Is Bad News, Good News for the Markets? (and why you should have an HSA to save on taxes and medical costs)

Week in Review

Stocks surged this week after the Bureau of Labor Statistics reported the U.S economy added 150,000 jobs in October, lower than the expected 180,000. Figures for August and September were also revised down by a combined total of 101,000, leading the unemployment rate to rise to 3.9% from 3.8% in September. The Dow Jones Industrial Average rose 0.7% on the day and 5.1% on the week, and the S&P 500 finished 1.4% up on the day and 6.6% up on the week. This was the S&P’s best week since November 2022.

The 10-year Treasury yield dropped to 4.52%, while the 30-year yield fell 0.273 percentage point to 4.75% — marking its largest one-week decline since March 6, 2020. Overall, it was a good week for the markets.

Another pause in Fed rate hikes and a worse than expected jobs number, with unemployment hitting 3.9%, caused stocks to surge this week. As long as it is not extreme then bad news will be good news for the markets for the time being.

The June jobs report delivered good news for the stock market, which is hoping that the Federal Reserve will pivot to cutting interest rates instead of raising them. Although the unemployment rate is still 3.9%, which is half a percentage point higher than nine months ago -- a firm recession signal -- the news was still encouraging for markets.

Why? Having a technical recession with a sap in demand from unemployment increasing into the 4% range would likely be the softest recession in a generation. While at the same time, acting as a catalyst for lower rates.

Economic & Earnings Calendar

Next week's focus will be on the third-quarter reports from the S&P 500 which is on course to mark earnings growth. After this week's Fed meeting, jobs data and U.S. Treasury announcements, the market will remain quieter on the economic front.

On Monday, BioNTech and Constellation Energy will be reporting their results, and Tuesday will see Devon Energy, D.R. Horton, eBay, Emerson Electric, KKR, Occidental Petroleum, Uber Technologies, and UBS do likewise.

Wednesday will bring highlights from Kellanova, MGM Resorts International, Roblox, Walt Disney, and Warner Bros. Discovery, while Thursday will see AstraZeneca and the Trade Desk report figures.

The Trade Desk, which distributes ads on Roku and other streaming platforms, is set up to have good numbers when it reports next week. Especially given Roku’s good quarter. Options imply close to a 12% move in the stock next week. This name is widely held by our clients.

Finally, the economics calendar will bring the Federal Reserve's consumer credit data for September on Tuesday and the University of Michigan's Consumer Sentiment index for November on Friday.

75% of Americans would Benefit from an HSA

Health savings accounts (HSAs) are like the 401(k) of medical expenses. According to MetLife’s 21st Annual U.S. Employee Benefits Trends Study (2023), 45% of employers offer them to employees, yet only 29% take advantage of them. Considering HSAs can provide substantial savings for those using a high-deductible health plan plus an HSA, especially older adults who incur higher medical costs.

Investment and tax considerations for HSAs make them unique when it comes to understanding their advantages. Money in an HSA can be invested in the stock market, allowing it to grow faster than money in a simple savings account. Contributions are tax-free, the money grows tax-free, and withdrawals to cover expenses are tax-free. For example, a 35-year-old contributing $481 a year until retirement would have nearly $30K at age 65 earning a 6% return.

Another plus with HSAs is portability, meaning you can take your money with you when you change jobs. Even when you no longer use the qualifying high-deductible plan, such as when you go on Medicare, you can still withdraw from an existing account.

For 2024, the minimum deductible for high-deductible plans for an individual is $1,600 and the contribution limit for HSAs $4,150. For families, those amounts are $3,200 and 8,300, respectively.

Chart of the Week: Gender pay gap by country

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fancy title and a briefcase full of spreadsheets, doesn't mean they know what they're doing.