BayTrust Financial, Author at BayTrust Financial

Jun 16

Mitch Zacks – Weekly Market Commentary: Economy Keeps Chugging Along Despite Negative Headlines

By BayTrust Financial Weekly Market Commentary

As Headlines Remain Negative, the U.S. Economy Chugs Along

In recent weeks, I have written extensively about tariff-induced economic uncertainty. Many analysts continue to call for a recession, and this past week the World Bank projected the U.S. economy would grow just 1.4% in 2025—down from 2.8% last year. To be fair, I think concerns about rising input costs, inflation, business investment, and consumer spending are all valid and should be monitored closely in the coming months.¹

But as I write, the reality on the ground looks quite different from the gloomy outlook that tends to play out in financial media. The U.S. economy has largely been resilient, with worst-case scenarios on tariffs avoided while economic fundamentals remain stable and strong. This combination has been driving the market rally, in my view.²

An overview of recent economic data underscores my point. According to the Bureau of Labor Statistics, the U.S. economy added 139,000 jobs in May, firmly in positive territory. The unemployment rate remained unchanged at 4.2%, where it has hovered in a narrow range for over a year. This may seem unremarkable, but that’s also the point. The labor market isn’t booming or breaking—it’s steadily supporting growth.

Private Payrolls Have Grown at a Steady Pace in Recent Months

Importantly, private sector hiring continues to outpace job losses at the federal level, where government employment declined by 22,000. Wages also climbed in May, with average hourly earnings rising 0.4% month-over-month and 3.9% year-over-year. That’s comfortably above the current pace of inflation, helping to support real household income and consumer spending. It’s a key piece of data for markets, especially given concerns that rising prices would continue eroding purchasing power.

On the inflation front, recent data continues to suggest that the worst of the inflation shock is behind us. The Federal Reserve’s preferred measure, the PCE price index, rose just 2.1% year-over-year in April, putting it a mere tenth of a percentage point above the Fed’s long-run average inflation target. Some would argue that this opens the door for the Fed to resume rate cuts, which would serve as a tailwind for markets. I’m not in that camp. In my view, stocks don’t need rate cuts to do well.

I do not want to imply that the U.S. economy is firing on all cylinders, however. Retail sales, for example, were up 4.75% from a year ago but fell month-over-month in May. Consumer demand has clearly cooled from the post-pandemic surge, and forward momentum has become more uneven. Activity in the services sector, which drives most U.S. economic output, softened in May as the ISM Services PMI fell to 49.9, its first contraction in nearly a year. New orders fell, inventories declined, and pricing pressures appeared to pick up again, a combination that suggests businesses are feeling the weight of tariff uncertainty and are growing more cautious with forward planning.

The manufacturing sector also contracted for a third straight month in May, with the Manufacturing PMI registering 48.5. While some components like new orders and production showed slight improvement, others—such as inventories, exports, and employment—remained under pressure. These readings aren’t a signal of imminent collapse, but they do reinforce that certain areas of the economy are still contending with lag effects from prior shocks, policy uncertainty, and structural adjustments.

The bottom line, we are not seeing a uniform expansion across the economy, and that’s ok. It’s important for investors not to confuse economic resilience with gangbusters growth. The latter is not needed to power stocks higher.

Bottom Line for Investors

This kind of economic resilience doesn’t mean risk is lower today than it was before “Liberation Day.” As uncertainty over trade deals and future tariff actions remains high, I do not expect businesses and consumers to invest and spend confidently. The net effect could be a short or medium-term drag on growth.

At the same time, however, investors waiting for a clear, euphoric “all clear” may find themselves missing the recovery as it quietly continues. If you find yourself waiting for the next tariff plunder, inflation shock, or retracement of the stock market’s recent rally, it may be time to move on. Markets and the economy already have.

¹J.P. Morgan. June 9, 2025. https://advisor.zacksim.com/e/376582/c-outlook-jobs-report-may-2025/5t5cv8/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho

²Wall Street Journal. May 2, 2025.

³Fred Economic Data. June 9, 2025. https://advisor.zacksim.com/e/376582/series-ADPWNUSNERSA-/5t5cvc/1247316295/h/owGnC7fvD72gai2Bp4elWIlr-gFT_8pC8PvEKtYttho

DISCLOSURE

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Jun 10

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Mitch Zacks – Weekly Market Commentary: As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

By BayTrust Financial Weekly Market Commentary

As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

It’s been dubbed the “Great Boomer Selloff.”

If you have not heard this term in financial publications yet, it may just be a matter of time before you encounter it. The basic idea goes something like this: baby boomers, who collectively own trillions in financial assets, are entering retirement at a rapid pace. The implication is that in retirement, this entire generation will systematically shift their portfolios away from stocks and into income-oriented strategies, like bonds. With Gen X being a smaller generation, and Millennials and Gen Z still ramping up their savings, the fear is that selling will outpace buying, causing stock prices to suffer for years.¹

Recent media coverage gives the “Great Boomer Selloff” an air of urgency. But like many forecasts connecting demographics with stock market performance, it glosses over several important realities.

The most important reality, in my view, is the surprise factor (or lack thereof). The baby boomer generation did not just start aging and retiring in large numbers last month—these shifts have been unfolding for decades. What tends to move markets are unexpected developments that add or subtract trillions from global GDP—not slow-moving, well-known changes like we’re seeing with demographics.

The other problem with the “Great Boomer Selloff” theory is that it makes incorrect assumptions about retail investor behavior, while also overstating the impact that a generation of retail investors can have on the stock market.

Let’s start with the former. The baby boomer generation spans nearly two decades, from ages 61 to 79. Will all boomers start selling stocks en masse at the same time? I highly doubt it. If there’s a net drawdown, it will likely unfold over time—not in a single, market-shaking event. Many boomers will continue to buy and hold stocks for years to come, whether it’s to generate the growth needed to span longer retirements, to continue building wealth for legacy purposes, or to generate income via dividends. In other words, it is far from assured that boomers will abandon equities as they age.

On the latter point of overstating retail investor impact, it’s important to remember that retail trading is only one part of the demand equation. Institutional investors like pension funds, endowments, sovereign wealth funds, and insurance companies are massive market participants with long investment horizons. Institutions don’t invest for 10 or even 20-year time horizons, they’re thinking much longer term. Many are also required to maintain equity exposure to meet future obligations. And this does not even factor-in the consistent demand from corporate share buybacks.

On the supply side, equity markets look different than they did when boomers were accumulating assets in the 1980s and 1990s. The number of publicly traded U.S. companies has declined significantly from more than 7,000 in the late 1990s to around 3,700 today. That’s due to several forces: fewer IPOs, a preference for staying private, a surge in mergers and acquisitions, and sustained corporate buyback programs. In short, the supply of investable equities has been shrinking. Even if demand from one generation softens slightly, there are fewer shares available to push prices lower.

Lastly, Millennials and Gen Z are increasingly participating in equity market investing. They’re investing through workplace retirement plans, brokerage platforms, and digital tools that make market access easier than ever. They may not be able to fully replace boomer demand overnight—but they don’t have to. Their growing participation is part of a longer-term transition that should help support demand over time.

Bottom Line for Investors

Demographics are important, but they’re not a massive surprise force moving the stock market. The “Great Boomer Selloff” suggests that a generation of investors is poised to shock the markets with asset allocation adjustments in their retirement years, but the theory omits the reality that markets are shaped by a wide range of forces: supply and demand, institutional behavior, investor psychology, and more.

I’ve also seen this worry play out before. The theory that shifting demographics would adversely impact the stock market has been circulating for decades, and yet the stock market trades today near all-time highs with new generations of investors participating. I don’t expect that to change as baby boomers get older.

¹Reuters. May 23, 2025. https://advisor.zacksim.com/e/376582/verwhelm-us-stocks-2025-05-23-/5t3z4m/1242320052/h/vAqtUW7H53T-HJvYhYwGMtUdOIxwhsnVolBnWOi_Qp0

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Jun 02

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Mitch Zacks – Weekly Market Commentary: Bond Markets Signal Trouble Ahead. Should Investors be Worried?

By BayTrust Financial Weekly Market Commentary

Bond Markets are Jittery – Should Investors Be Too?

Auctions for 20-year U.S. Treasuries are generally a routine, straightforward event that few investors pay much attention to.

That was not the case last week.

The auction for roughly $16 billion in 20-year debt featured unusually soft demand, with investors bidding up yields past 5%, well above the approximately 4.6% average seen in recent auctions. The 20-year bond joined 30-year Treasury yields above 5%, and the 10-year also continued to inch higher, crossing 4.6%. Stocks sold off sharply on the news.¹

20-year and 30-Year U.S. Treasury Bond Yields Have Been Climbing Steadily

To be fair, these are not financial crisis-type moves in the bond markets, and there have been plenty of periods historically when yields are higher than they are now and the economy and stock market performed well. But it is correct to point out, in my view, that markets appear to be growing somewhat uncomfortable with the U.S.’s inflation and fiscal outlook.

In a past Mitch on the Markets column, I laid out three reasons why Treasury bond yields may move significantly higher:

1. Expectations for economic growth are going up, tied to expectations for pro-growth, pro-cyclical policies from the [current] administration.
2. Inflation expectations are going up, due to strong expected growth in an economy near full capacity or because of other factors, like trade policy (tariffs).
3. The bond market becomes increasingly concerned about fiscal health/sustainability, with growing deficits necessitating higher levels of bond issuance.

The concern is that yields are currently rising because of some combination of #2 and #3. The possibility of higher tariffs and higher government deficits (tied to the budget bill) aren’t helping.

Let’s start with the deficit issue. The starting point for the U.S. in 2025 is not great—the debt-to-GDP ratio is approaching a new all-time high, and the deficit relative to GDP is about 5% wider than it has historically been when the economy was at full employment. It is with this backdrop that “One, Big, Beautiful Bill” has passed the House of Representatives, which introduces tax cut extensions, new tax cuts, and spending provisions that are not fully paid for by cuts or new revenue. The implication is more annual budget deficits and additions to the national debt, which means more Treasury issuance. Yields are not likely to move lower in this scenario.

On the spending side, “One, Big, Beautiful Bill” introduces some spending cuts and measures like work requirements for Medicaid coverage, and the Department of Government Efficiency (DOGE) continues efforts to reduce government spending. But the scope of these spending cuts together is not likely to cover the cost of the tax cuts and annual government expenditures, which means shrinking the deficit is not likely. The Senate may demand more spending cuts in the bill, but the actual outcome remains to be seen. It’s understandable that bond markets are a bit wobbly in the meantime.

On the inflation side of the ledger, it is really all about whether tariffs remain in force, and for how long. In Trump’s first term, tariff threats were loud on the ‘bark’ but ultimately far more modest on the ‘bite.’ The tariffs that stuck were largely relegated to China, and corporations responded in many cases by rerouting trade through Vietnam and other intermediaries (including Mexico). U.S. markets and the economy did not feel much pain, and overall core inflation remained below 2% throughout this period.

We do not know where tariffs will end up for the wide variety of U.S. trading partners. But the baseline 10% universal tariff will arguably raise inflation at least moderately, perhaps to around 3% at the peak. Growth could also see an impact, given higher import costs and greater uncertainty. If Treasury yields go up in this case because of higher inflation and inflation expectations—without a corresponding acceleration in growth—that could trigger another correction in stocks, in my view.

Bottom Line for Investors

There’s still time. Tariffs, growing budget deficits, and sluggish economic growth are not foregone conclusions, and sharply rising bond yields aren’t either. We could see a breakthrough in trade deals, changes could be made to One, Big, Beautiful Bill to make it more budget neutral, and inflation could remain in check as the economy remains fundamentally strong. U.S. Treasury bond yields could remain in a trading range under these circumstances, and the Fed may even find cause to lower the fed funds rate and steepen the yield curve in the process.

In 2023, acute worries over too much debt and deficit spending faded as inflation came down and the economy grew, fueling the bull market in stocks and pulling in foreign investment. The door is open for this possibility in 2025, too.

¹Wall Street Journal. May 22, 2025. https://advisor.zacksim.com/e/376582/al-mess-in-washington-fcebd153/5t2vxb/1237912929/h/zpGCdFbX-oF19sjx8ZsTe4zrMB4i4WyP0yMDfChzOVI

²Fred Economic Data. May 21, 2025. https://advisor.zacksim.com/e/376582/series-DGS20-/5t2vxf/1237912929/h/zpGCdFbX-oF19sjx8ZsTe4zrMB4i4WyP0yMDfChzOVI

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

May 28

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Mitch Zacks – Weekly Market Commentary: How Big a Deal is the Moody’s Downgrade of U.S. Credit?

By BayTrust Financial Weekly Market Commentary

What Does the U.S. Credit Rating Downgrade Mean for Investors?

Another ratings agency has downgraded the U.S. government.

Last Friday, Moody’s became the third and final agency to strip the U.S. of its AAA credit rating, following earlier downgrades by S&P in 2011 and Fitch in 2023. Moody’s cited a persistent and widening fiscal deficit, along with the compounding effects of elevated interest costs, as the primary drivers of its decision. According to the agency, “successive U.S. administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.”¹

In other words, Moody’s is telling us something we’ve already known for decades.

The reasons Fitch and S&P gave for their downgrades largely mirrored Moody’s reasoning: too much spending, too little revenue, and too little cooperation in Congress to fix the issue. Put another way, ratings agencies give us a reflection of the state of affairs, but they are by no means leading indicators. After all, as seen in the chart below, the U.S. government has only managed to run four budget surpluses in the last 50+ years. The downgrade might be news, but the issue isn’t.

Source: Federal Reserve Bank of St. Louis²

Not only do ratings changes tend to be lagging indicators, but there’s also a long history of ratings missteps over the years. Perhaps the biggest in history came from the 2001 Enron scandal, where the rating agencies didn’t downgrade the company until just days before its collapse. There’s also the fact that S&P agreed to pay a $1.5 billion penalty for failing to assess the exorbitant risks present in the subprime mortgage CDO market leading up to the 2008 Global Financial Crisis—a huge miss.

Ratings downgrades would matter greatly if they resulted in surging Treasury bond yields, i.e., if they made it more expensive for the U.S. to borrow. But that has not been the case historically. As seen in the chart below, when S&P downgraded U.S. debt in 2011, the 10-year U.S. Treasury bond yield was at roughly 2.5%. It finished the decade below 2%.

Source: Federal Reserve Bank of St. Louis³

Ultimately, bond investors aren’t focused on letter grades—they’re focused on whether they’ll get their money back, with interest. From that lens, the U.S. remains one of the most reliable borrowers in the world. What matters isn’t the absolute size of U.S. debt, but its ability to service that debt. And right now, annual federal tax revenues far exceed interest payments, underscoring our ability to never miss a debt payment. Add to that the global demand for dollar-denominated assets and the sheer scale and diversity of the U.S. economy, and it becomes clear why Treasurys still sit at the center of global finance.

Source: Federal Reserve Bank of St. Louis⁴

It is important for me to make a distinction in my argument here, however. While I think a ratings downgrade a notch lower from AAA does not have many investment implications, I do believe the long-term issue of consistent deficit spending can and will have negative economic effects if it persists.

One key concern is the crowding-out effect. When the government runs large deficits, it typically funds them by issuing more debt. As federal borrowing ramps up, it can absorb a greater share of available capital in the economy, leaving less for private-sector investment. That shift can hinder the growth of businesses, limit innovation, and reduce long-term productivity.

Additionally, as debt servicing consumes a larger slice of the federal budget, it can constrain fiscal flexibility. Dollars spent on interest payments are dollars not spent on infrastructure, education, or other areas that support long-term economic health. Over time, if this dynamic continues unchecked, it can dampen potential GDP growth and erode investor confidence in U.S. policymaking—even if default risk remains low.

Bottom Line for Investors

Investors shouldn’t view the downgrade as an urgent alarm bell. But we should also not ignore the broader message. While Moody’s isn’t telling us anything new, the ratings downgrade does reinforce a longer-term concern: persistent fiscal imbalances. If left unaddressed, this can become a drag on economic growth. The risk isn’t about an imminent inability to pay—Treasury interest payments remain well covered by tax revenues—but about the cumulative effect of rising debt and interest costs over time.

If deficits continue to widen and debt service takes up a growing share of federal resources, it could begin to crowd out productive private investment, strain fiscal flexibility, and gradually undermine the foundations of U.S. economic leadership. In that sense, the downgrade is less a shock event and more a warning sign for policymakers on the road ahead.

These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

¹Wall Street Journal. May 16, 2025. https://advisor.zacksim.com/e/376582/omy-feat1-central-banking-pos1/5t1vsr/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

²Fred Economic Data. May 27, 2025. https://advisor.zacksim.com/e/376582/series-FYONGDA188S/5t1vsv/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

³Fred Economic Data. May 20, 2025. https://advisor.zacksim.com/e/376582/series-DGS10-/5t1vsy/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

⁴Fred Economic Data. April 30, 2025. https://advisor.zacksim.com/e/376582/series-A091RC1Q027SBEA-/5t1vt5/1232662594/h/wov49SFzU8_c9KxPDfp_Fw0CxoNcRBvYYfXWNcDz-68

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 29

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Mitch Zacks – Weekly Market Commentary: Categorizing A Market Selloff Can Help You Navigate It

By BayTrust Financial Weekly Market Commentary

Categorizing a Market Selloff Can Help You Navigate It

Market declines come in all shapes and sizes, but they tend to follow similar patterns over time. Corrections are short, sharp declines between -10% and -20%, while bear markets are declines greater than 20% that fall into one of three categories¹:

· Structural – These bear markets are caused by severe dislocations, typically in financial markets, and are often associated with ‘bubbles.’ The 2008 Global Financial Crisis is an example of a structural bear, which often take several years to fully recover from.

· Cyclical – These bear markets are more closely tied to the business cycle, and often coincide with a peak in profit margins, rising interest rates, elevated inflation, and/or a deceleration in economic growth.

· Event-Driven – Event-driven bear markets are triggered by an extraneous, usually unexpected shock. The Covid-19 pandemic is a perfect example of an event-driven bear market, as investors quickly anticipate immediate and elevated risks to earnings and growth.

In terms of magnitude and duration, structural bear markets tend to be the most painful. They’ve averaged about -37% declines over approximately 42 months. Cyclical and event-driven bear markets, on the other hand, average about -30% declines over generally shorter periods. Cyclical bears have lasted 25 months on average, while event-driven bears have usually spanned about 8 months with an average drawdown of -29%.

In my view, the current environment has the markings of a correction or an event-driven bear market.

The stock market appears to be very quickly pricing-in uncertainty tied to tariffs and other political factors, which has led to multiple contractions even as earnings have, to date, held up reasonably well. I’m not seeing any signs of a bubble bursting or a crisis in financial markets, which I think easily rules out a structural bear. A cyclical bear market does not seem likely either, as interest rates and inflation peaked some time ago and earnings expectations for 2025 were nicely positive throughout Q1. Higher-than-expected tariff pronouncements—with all the accompanying uncertainty—have been the wild card, which I think puts this downdraft in the event-driven category.

As seen in the table below, event-driven bear markets can sometimes have the look and feel of corrections, given the very short time frame where downside volatility is experienced. Once the downdraft is over, the forward returns are unanimously positive.

Bear Markets and Recoveries, 1929 – Present

It makes sense why the recovery from event-driven downdrafts is often quick. In many cases, the global/U.S. economy is in decent or good shape before an exogenous event takes place, meaning that it does not take quite as long for the economy to recover once the impact of the ‘event’ fades. In the current environment, if trade uncertainty suddenly fades it would be easy to envision the market taking off in response. U.S. household and corporate balance sheets are strong, the jobs market remains in strong overall shape, and credit spreads are tight. Investment-grade corporations still have relatively easy access to capital markets, and banks are also very well capitalized. This calls for patience, in my view.

Bottom Line for Investors

There is no way to know when the market will bottom. But what I can tell you, from a long reading of history, is that a sustained market rally will almost certainly take hold as the news remains bad and even gets worse. In other words, don’t wait for the breakthrough in trade.

The goal now is to ensure you’re positioned to participate in the rebound when it occurs. If this is a correction or an event-driven bear market, which I believe it is, that rebound could arrive much sooner than many anticipate.

¹Goldman Sachs. Asset Management. 2025.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 22

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Mitch Zacks – Weekly Market Commentary: U.S. Treasurys React to “Liberation Day”

By BayTrust Financial Weekly Market Commentary

The Bond Markets Make a Tariff Statement

Given the flurry of tariff announcements (which are still ongoing) and elevated equity market volatility, investors may have understandably taken their eye off the U.S. bond markets. But there’s been action in U.S. Treasurys that is worth a closer look.

In the immediate days following President Trump’s April 2nd “Liberation Day” tariff announcement, Treasury bonds behaved as we’d expect them to. As stocks sold off sharply, investors poured into “risk-free” Treasury bonds, which sent bond prices higher and yields lower.¹

But then something interesting happened.

Starting on April 4th, Treasury bonds endured sustained selling pressure (with prices falling and yields rising) as stocks also fell, which added another layer of confusion to an already uncertain market environment. Given the U.S. Treasurys’ status as the world’s safe-haven asset during periods of global economic and market upheaval, one would have expected bond prices to rise as stocks fell. But the opposite started occurring. Investors were dumping Treasurys and stocks at the same time, with the 10-year Treasury yield notably jumping from 4.20% to over 4.50% within a four-day stretch. That marked its steepest increase since the 2008 financial crisis.

10-Year U.S. Treasury Bond Yields Spiked in the Wake of “Liberation Day”

One possible explanation for the sharp move in Treasury yields is rising inflation expectations. Treasurys are caught in a tug-of-war between growing recession fears (which would send yields lower) and the possibility of higher inflation due to tariffs (which would send yields higher). Perhaps inflation concerns were winning the day.

Another explanation is more technical. Institutional investors unwound complex leveraged trades en masse, such as basis trades, which rely on small price discrepancies between Treasury instruments. As yields spiked, these trades became unprofitable, forcing hedge funds to liquidate positions rapidly—which intensified the upside volatility.

The U.S. dollar also deserves a mention here. The dollar has long been the dominant reserve currency worldwide. The greenback is widely used by governments and institutions to stabilize their own currencies, manage trade flows, service debt, and prepare for unexpected economic shocks. And because global commerce is so often conducted in dollars, there’s a persistent demand to hold them—typically parked in U.S. Treasurys. In this sense, ongoing demand for U.S. dollars and Treasurys keeps yields in check.

There’s an argument that evolving trade dynamics are prompting some investors to re-evaluate the dollar’s centrality in global transactions. Central banks and sovereign investors aren’t pulling back per se, but they appear slightly more cautious when it comes to increasing their U.S. Treasury holdings. This could put upward pressure on yields over time.

Whatever the ultimate reason for the surge in 10-year Treasury bond yields, the message was clear: financial markets were not responding well to the proposed global order on trade.

Then came the 90-day pause, after which the stock market delivered one of its largest single-day rallies in history. In hitting the pause button, the worst-case scenario was taken off the table, and stocks surged. As I wrote in a Mitch on the Markets column two weeks ago, “[good news] will almost certainly trigger strong moves higher, [and] long-term investors simply cannot afford to miss these upswings.”

This brings me to a final point I’d like to make about market volatility, which is a point I’ve made many times before: remember that volatility works both ways. The very best days in the stock market often occur in close proximity to the worst days, often by less than a week. It’s basically impossible, in my view, to time the market so you only participate in the up days but avoid the down days.

The chart below zooms out and looks at the relationship between a surge in volatility and forward market returns. As readers can see, the previous instances when volatility reached extremes occurred in 2008 and in 2020. In both instances, stocks (as measured by the Russell 1000 Index) posted double-digit gains in the following six months.

Bottom Line for Investors

The recent spike in Treasury yields and unusual cross-asset selling are signs that markets are grappling with a complex mix of policy uncertainty, shifting inflation expectations, and evolving global trade dynamics. Investors should expect heightened volatility to continue in the near term, as trade policy is negotiated and news updates hit the tape.

But it’s important to remember that volatility—especially in response to political or policy-driven events—works both ways, and we have already seen how major moves in the market can prompt the administration to step-in with actions to de-escalate. There is still plenty left to learn on tariff and trade policy—but at least for now, the direction of travel appears to be away from the most punitive starting point.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 16

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It’s Financial Literacy Month. How Much Do You Know About Retirement Accounts?

By BayTrust Financial Retirement Planning

April is often known for spring cleaning, Easter, and Passover, but it’s also Financial Literacy Month. At its core, financial literacy refers to understanding and effectively being able to use various financial tools and strategies. So, in honor of the month, we’re offering a basic financial primer, with some quick definitions and simple breakdowns of common retirement accounts.

Background: The Decline of Pensions

During the rise of the industrial age, as workers migrated and began working for factories and other enterprises, they shifted away from farming and self-sufficiency and began relying on pensions to fund their retirement. Because these pension plans were managed by their employers who tended to take care of and provide for their loyal employees, workers were little involved in strategies or decision-making when it came to planning for their own retirements.

But times have changed. The first implementation of the 401(k) plan was in 1978, and since then, has gradually supplanted the pension for most American workers. According to a congressional report, between 1975 and 2019, the number of people actively participating in private-sector pension plans dwindled from 27 million to fewer than 13 million, although public employees sometimes still have them.

Today, most workers are responsible for funding their own retirement, which makes understanding and participating in retirement accounts vital.

401(k) Plans

A 401(k) is an employer-sponsored retirement savings plan. With the traditional 401(k), employees can contribute pre-tax income into their own account, selecting among the plan’s list of options which funds they want their money invested in. Many employers will even match employee contributions up to a certain percentage.

(NOTE: In the public sector, there are 403(b)s, 457s, the TSPs (Thrift Savings Plan), and many other retirement plans which work similarly to the 401(k), but may have slightly different rules.)

With a traditional pre-tax 401(k), the employee’s contributions can reduce their taxable income for the year, since the money is deducted from their paycheck. Once an employee reaches age 59-1/2, per the IRS they can start taking withdrawals without incurring penalties, depending on their employer’s 401(k) plan rules. In retirement, they must begin taking withdrawals every year beginning at age 73, and pay taxes on the money withdrawn. (These are called required minimum distributions, or RMDs.)

Some employers also offer a Roth 401(k) option, which uses after-tax dollars. Although you must pay income taxes on the money you put into a Roth 401(k), including any employer Roth account matching amounts, a Roth option offers tax-free withdrawals in retirement as long as the account has been in place for five years or longer, no RMDs, and no taxes to your beneficiaries or heirs.

While the 401(k) can be a great way to save, it’s important to be mindful of how much you’re contributing, how your funds are invested, and what the tax ramifications of your decisions are.

Social Security

Social Security is a part of many Americans’ retirement planning. It was created as a national old-age pension system funded by employer and employee contributions, although later it was expanded to cover minor children, widows, and people with disabilities.

Established in 1935, Social Security payments started for workers when they reached age 65—but keep in mind at that time, the average longevity for Americans was age 60 for men and age 64 for women. With people living much longer, sometimes spending as long as 20 or 30 years in retirement, today Social Security must be supplemented with your own personal savings and other retirement accounts.

IRAs

Individual Retirement Accounts (IRAs) were created in the 1980s as a way for those without pensions or workplace retirement plans to save money for themselves for retirement in a tax-advantaged manner. While the tax treatment and contribution limits vary, the goal is to provide you with the means to build a retirement nest egg that can grow over time.

Types of IRAs:

Traditional IRA: Allows for tax deductible contributions for some people, depending on their income level and whether they have a plan through their workplace. Any growth in a traditional IRA is tax-deferred, and you’ll pay taxes when you withdraw the money in retirement. Contributions are subject to annual limits, and penalties apply if funds are withdrawn before age 59 ½, with some exceptions. RMDs must be taken annually beginning at age 73 and ordinary income taxes are due on withdrawals.
Roth IRA: Contributions to a Roth IRA are made with after tax income, meaning you don’t receive a tax deduction when you contribute. However, withdrawals in retirement are tax free if certain conditions are met. This account may be ideal for individuals who expect to be in a higher tax bracket in retirement. Roth IRAs are also tax free to those who inherit them if all IRS rules are followed.
SEP IRA (Simplified Employee Pension) and SIMPLE IRA (Savings Incentive Match PLan for Employees): For self-employed individuals and small business owners, a SEP IRA or SIMPLE IRA plan can allow for higher contribution limits for both themselves and/or their employees. And since the SECURE 2.0 Act, they can be set up as either traditional or Roth IRAs.

Annuities

Annuities are financial products designed to convert your savings into a monthly income stream, particularly during retirement. When you purchase an annuity, you exchange a sum of money for guaranteed monthly payments over a set period, or for the rest of your life, much like a pension. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)

Annuities can be purchased using pre-tax or after-tax dollars, and they can be purchased with deferred payments over time, or with a lump sum—for example, many people roll over funds from a 401(k) into an annuity. While annuities can provide retirement income, they are not suitable for everyone.

Types of Annuities:

Fixed Annuity: A contract offering a fixed interest rate for a set period of time.
Fixed Indexed Annuity (FIA): A contract offering guarantees and policy crediting benchmarked to a stock market index, providing potential for growth along with the protection of principal from market downturns. Not actual market investments, instead, with FIAs there is the chance for crediting based on contract terms and index performance. (Guarantees are provided by the financial strength of the insurance company providing your annuity contract.)
Variable Annuity: A contract where the value and income payments fluctuate based on the performance of investments chosen within the annuity. The choice of investment subaccounts, like mutual funds, can increase or lose value based on market performance.
Registered Index-Linked Annuity (RILA): Like a variable annuity, except there is often a certain level of contractual protection from market downturns.

Life Insurance

Life insurance can provide financial protection for your loved ones by offering a death benefit paid to a beneficiary upon your passing. Policies vary widely, but they generally aim to replace lost income, cover debts, or fund future expenses. Some policies, like permanent life insurance, can also build cash value over time, which can be borrowed for various needs, including retirement income.

It’s important to work with your financial advisor to find the right policy for your needs, and remember, medical underwriting may be required.

Types of Life Insurance

Term Insurance: Provides a death benefit if the insured passes away within a specified term (e.g., 1, 2, 10, 15, or 30 years). Premiums are typically level for a certain period but may increase with age. Once the term expires, the policy ends.
Whole Life: A permanent policy with fixed premiums and guaranteed cash value accumulation.
Universal Life: Offers flexibility in premium payments, death benefit amounts, and the policy’s cash value. It allows policyholders to adjust the death benefit and premiums based on changing needs, and in some cases, premiums can be paid using the cash value. Indexed Universal Life (IUL) policies are benchmarked to a market index like the S&P 500 (but not actually invested in the market) and policies may be credited based on performance, while offering protection from market downturns.
Variable Life: Comes in two forms—variable and variable universal life. Both variable life insurance (VL) and variable universal life (VUL) insurance are permanent coverage that allocate cash value to market investment subaccounts which can lose value, but with variable life, there is a fixed death benefit, while with VUL, there is a flexible death benefit and adjustable premium payment amounts.

Whether you’re just starting to think about retirement or are near retirement age, it’s never too late to learn more, or take action to create your own personal retirement plan. If you’re unsure about your retirement options or would like assistance planning for your financial future, please reach out to us! You can reach Bay Trust Financial at 813.820.0069.

Sources:

https://en.wikipedia.org/wiki/401(k)#

https://www.usatoday.com/story/money/2024/03/19/pensions-are-popular-why-dont-more-americans-have-them/72968970007/

https://www.schwab.com/ira/traditional-ira/withdrawal-rule

https://u.demog.berkeley.edu/~andrew/1918/figure2.html

https://home.treasury.gov/system/files/131/WP-91.pdf

https://www.indeed.com/career-advice/career-development/financial-litteracy

https://www.investopedia.com/guide-to-financial-literacy-4800530

Apr 15

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Mitch Zacks – Weekly Market Commentary: Avoid Sudden Moves In This Market

By BayTrust Financial Weekly Market Commentary

In last week’s Mitch on the Markets column, I offered readers a central takeaway:

“Selling out of the market today [April 5] substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.

What a difference a day can make.

In the days following President Trump’s April 2nd announcement, we learned that the U.S.’s new tariff rate was projected to reach approximately 25%, which blew past worst-case scenarios and even surpassed the economically catastrophic Smoot-Hawley tariff levels of the 1930s. But by April 9th, virtually all “reciprocal tariffs” were paused for 90 days. The ‘modicum of good news’ I referenced above was actually a big positive, with the worst-case scenario of tariffs being taken off the table.

There is still the China story, however. Beijing initially responded with retaliatory tariffs of 34% on the U.S. (China is the U.S.’s third largest export market), but in the days since, tariff rates have ratcheted higher. As I write, China has raised levies on U.S. imports to 84%, and President Trump has raised the tariff rate imposed on China to 125%.

What we’re left with today is a 10% universal tariff on all imports into the U.S. and an economic stand-off between the two world’s largest economies. Which is to say, investors should not necessarily expect a durable rally from here. Volatility works both ways, and we are almost certainly not out of the woods yet.

My advice to remain calm and avoid knee-jerk reactions has not changed. This is an event-driven market, meaning that asset prices are essentially in a day-to-day cycle of assessing economic policy announcements, trade negotiations, punitive actions, deals, and/or de-escalation. There is not a secret set of tools investors can use to navigate this type of market—in my view, this is a time to unwaveringly avoid guesswork and to keep focus on owning strong companies in a diversified, long-term focused portfolio.

In other words, tune out the daily noise.

Going forward from here, I again urge investors to avoid trying to guess the next move on trade or any other economic policy. Instead, focus on the big picture. Here are three key points to consider:

1. Potential for Negotiations and Concessions

As we have seen historically and in this latest installment of President Trump’s trade policies, countries may look to offer concessions that can be trumpeted as a win for the U.S., which could result in permanent moderation of the announced tariffs. If the U.S. can secure a few significant negotiations, it could ease market anxiety and potentially put more pressure on China to make a deal.

2. Consideration of Fiscal Offsets

Revenue from 10% universal tariffs could lead the Trump administration to suggest that Congress redistribute some of these funds towards fiscal easing measures elsewhere, like tax cuts, which could help bolster sentiment, GDP growth, and offer counter-cyclical measures to avoid recession.

3. A Starting Point of Strong Underlying Economic Fundamentals

Despite the tariff shock, certain underlying economic factors remain relatively healthy. The jobs market showed the hiring accelerated in March, and the unemployment rate remains at 4.2%. Households are also in strong overall financial shape, with low debt service payments as a percent of disposable income and steadily rising wages.

Now to be fair, I do not think the impact of 10% universal tariffs, a protracted trade fight with China, and uncertainty in general will have no impact on growth, consumer spending, and other key economic fundamentals. The longer these policies remain in place, the greater the likelihood we see a downshift in growth and possibly a recession in 2025. But again, all these headwinds could go away tomorrow. There is no way to know for sure.

Bottom Line for Investors

In an event-driven market, one of the biggest risks an investor can take is overreacting to a news story. We have already seen that President Trump u-turned away from the most punitive of tariff measures on Day 1 of their implementation, so it does not make sense to anchor your sentiment—or investment decisions—to headlines and especially not to worst-case scenarios. Making investment decisions based on what positive or negative surprise might come next is not only futile, but it can also do real damage to long-term returns.

Going forward, I expect market volatility to persist. After all, there are still 10% universal tariffs in place and an ongoing economic standoff between the U.S. and China. More twists and turns are likely, which makes a disciplined, diversified approach the most effective way to navigate your way through it.

DISCLOSURE
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Apr 07

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Mitch Zacks – Weekly Market Commentary: Market Shock from Tariffs – How to Navigate Volatility

By BayTrust Financial Weekly Market Commentary

Late in the week, global stocks made it clear that the tariff announcement was worse-than-expected. We were looking for a roughly 10% effective tariff rate once all the details were parsed, but the actual figure appears to be closer to 20%. That’s also about double what the general market was expecting, and as I’ve written time and again, markets do not like negative surprises.

Panicked investors everywhere are trying to decipher what to do next, which makes the current environment ripe for major missteps.

These are the moments historically when investors start trying to predict what is going to happen next, and the assessments tend to skew sharply negative. In the current environment, it may mean predicting a prolonged trade war, a recession (or worse), and/or more equity market downside. It does not matter if you have been an investor for one year or for 30+ years like me—the chances of being precisely correct are very, very low.

Investors tried to make the same predictions the day after Black Monday in 1987, when the S&P 500 fell -22.61% in a single day. Ditto in 2008, when a plummeting market was accompanied by images of bankers leaving Lehman Brothers with boxes. The Covid-19 pandemic is arguably in a league of its own in this respect, too.

There are very reasonable arguments that the current shift in trade policy should fall into a different category, given the medium- to long-term implications it could have on growth, prices, and global economic order. I could write many columns fleshing out economic theories for and against tariffs, while analyzing every line item of the April 2 announcement and making projections for economic impact. This is the type of work we do at Zacks Investment Management — determining which stocks and bonds to own in portfolios, as we make earnings and interest rate forecasts.

But this is not the type of analysis I think investors should be doing when determining whether or not to stay invested.

Even if we knew for sure the U.S. was either in—or heading for—a recession, it would not necessarily make it a prudent strategy to get out of stocks. The fundamental problem with this decision is that investors cannot know when to get back in, which is a dilemma that’s complicated further by the market’s tendency to rally when the news is still dismal and uncertain.

Think back to the Covid-19 pandemic. These were the biggest S&P 500 selloffs in March 2020:

March 6, 2020: -7.6%
March 11, 2020: -9.51%
March 13, 2020: -11.98%

Some may find it difficult to fathom/remember such steep declines one after the other, but that’s what the market did. If you told me I could travel back in time to March 1, 2020—armed with knowledge that the market was about to experience severe ‘short-term pain’—my position would be the same: I still wouldn’t sell.

That’s because throughout history, the news cycle lags the market by many, many months. When stocks started to surge in 2020, the unemployment rate was double digits, and the vaccine was nine months away from being approved. There were hardly any green shoots to be found anywhere.

And that’s my main point: selling out of the market today substantially increases the chances of being whipsawed when a rally takes hold, which again, no one can know the precise timing of.

In the current environment, the setup is that any modicum of good news on trade will factor as a positive surprise for markets going forward, which will almost certainly trigger strong moves higher. Long-term investors simply cannot afford to miss these upswings. If you put $10,000 into the S&P 500 on January 1, 1980, and stayed invested through March 31, 2025, you’d have $1,635,083.

But if you missed just the five best days in the market over that period, your investment would have grown to just $1,013,782.

That’s over half a million dollars for missing the best five days, which also meant staying invested in the days following the 1987 Black Monday crash, and throughout the Tech Bubble, 2008 Global Financial Crisis, and the Covid-19 pandemic. That’s a very hard series of choices for investors to make, but throughout history it has paid off. I’m convinced it will again.

Bottom Line for Investors

The market’s response to the tariff announcements was unsettling, and I empathize with the challenges and stress such sharp declines can cause for investors. The emotional dimension of market declines can give many investors the urge to act.

But as history has shown, the best course of action is often to resist this urge. Markets are unpredictable day to day—with about a 50/50 chance of gains or losses—but over longer periods, the odds shift dramatically in the investor’s favor. Since 1937, being invested in U.S. stocks for five years has meant earning positive returns 93% of the time. Over 10 years, it’s 97.4%.

Remaining invested during turbulent times is not easy, but it has been—and will continue to be, in my view—the single most reliable strategy for building wealth over time. The power of compounding works best when left alone.

¹ Wall Street Journal. March 15, 2025. https://advisor.zacksim.com/e/376582/d-economy-feat5-consumers-pos2/5stkd8/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY

² Fred Economic Data. February 21, 2025. https://advisor.zacksim.com/e/376582/series-MICH-/5stkdc/1189097503/h/cEzFYzByPVvCyinLeWRQSlQVBjbe7jfV2huGBrJhdqY

³ Google Trends. 2025.

DISCLOSURE

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.

Mar 24

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Do You Know the Connection Between Income and Medicare Costs?

By BayTrust Financial Medicare

As you near retirement you’re probably focused on making sure you have enough income to enjoy the years ahead. While enjoying what you’ve worked hard to build should be a priority, you should also keep in mind that withdrawing the money you’ve saved in traditional 401(k)s and IRAs can impact your Medicare costs throughout your retirement. Read on to see what having a high income could cost you in Medicare premiums and what strategies could potentially help you keep more money in your pocket and less going to Medicare premiums which are deducted from your Social Security check.

Understanding Medicare

First make sure you understand Medicare, how it’s broken up, and what plan you will likely choose. Medicare is sectioned into different parts, each serving a unique role in delivering health care coverage. These parts include Part A, Part B, Part D, and additional coverage options like Medicare Advantage (Part C) and Medigap.

Part A (Hospital Insurance): Covers inpatient hospital stays, skilled nursing facility care, hospice care, and limited home health care. This is normally free for most people who have qualified for Medicare coverage.
Part B (Medical Insurance): Covers doctor visits, outpatient care, home health care, and preventive services like screenings and wellness visits, along with durable medical equipment (e.g., wheelchairs). Part B coverage is the premium that will be deducted from your Social Security check if you don’t choose Medigap or Part C.
Part D (Prescription Drug Coverage): Helps cover the cost of prescription medications, including certain vaccines. You can get Part D as a standalone plan along with Part B or as part of a Medicare Advantage Plan.
Medicare Supplemental Insurance (Medigap): Extra coverage from private insurers to help pay for out-of-pocket costs in Original Medicare, such as copayments and coinsurance. Plans are standardized by letter (e.g., Plan G, Plan K).
Part C (Medicare Advantage Plans): Private, Medicare-approved plans that may bundle Part A, Part B, and often Part D (prescription drug) coverages. Usually limited to providers within the plan’s network. May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

Comparing Your Choice of Original Medicare with Medicare Advantage

Original Medicare

Includes Part A and Part B.
Option to add Part D for prescription coverage.
Flexibility to see any Medicare-accepting provider in the U.S.
You can also add Medigap for extra coverage on costs not covered by Original Medicare.

Medicare Advantage (Part C)

Private, Medicare-approved plans that bundle Part A, Part B, and often Part D (prescription drug) coverages.
Usually limited to providers within the plan’s network.
May have different out-of-pocket costs and additional benefits not available in Original Medicare, like vision and hearing coverage.

Understanding Modified Adjusted Gross Income (MAGI)

There is one thing that will have a huge impact on your Medicare costs— your modified adjusted gross income (MAGI). Your MAGI is your adjusted gross income (AGI) minus allowable tax deductions and credits. Once you retire, you may be surprised to find that a combination of income from pensions, investment earnings, traditional (non-Roth) IRA withdrawals, and traditional 401(k) withdrawals may land you with a higher MAGI than you realized. While you may no longer be earning a traditional income from working a job, your MAGI will still reflect all of your taxable income.

RMD Impacts

A required minimum distribution (RMD) is the amount you are required to withdraw annually from specific retirement accounts, such as traditional (non-Roth) 401(k)s and traditional Individual Retirement Accounts (IRAs). Starting at age 73, you must take your first RMD by April 1 of the following year, and each subsequent RMD must be taken by December 31 each year after. These mandatory withdrawals are added to your taxable income, minus any allowable deductions or credits.

Higher Medicare Premiums for High Earners

How does retirement income connect to Medicare premium costs? If you have a high income, you will be subject to an income-related monthly adjustment amount (IRMAA) that must be paid in addition to Medicare Part B and Part D premiums, and it’s calculated every year. If the SSA determines you must pay an IRMAA, you’ll receive a notice with the new premium amount and the reason for it.

For 2025, the standard monthly premium is $185 per person per month. In 2025, single filers with 2023 MAGI of more than $106,000 and married couples filing jointly with 2023 MAGI of over $212,000 will pay more. (See Two-Year Lookback below for why we used 2023 MAGI.)

The Part B IRMAA surcharge amounts per person per month for 2025 range from $74.00 to $443.90, while Part D surcharges range from $13.70 to $85.50 depending on income!

Other Impacts

Other income sources can also contribute to an increased MAGI. Capital gains, home sale profits, and even Treasury bill yields contribute to a retiree’s MAGI.

Two-Year Lookback

Now that you know what contributes to your MAGI, know that when you go to enroll in Medicare, your MAGI from your tax return two years prior will determine your premiums. This “two-year lookback” rule can catch retirees off-guard if they receive large distributions or gains, increasing their premiums unexpectedly. This is why it’s a good idea to start preparing for premium costs as soon as possible, and be strategic about it. The last thing you want is to be settling into retirement and then be hit with a high premium if you can avoid it. Be aware that the two-year lookback is ongoing throughout your retirement, and your premiums may go up in any given year if your income goes up two years prior.

Potential Strategies

By now you know that your Medicare premiums are directly influenced by your modified adjusted gross income (MAGI)—the higher your MAGI, the higher your premiums may be. To help manage this, it helps to work with a retirement planner years before filing for Medicare at age 65, and years before you plan to retire so that a specific retirement income plan can be created for you.

Your advisor will work with you to map out your retirement with a strategy that includes which accounts to draw from and/or which taxable accounts you might want to convert to Roth accounts to potentially save money for the long-term. It all works together!

Planning for Medicare can seem like an overwhelming process. From knowing which retirement accounts to leverage to help keep your MAGI as low as possible, to accounting for that two-year lookback, it can be a lot. That’s why the best place to start in your plan is talking to someone knowledgeable about retirement planning.

If you need help getting started in your Medicare planning, we’re here to help! You can reach Bay Trust Financial at 813.820.0069.

Sources:
https://www.medicare.gov/basics/get-started-with-medicare/medicare-basics/parts-of-medicare

https://www.investopedia.com/terms/m/magi.asp

https://www.investopedia.com/terms/r/requiredminimumdistribution.asp

https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles

https://www.kiplinger.com/retirement/medicare/what-you-will-pay-for-medicare-in-2025

BayTrust Financial

Mitch Zacks – Weekly Market Commentary: Economy Keeps Chugging Along Despite Negative Headlines

Mitch Zacks – Weekly Market Commentary: As Baby Boomers Age, Will the Shift to Bonds Impact the Stock Market?

Mitch Zacks – Weekly Market Commentary: Bond Markets Signal Trouble Ahead. Should Investors be Worried?

Mitch Zacks – Weekly Market Commentary: How Big a Deal is the Moody’s Downgrade of U.S. Credit?

Mitch Zacks – Weekly Market Commentary: Categorizing A Market Selloff Can Help You Navigate It

Mitch Zacks – Weekly Market Commentary: U.S. Treasurys React to “Liberation Day”

It’s Financial Literacy Month. How Much Do You Know About Retirement Accounts?

Mitch Zacks – Weekly Market Commentary: Avoid Sudden Moves In This Market

Mitch Zacks – Weekly Market Commentary: Market Shock from Tariffs – How to Navigate Volatility

Do You Know the Connection Between Income and Medicare Costs?

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