Stuff To Know
July 3, 2018
Work or Retire Sign — Fishers, IN — Norwood Economics

He had a guy that seemed to be doing just fine with his investment portfolio. When asked if he’d ever had anyone do retirement planning for him, he paused and then repeated that this guy (that his brother had recommended) seemed to be doing okay with the investing.


Retirement planning is about much more than investing. Investing is what you do with your savings to earn a return. You save and earn a return on your savings in order to have sufficient funds to meet your spending goals in retirement. You can’t retire and continue to consume without a retirement income, such as social security and savings. You need savings in addition to social security because social security is designed to only replace about 40% of your income. While it is true that the more you earn on your savings the less you need to save, it is not true that you will have a successful retirement 100% of the time as long as you beat the S&P 500 index return. You need to also save enough. Retirement planning is, in part, about determining an adequate savings rate.


Retirement planning is about much more than saving at an appropriate rate and investing your savings in a manner that will maximize the probability of meeting your spending goals in retirement. Retirement planning is also about contingency planning. No one knows how their future will play out, not in any real detail. Do we meet our savings goal or is it derailed by the loss of a job, illness, a divorce? Effective retirement planning includes contingency planning: What if this happens? What if that? A good retirement plan is stress tested after the basic model is built. A good retirement plan is robust enough to withstand life’s little jokes.


I had a woman tell me that her 401(k) plan had added a Roth option. A Roth IRA allows for after-tax savings, tax-free accumulation and tax free distributions. A traditional IRA allows for pre-tax savings, tax-free accumulation and taxable distributions. Tax uncertainty (not knowing future income tax rates) argues for putting money into both a Roth and Traditional IRA. The woman asked me if she should invest in the new Roth option, or continue to put money into a target-dated fund. Of course, that isn’t the choice. The Roth option isn’t an investment; it is an account that holds money that can then be invested in the same options as in the traditional 401(k) account. IRAs and Roth IRAs are not investments; they are investment accounts, with certain tax characteristics, into which you can place savings with which to invest.


I had a man tell me he didn’t want to just use index funds because he didn’t want to put all of his eggs in one basket. Index funds are now ubiquitous and can range from passively tracking a concentrated basket of investments, to tracking a broad, highly diversified basket of investments. Presumably, he meant he didn’t want to only invest in low-cost, passively managed funds, but instead wanted to also invest in higher-cost, actively managed funds as well. However, the choice between using index funds and actively managed funds has nothing to do with diversification. It is very easy to build a properly diversified index fund portfolio if that is your goal. Index funds are not an asset class; they are a type of money management style.

The Fear Gauge has Fallen

By Christopher Norwood • June 30, 2025
Executive Summary The S&P 500 rose 3.4% last week, climbing to 6,173.07 The Magnificent 7 are outperforming the S&P 493 by over 18% since April The Cboe Volatility Index (VIX) fell as low as 16.11 last week Investors seem unconcerned about tariffs and war Treasury interest rates are starting to fall The Fed has little reason to cut if unemployment isn't moving higher The stock market is at record highs Corporate bond spreads are tight, meaning credit is abundant The dollar has fallen by around 10% in 2025 Inflation is expected to move higher because of tariff The Stock Market The S&P 500 rose 3.4% last week. The Israeli-Iranian ceasefire was credited with the surge to the upside. The index had lost 0.7% over the prior two weeks.

The Federal Reserve sees slower economic growth and higher inflation

By Christopher Norwood • June 23, 2025
Executive Summary The S&P 500 gained 0.3% last week, climbing to 5,967.84 The index is having trouble staying above 6,000 Technical indicators are turning somewhat negative The Federal Reserve kept the overnight rate at 4.25% - 4.50% The updated “dot plot” shows a divided Fed Seven members indicate no rate cuts in 2025 Eight members forecast two rate cuts in 2025 The Fed is forecasting a slower economy in 2025 and 2026 The hard data is starting to point to a slowing economy Inflation is still well above the Fed’s 2% target

War in the Middle East

By Christopher Norwood • June 16, 2025
Executive Summary The S&P 500 fell 0.4% last week to finish at 5,976.97 Friday's sell-off due to Israel's attack on Iran The Volatility Index (VIX) is rising due to the war in the Middle East Higher volatility is usually associated with a down move in the market There is no chance of a Fed Funds Rate cut at this week’s meeting according to the CME FedWatch Tool The unemployment rate has been rising slowly The dollar continues to weaken The U.S. needs to reduce its spending to avoid a currency crisis  The Stock Market

A Slowing Economy and Higher Inflation

By Christopher Norwood • June 9, 2025
Executive Summary The S&P 500 rose 1.5% last week to finish at 6,000.36 The May payroll number came in above estimates The U.S. economy is slowing, despite the S&P 500 poking above 6,000 The Labor Force Participation Rate fell to 62.4% from 62.6% Inflation may have bottomed and is set to rise The services price paid index is pointing towards a higher CPI The declining dollar is a concern Tariffs are a tax The Q2 nowcast seems to be indicating that negative economic impacts from tariffs won’t affect Q2 International markets have far outperformed U.S. markets so far in 2025 The Stock Market The S&P 500 climbed 1.5% last week and closed at 6,000.36. The Dow rose 1.3% while the Nasdaq rose 2.0%. Interest rates rose as bond prices fell. A stronger-than-expected jobs report on Friday is getting the blame for rising yields. The jobs report was also responsible for the S&P’s gap-up open on Friday (chart below).

High Level of Uncertainty Surrounding Trade Policy

By Christopher Norwood • June 2, 2025
Executive Summary The S&P 500 rose 1.9% last week to finish at 5911.69 The S&P 500 rose 6%, the Dow rose 3.8% and the Nasdaq climbed nearly10% in May Could see another test of support around 5,800 this week Several longer-term negative divergences may be pointing to a tough summer Declining new highs during an advancing market is a negative Earnings estimates for 2025 and 2026 have been trending lower Earnings drive the stock market over the long run

A Trading Range Market Most Likely

By Christopher Norwood • June 2, 2025
Executive Summary The S&P 500 fell 2.6% last week to close at 5,802.82. The 20-Year Treasury auction went poorly. The yield rose above 5%. The 5% threshold has twice this year resulted in the administration adjusting its stance on tariffs. (Make that three times as Trump over the weekend gives the U.K. until July 9 th .) Longer-term inflation expectations are rising. Moody’s downgraded the U.S. to Aa1 on 16 May. The credit default swaps market sees the U.S. as a Baa1/BBB+ credit, on par with Greece. The tax cut bill will add to the deficits and debt. Long-term interest rates might well continue to rise.

Buying Companies on Sale is a Successful Strategy

By Christopher Norwood • May 19, 2025
Executive Summary The S&P 500 rose 5.3% last week to finish at 5,958.38 The Dow advanced 3.4% and the Nasdaq added 7.2% A falling VIX means investor confidence is increasing A 90-day pause in the trade war sent the S&P higher Earnings estimates are falling along with GDP growth forecasts Earnings and interest rates drive the stock market over the long run Investors are chasing performance Small business hiring plans and job openings haven’t improved Norwood Economics continues to look for good companies on sale The Stock Market

Trump Decides to Save Christmas

By Christopher Norwood • May 19, 2025
Executive Summary The S&P 500 fell 0.5%, to finish at 5,659.91 The Dow fell 0.3%, and the Nasdaq dropped 0.5% The 200-day moving average is the next resistance U.S. nominal GDP growth expected to slow significantly Bank of America shifts investment focus Norwood Economics already has exposure to gold for most clients Norwood Economics is overweight international stocks The risk of both higher unemployment and higher inflation has increased The Federal Reserve declined to lower the fed funds rate last week The Stock Market

Remain Diversified. Prepare for higher-than-normal volatility

By Christopher Norwood • May 5, 2025
Executive Summary The S&P 500 rose 2.9% last week to finish at 5,686.67 The Dow was up 3% last week, and the Nasdaq rose 3.4% The counter-trend rally is ongoing Investors are extremely bearish due to worries about the trade war Political prediction markets are back Exploding imports are not a sign of weakening demand The April jobs report was better than expected The Trade War continues Capital is flowing into international and emerging markets The US dollar will likely continue to weaken The Stock Market

Caution is the Watchword of the Day

By Christopher Norwood • April 28, 2025
Executive Summary The S&P 500 rose 4.6% last week and finished at 5,525.21 Dollar weakness is an unpleasant surprise Tariffs and the dollar's safe-haven status should have pushed the dollar higher The S&P managed to retake the 20-day moving average Investors are looking for a reason to buy Some strategists are advising to sell the bounce Negative supply shocks are bad for the economy Weakness in U.S. bonds, stocks, and the dollar has investors scared Data is beginning to point to an economic slowdown The Chicago Fed National Activity Index (CFNAI) is one of the most important and overlooked economic indicators The Stock Market The S&P 500 rose 4.6% last week and finished at 5,525.21. The Dow rose 2.5% and the Nasdaq gained 6.7%. The S&P’s gains were attributed to President Trump’s statements at a Tuesday press conference. He said that Chinese tariffs would come down, and he wouldn’t fire Fed Chairman Jerome Powell. The 10-year Treasury yield ended the week at 4.25%. The two-year Treasury yield finished at 3.79%. The dollar rebounded. The dollar index (DXY) ended the week at 99.587. It hit a 3-year low of 97.921 on Monday. The DXY has lost 9.6% since mid-January. Tariffs and the dollar's safe-haven status should have pushed the dollar higher, not lower. It is believed that foreigners are repatriating their money. America needs foreign capital. Interest rates will have to go higher to entice foreign capital to our shores if safe-haven status is lost.
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