande Group risking default on its debt and sending shock-waves throughout global markets, similar to when Lehman Brothers collapsed (13 years ago to the day) and kicked off the Financial Crisis of 2008.

And as if we need another reminder about inflation, the number of companies warning of inflation on their latest earnings calls hit an all-time high too.

Finally, while glass-half-empty economists were busy reminding us all month that September has historically the worst month for stocks, now they’re preaching that October has historically been the most volatile month for stocks. So, is it any surprise that stocks struggled with this growing Wall of Worry?

September Lived Up to Its Billing

All the major U.S. equity markets and virtually all the developed and emerging markets tracked by MSCI were down for the month of September, in keeping in line with what has historically been the worst month for stocks. For the month of September:

• The DJIA was down 4.3%;

• The S&P 500 was down 4.8%;

• NASDAQ was down 5.3%; and

• The Russell 2000 was down 3.6%.

Further, the S&P 500 and NASDAQ both turned in their worst months since the height of the pandemic in March 2020.

IPOs on Fire

The IPO market was on fire during the third quarter, with a stunning record amount of activity on the M&A and IPO front. Here are some statistics for perspective:

• Q3’s global M&A activity produced deals worth more than $1.5 trillion, which is 38% more than the highest quarter on record

• Global M&A activity through the first nine months of 2021 reached more than $4.3 trillion, which trounces the annual record of $4.1 trillion

• There has been a crazily historic 770 U.S. IPOs over the first three quarters of 2021 and that is a whopping 3x the ten-year average of 205

• SPACs make up 58% of this year’s IPOs, but the 323 non-SPAC IPOs are already greater than any year since 2008

Sector Performance Rotated in Q32021

The overall trend for sector performance for each of the first nine months and the first, second and third quarters was good, but the performance leaders and laggards did rotate throughout, suggesting that a few sector rotations may have occurred in just 9 months. 

For perspective, recall that this time last year, the third quarter of 2020 ended with 10 of the 11 S&P 500 sectors painted green. Fast forward a year later and 5 of the 11 are painted red.

Here are the sector returns for the shorter time periods:

Source: FMR

Reviewing the sector returns for just the third quarter of 2021, we saw that:

• 5 of the 11 sectors were painted green for the third quarter;

• The Energy sector turned in another volatile quarter, this time retreating as the price of oil barely moved, whereas last quarter Energy led the other sectors as the price of oil leapt by $15/barrel;

• The Financials sector turned in another solid quarter, helped by the Federal Reserve’s stance of keeping rates low through at least 2023; and

• The differences between the best (+2.77%) performing and worst (-3.71%) performing sectors in the third quarter widened.

Asset Class & Style Performance

The second quarter and first six months of 2021 were good for almost all investors, with most of the major asset classes and styles turning in very respectable – and most importantly green – numbers across the board. 

For the quarter, Commodities continued their spectacularly red-hot pace, Growth outpaced Value and small-caps lagged the larger caps. 

Source: Barclays, Bloomberg, FactSet, FTSE, MSCI, J.P. Morgan Asset Management. DM Equities: MSCI World; REITs: FTSE NAREIT All REITs; Cmdty: Bloomberg UBS Commodity Index; Global Agg: Barclays Global Aggregate; Growth: MSCI World Growth; Value: MSCI World Value; Small cap: MSCI World Small Cap. All indices are total return in local currency. Past performance is not a reliable indicator of current and future results.

Turning to Commodities, which jumped another 6% for the quarter to add to its almost 30% gain YTD, it should be noted that 14 of the last 17 months have seen gains. Further, that almost 30% gain YTD represents its largest annual gain since 1979. 

Natural gas has gone through the roof with a YTD gain of 135% and WTI Crude oil is up 55% YTD. Supply and demand challenges are driving energy prices higher, as the summer driving season saw record-high gasoline demand and supplies were disrupted by hurricane season.

Consumer Confidence Sinks Again

On September 28th, the Conference Board announced that its Consumer Confidence Index declined in September, after declining in both July and August. The Index now stands at 109.3 (1985=100), down from 115.2 in August. And only 19% of consumers think business conditions are good, whereas 25% think conditions are bad.

“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again. Short-term inflation concerns eased somewhat, but remain elevated,” read the press release from the Conference Board.

Inflation Keeps Rising

The Bureau of Labor Statistics reported that the Consumer Price Index for All Urban Consumers increased 0.3% in August on a seasonally adjusted basis after rising 0.5% in July. Over the last 12 months, the All Items index increased 5.3%.

A few highlights:

• The indexes for gasoline, household furnishings and operations, food, and shelter all rose in August and contributed to the monthly all items seasonally adjusted increase.

• The energy index increased 2.0%, mainly due to a 2.8% increase in the gasoline index.

• The index for food rose 0.4%, with the indexes for food at home and food away from home both increasing 0.4%.

Some Positive Inflation News Maybe?

Here is some good news on the monthly inflation increases (maybe):

• The index for dairy and related products declined in August, falling 1.0% after rising in each of the previous 4 months.

• There was a sharp decline in the index for food at employee sites and schools, which fell 17% in August.

• The index for airline fares fell sharply, decreasing 9.1% over the month.

• The index for used cars and trucks declined 1.5% in August, ending a series of five consecutive monthly increases.

GDP Up 6.7%

On the last day of the third quarter, the Bureau of Economic Analysis announced that real gross domestic product increased at an annual rate of 6.7% in the second quarter. In the first quarter, real GDP increased 6.3 percent.

“The increase in real GDP in the second quarter reflected increases in PCE, nonresidential fixed investment, exports, and state and local government spending that were partly offset by decreases in private inventory investment, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.”

Current Account Deficit Widens in 2Q

The U.S. Bureau of Economic Analysis announced that “the U.S. current account deficit, which reflects the combined balances on trade in goods and services and income flows between U.S. residents and residents of other countries, widened by $0.9 billion, or 0.5%, to $190.3 billion in the second quarter of 2021.

The second quarter deficit was 3.3% of current dollar gross domestic product, down from 3.4% in the first quarter. The $0.9 billion widening of the current account deficit in the second quarter mainly reflected reduced surpluses on services and on primary income that were mostly offset by a reduced deficit on secondary income.”

Jobless Claims Up

On the last day of the quarter, the Department of Labor announced that for the week ending September 25th, the advance figure for seasonally adjusted initial claims was 362,000, an increase of 11,000 from the previous week's unrevised level of 351,000. In addition:

• the 4-week moving average was 340,000, an increase of 4,250 from the previous week's unrevised average of 335,750.

• The advance seasonally adjusted insured unemployment rate was 2.0% for the week ending September 18, a decrease of 0.1% from the previous week's unrevised rate.

• The advance number for seasonally adjusted insured unemployment during the week ending September 18 was 2,802,000, a decrease of 18,000 from the previous week's revised level.

• The 4-week moving average was 2,797,250, a decrease of 750 from the previous week's revised average. This is the lowest level for this average since March 21, 2020 when it was 2,071,750.

“The highest insured unemployment rates in the week ending September 11 were in Puerto Rico (4.7), California (3.4), District of Columbia (3.2), Oregon (3.2), Alaska (3.1), Nevada (3.1), New Jersey (3.1), the Virgin Islands (3.1), Hawaii (2.7), and Illinois (2.7). 

The largest increases in initial claims for the week ending September 18 were in California (+17,218), Virginia (+12,140), Ohio (+4,147), Oregon (+3,413), and Maryland (+2,452), while the largest decreases were in Louisiana (-6,935), New York (-2,275), Missouri (-1,568), Oklahoma (-1,264), and New Mexico (-1,055).” 

Exports & Imports of Goods and Services 

“Exports of goods increased $28.3 billion, to $436.6 billion, mostly reflecting increases in industrial supplies and materials, mainly petroleum and products, and in capital goods, mainly civilian aircraft and semiconductors. 

• Imports of goods increased $29.0 billion, to $706.3 billion, primarily reflecting an increase in industrial supplies and materials, mainly petroleum and products and metals and nonmetallic products.

• Exports of services increased $7.6 billion, to $189.1 billion, primarily reflecting an increase in travel, mostly other personal travel.

• Imports of services increased $9.1 billion, to $127.8 billion, mostly reflecting increases in transport, primarily sea freight and air passenger transport, and in travel, primarily other personal travel.”

Worries of a Government Shutdown?

On literally the last day of the month with just hours to spare, President Biden signed a bill extending government funding through December 3rd, averting a partial shutdown. But the debt-ceiling fight remains and is likely to dominate Wall Street’s Wall of Worry heading into October. 

Here is a very important thing to remember: if the debt ceiling is not raised and the government does shut down, it wouldn’t be the first time. In fact, it wouldn’t even be the twentieth time. 

Since 1976 the government has been shut down 22 times, the last being between December 22, 2018 until January 25, 2019 (35 days). If this happens, then yes, the stock market will likely react negatively. 

But for perspective, consider the impact to stock markets during the last 2013 and 2018/2019 shutdowns – stocks actually rose.

Source: FactSet

But remember, as always: past performance is never a guarantee of future results. 

Sources: census.gov; bea.gov; bls.gov; dol.gov; bea.gov; factset.com; msci.com; fidelity.com;  nasdaq.com; wsj.com; morningstar.com

Headlines are looking grim again, so let's pause and take stock.

Why are the headlines terrible?

Because the media loves drama. This is not news to you or me or anyone who pays attention. The 24-hour news cycle is there to whip up emotions and keep us glued to the latest "BREAKING NEWS."

So, what’s behind the noise and should we worry?

Before we jump into unpacking the news, let’s take a moment and remind ourselves of how far we’ve come since the pandemic began.

You can see it right here in this chart:

We've recovered the vast majority of jobs lost since the bottom of the pandemic's disruption last April. The economy is still missing several million jobs to regain pre-pandemic levels, but we've made up a lot of ground, and jobs growth is still strong.1

In fact, there are more job openings right now than job seekers to fill them.2

But there's an important caveat to the chart above.

The monthly jobs report is what economists call a "lagging" indicator, meaning that it's telling us where the economy was, not where it's going.

To figure out what might lie ahead, economists turn to "leading" economic indicators that help forecast future trends.

So, what are the leading indicators telling us about the economy?

A couple of the most popular indicators are manufacturing orders for long-lasting (durable) goods since companies don't like to order expensive equipment unless they expect to need it soon.

Another one is groundbreaking (starts) on new houses, which indicate how much demand builders expect for housing.

Let's take a look:

Both indicators suggest continued (if bumpy) growth. Now, those are just two sectors, and we want to be thorough, so let's take a look at a composite.

The Conference Board Leading Economic Index (LEI) gives us a quick overview each month of several indicators.

It increased by 0.7% in June, following a 1.2% increase in May, and a 1.3% increase in April, showing broad, but slowing growth.3

What does that tell us? That the economy still has legs.

Will the delta variant derail the recovery?

A serious slowdown due to the delta variant seems unlikely, but we could potentially see a bumpy fall, especially in vulnerable industries and areas with surging case counts.

There's also some potentially good news about the delta variant that we can take from other countries.

India and Great Britain both experienced delta-driven surges earlier this summer.4

And what happened?

A steep and scary rise in case counts and hospitalizations...followed by a rapid decline.

It seems that these fast-moving delta waves might burn themselves out.

Unfortunately, these surges come with a painful human cost to patients, overburdened medical staff, communities, and families.

But, if this pattern holds true in the U.S., it doesn't appear that the economic impact will be heavy enough to derail the recovery.

All this to say, it's clear that the pandemic is still not over.

But we've come such a long way since the darkest days of 2020 and the road ahead still seems bright (if a little potholed).

Please remember to take panicky headlines with a shaker or two of salt.