Stocks rebounded last week, as the S&P 500 rose by 2.4 percent to 2,723.1. That left the benchmark index up 1.8 percent year-to-date, and 7.1 percent below the record close. Despite the welcome bounce in the market over the past few days, a significant amount of damage was done in October. In fact, the S&P 500 ended the month down 6.9 percent, the largest decline since September 2011. Participants in tax-advantaged 401(k) plans also took a bit of a hit in October, according to updated data from the Employee Benefit Research Institute. For example, the average 401(k) account balance for younger (25-34), less-tenured (1-4 years) workers fell by 3.7 percent last month, the first decrease since March and the biggest drop in years. For some perspective, though, account balances for these same participants had risen by 11.2 percent in the three months prior to October’s decline.
More importantly, 401(k) plans work best when utilized over long time horizons so that routine savings and the resiliency of the market can together help offset periods of elevated volatility. Just since the end of 2016, for instance, the average 401(k) account balance for younger, less-tenured workers has surged by 91.0 percent, while the S&P 500 has gained 21.1 percent (through the end of October 2018). Older workers (55-64) with at least five years of tenure saw their 401(k) balances rise by an average of “only” 28.0 percent during this same period, not surprising since these individuals tend to have much larger accounts that are less sensitive to both contributions and market fluctuations. Altogether, these substantial gains should provide further evidence of how effective consistent participation in a tax-advantaged savings vehicle can be when trying to amass a large retirement nest egg. Additional assistance is available through the use of dollar-cost averaging and regularly consulting with a professional financial advisor. As always, we are here to help with any questions you may have.
To recap a few of the things we learned about the economy last week, the positives included that housing inflation eased, consumer confidence increased, personal spending improved, nonfarm employment rebounded, initial jobless claims held near a half-century low, and average hourly earnings growth accelerated. As for the negatives, the nation’s trade deficit widened, mortgage applications declined, small business job creation cooled, corporate layoff announcements spiked, employment costs jumped, the personal saving rate fell, productivity growth moderated, construction spending stalled, and measures of U.S. manufacturing activity continued to send mixed signals. This week the pace of economic data slows down considerably but there are still a few important reports on the services sector, employment, and inflation scheduled to be released. A potentially market-moving announcement from the FOMC on monetary policy is also due out this week, and tomorrow’s midterm elections could provide another volatility catalyst.
**A more detailed snapshot of the U.S. economy can be found here.**
What To Watch:
- John Williams Speaks 8:30 AM ET
- PMI Services Index 9:45 AM ET
- ISM Non-Mfg Index 10:00 AM ET
- 3-Yr Note Auction 1:00 PM ET
- Robert Kaplan Speaks 7:00 PM ET
- FOMC Meeting Begins
- MBA Mortgage Applications 7:00 AM ET
- EIA Petroleum Status Report 10:30 AM ET
- 30-Yr Bond Auction 1:00 PM ET
- Consumer Credit 3:00 PM ET
- PPI-FD 8:30 AM ET
- John Williams Speaks 8:30 AM ET
- Patrick Harker Speaks 8:50 AM ET
- Randal Quarles Speaks 9:00 AM ET
- Consumer Sentiment 10:00 AM ET
- Wholesale Trade 10:00 AM ET
- Baker-Hughes Rig Count 1:00 PM ET
Sources: Econoday, EBRI, FRBSL
Post author: Charles Couch