Monthly Archives: January 2021
For All its Trials & Tribulations, 2020 Delivered the 401(k) Investor a Positive Return for the Year
When all was said and done and the books were closed on 2020, the Mid Atlantic Trust Company Composite Benchmark finished in positive territory in three out of four quarters, providing the hypothetical 401(k) investor with a positive return for the year.
While things certainly got off to a shaky start in 2020, 401(k) investors that rode out the storm can take comfort in the fact that for the second year in a row their 401(k) balance ended up in positive territory. Out of the gate in the first quarter of 2020, the Mid Atlantic Trust Company 401(k) Benchmark dug quite a hole for itself with a 16% quarterly dip. It took a roaring 15.5% gain in the second quarter and another 6% gain in the third quarter to bring balances back into positive territory, only to be topped off by another 11.8% return in the fourth quarter to finish up at 14.85% for the year. This year can serve as a true testament as to why experts recommend 401(k) participants “stay the course” even during the most turbulent markets.
In comparison to the major market indices, the Mid Atlantic Trust Company 401(k) Benchmark was outpaced in the fourth quarter only by the Nasdaq composite, which continued its impressive run to finish up the year at a remarkable 43.6% return for the year.
ABOUT THE MID ATLANTIC 401(k) BENCHMARK
Mid Atlantic Capital Group is a leading financial services organization that provides a wide array of brokerage, advisory, and trust services to a diverse national client base of financial advisors and institutions, asset managers, and benefits administrators through its various subsidiary companies. Because we provide these services, Mid Atlantic Trust Company has plan investment data on approximately 95,000 401(k) plans representing approximately $100 billion in assets. Data used for this benchmark uses approximately 35,000 of those plans (see fact sheet for further information on actual sample). In response to requests from our institutional clients, we have created the Mid Atlantic Trust Company 401(k) Composite Benchmark which is designed to reflect the portfolio performance across 401(k) plans serviced, in any capacity, by Mid Atlantic.
For a copy of the full report of the Mid Atlantic Trust Company 401(k) Composite Benchmark, 401k Benchmark 4Q 2020.
Contact Mr. Scott Hervoyavich of Mid Atlantic Trust Company at 800-693-7800 or by emailing him at shervoyavich@macg.com
* For the hypothetical participant balances, we used a starting balance based on the average 401(k) participant balance provided by the Investment Company Institute for the year of the starting balance. In our calculation, we assumed a starting annual salary of $50,000, a combined employee/employer 9% annual contribution rate, and a 3% annual salary increase and applied the monthly rate of return of the benchmark.
Economic Data Released During the Week were Mixed and Overshadowed by the Change in Administration
Market Data as of Week Ending 1/22/2021 unless noted otherwise.
EQUITIES
U.S. stock prices advanced as the outlook improved for corporate earnings and prospects for a new stimulus from the Biden administration. Despite the near term improvement, S&P 500 earnings are still expected to decline 4.7% for the fourth quarter 2020. Small and medium sized company stocks generally outperformed large company peers and growth stocks outperformed value. Sector performance was led by gains in the communication services, information technology, and consumer discretionary sectors. The remaining eight major economic sectors lagged, most notably the cyclical sectors such as energy, materials, and financials. Developed foreign stocks in Europe and Asia lagged U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields were mixed this past week as shorter term yields declined and longer term yields were mostly unchanged. Short duration bonds generally outperformed long duration peers and high yield corporate bonds were the best performing asset class. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding more than 4%.
MACROECONOMIC DATA
Economic data released during the week were mixed and overshadowed by the change in administration. Weekly initial unemployment claims declined, but remain elevated at 900,000, as the labor market struggles to recover this winter. More than 5 million Americans continue to claim ongoing unemployment benefits. Existing-home sales were reported at a seasonally adjusted annual rate of 6.76 million, a 22% increase compared to the same period last year. Lack of supply for existing home sales has been driving prices higher as the inventory is less than two months, the lowest level since 1982. European countries continue to extend coronavirus lockdowns. Germany announced that lockdown restrictions will be in place until February 14. Business activity has been declining throughout the region as lockdowns weighed on the services sector.
Investors Balance the Expectation of Additional Government Spending with the Duration of the Economic Recovery
Market Data as of Week Ending 1/15/2021 unless noted otherwise.
EQUITIES
U.S. stock prices were mixed as President-elect Joe Biden announced his plans for a $1.9 trillion stimulus package and President Trump was impeached for a second time by the House of Representatives. S&P 500 earnings have improved, but are still expected to decline 6.8% for the fourth quarter 2020. Small and medium sized company stocks outperformed large company peers and value stocks generally outperformed growth. Sector performance was mixed as energy maintained a leadership position along with gains in the real estate, utilities, and financials sectors. The communication services, information technology, consumer discretionary, and consumer staples sectors lagged. Developed foreign stocks in Europe and Asia narrowly lagged U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields declined this past week as investors balance the expectation of additional government spending with the duration of the economic recovery. Longer duration bonds generally outperformed short duration peers and investment grade corporate bonds were the best performing asset class. Investment grade corporate bonds ended the week yielding approximately 1.9% and high yield corporate bonds are yielding more than 4%.
MACROECONOMIC DATA
Economic data released during the week were generally worse than expected. Weekly initial unemployment claims increased to 965,000, the highest level in more than five months, and more than 5 million Americans continue to claim ongoing unemployment benefits. Retail sales declined 0.7% in December, which was the third consecutive monthly decline after revisions. Germany reported preliminary data that the economy contracted 5.0% in 2020, which was better than expected. The Bank of Japan reported that the economy was improving despite the recent coronavirus cases.
U.S. Stock Prices Advanced as Several Major Indexes Ended the Week on Record Highs
Market Data as of Week Ending 1/8/2021 unless noted otherwise.
EQUITIES
Despite the chaos at our nation’s Capitol, U.S. stock prices advanced as several major indexes ended the week on record highs. Earnings expectations improved throughout the quarter and into the new year. However, S&P 500 earnings are still expected to decline -8.8% for the fourth quarter 2020. Small and medium sized company stocks outperformed large company peers and value stocks generally outperformed growth. Sector performance was mixed as energy stocks rotated into a leadership position and were up more than 9%. The materials, financials, and consumer discretionary sectors outperformed, whereas defensive sectors such as real estate, utilities, and consumer staples lagged. Developed foreign stocks in Europe and Asia outperformed U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields increased this past week as the democratic candidates won both Senate seats in Georgia and effectively control both houses of Congress. Long-term yields increased to their highest levels since March of last year as the 10 year U.S. Treasury note rose 0.20%. Longer duration bonds lagged short duration peers and high yield corporate bonds were the best performing asset class. Investment grade corporate bonds ended the year yielding approximately 1.9% and high yield corporate bonds are yielding more than 4%.
MACROECONOMIC DATA
Economic data released during the week were mixed but largely overshadowed by the Senate runoff in Georgia and turmoil in Washington. Employers cut 140,000 jobs in December, ending seven months of job growth as new coronavirus cases pose challenges for a sustainable recovery. Weekly initial unemployment claims were unchanged at 787,000 and more than 5 million Americans continue to claim ongoing unemployment benefits. Germany reported better than expected industrial production and trade data in November, meanwhile Italy seeks more than EUR 200 billion from the EU’s coronavirus emergency fund.
Most Major Economic Sectors Finished the Week in Positive Territory
Market Data as of Week Ending 12/31/2020 unless noted otherwise.
EQUITIES
U.S. stock prices were mixed as several major indexes ended the year on record highs, but smaller company stocks declined and erased some of the outsized gains from the quarter. Despite small company stocks’ poor performance during the week, they were up more than 30% during the quarter and narrowly outperformed the S&P 500 for the calendar year. Value stocks finished the year with a surge and outperformed growth last week, but they still lagged growth stocks by more than 30% in 2020. Most of the major economic sectors finished the week in positive territory as defensive sectors, such as utilities and real estate outperformed. Developed foreign stocks in Europe and Asia outperformed U.S stocks, while Emerging Market stocks outperformed developed foreign markets.
BONDS
U.S. Treasury yields declined this past week as it became more unlikely that Congress would approve a supplemental stimulus to increase payments to $2,000 for individuals. Longer duration bonds outperformed short duration peers and high yield corporate bonds were the best performing asset class, followed by investment grade corporate bonds. Investment grade corporate bonds ended the year yielding approximately 1.8% and high yield corporate bonds are yielding more than 4%.
MACROECONOMIC DATA
Economic data released during the week were mixed but largely overshadowed by coronavirus cases and related economic stimulus programs. Weekly initial unemployment claims dropped to 787,000 and approximately 5.2 million Americans continue to claim ongoing unemployment benefits. Lower housing inventory continues to present challenges as the November pending home sales unexpectedly declined 2.6%. The United Kingdom completed its formal separation from the European Union at the end of the year and complications are expected as new trade rules are implemented. The resurgence in new coronavirus cases has challenged Japan from both a domestic and trade perspective. The country reported weaker than expected industrial production and retail sales declined in November.