On July 15, 2021, many parents with kids 17 years or younger woke up with a nice surprise in their bank account – additional money from the Internal Revenue Service (“IRS”).  Nearly $15 billion was paid to families in the first monthly payment of the expanded Child Tax Credit. If you received the credit (or wondering why you didn’t), I’m here to help with answers to some frequent questions we’ve seen.

What is the payment for?

Under the American Rescue Plan, passed by Congress in March, taxpayers can claim a credit up to $3,600 per child under the age of 6 and up to $3,000 for children between 6 and 17. This credit is not new, however there are significant changes to the credit you could previously take. Historically, a taxpayer could claim a maximum of $2,000 per child for children 16 and under and you would claim the credit at the time you filed your tax return. As part of the American Rescue Plan, this was changed so that half of the credit would be paid in monthly installments beginning on July 15, 2021, and the remaining would be taken as a credit at tax time. 

Additionally, the credit in prior years was partially refundable, meaning if you didn’t owe any taxes, you could only claim a partial amount of the credit as a refund ($1,400). The new legislation makes this credit fully refundable now, i.e., if you don’t owe taxes in 2021, you can still receive a refund for the full amount of the credit. 

Who is eligible? 

You qualify for the full credit if you are a single tax filer with a modified adjusted gross income (“MAGI”) of $75,000 or less, a head of household filer with a MAGI of $112,500 or less or a married filing jointly taxpayers with a MAGI of $150,000 or less.  The credit phases out for taxpayers who exceed these income thresholds. 

The IRS will use your 2020 return to determine the amount of credit you should receive. If you haven’t filed your 2020 return yet, the IRS will use information from your 2019 return.  If you did not receive any or the full amount of the credit because your income was too high in 2019 or your child was not included on the 2019 return, file your 2020 return as soon as possible.  The payment will then start the month after your 2020 tax return is processed. Per the IRS, later this year they will allow you to inform them of any children you can claim on your 2021 return (if different than the 2020 return) so they can adjust the estimated credit.

How much should I have received? 

The amount received will depends on income, number of children you have and their ages. The monthly payment begins to reduce by $50 for every $1,000 of income (or fraction thereof) earned over the income thresholds. Higher-income families whose income is above the thresholds are still eligible for the $2,000 per child benefit received in the past, as long as their incomes are less than $200,000 for single or Head of Household filers or $400,000 for married filing jointly filers. 

Below are a few examples of how to calculate the amount of credit and payment to be received.

Is there anything I need to do?

Estimate your income levels for 2021 to determine if they differ from 2020, especially if you jump over one of the income thresholds. If your income increases enough such that you exceed the income thresholds, you may need to pay back a significant amount of the credit when you file your tax return. In this case, it may make sense to opt out of the monthly payments. 

Additionally, if you have a child who no longer lives with you, but you claimed them as a dependent on your 2020 taxes, you most likely want to opt out or again, you will have to pay back during tax season.

How do I opt out? 

The IRS created a Child Tax Credit Update Portal (https://www.irs.gov/credits-deductions/child-tax-credit-update-portal) which allows you to view your payments online and/or opt out of the program. You only need to unenroll from the program once and you will be unenrolled for the months going forward. However, it is important to note that you if you unenroll, you are not able to re-enroll at this time. The IRS has indicated that they will open the portal up for taxpayers wanting to re-enroll in late September. A word of warning – setting up your login for the portal can be fairly time intensive and requires you to have pictures of the front and back of your driver’s license.

If you would like to opt out, you will need to do so at least three days before the first Thursday of each month. The opt out deadlines are illustrated below for each month. Note that if you file jointly, each parent needs to unenroll or the spouse who does not opt out will receive half of the joint payment. If you miss an unenrollment deadline, you will receive the next scheduled payment until the IRS processes your request to unenroll. For example, if you unenroll on August 4, you will receive a payment on August 13, but should not receive the September 15 payment.

What if I did not receive anything?

Advanced child tax credit payments were sent to most families via direct deposit if the IRS had banking information on file. You can see the status of your payments via the Child Tax Credit Update Portal. When reviewing your bank account, look for a deposit labeled “CHILDCTC”. If the IRS did not have banking information on file, the payments were sent via check to the mailing address the IRS has on file.

If you are still missing your payments, the IRS has setup a system to track your payments. If your direct deposit is more than 5 days late, a check to a standard mailing address is more than 4 weeks late or a check mailed to a forwarding address is more than 6 weeks late, you can mail or fax a Form 3911 to the IRS. This will open an inquiry into the location of your funds, although the IRS states it may take up to six weeks before obtaining a result.

Will this continue in future years? 

As of now, the expansion of the Child Tax Credit is only in effect for 2021 and without further legislation, will return to previous levels in 2022.

If you have any questions regarding the Expanded Child Tax Credit, please reach out to your advisor or Bethany Riesenberg, CFO at [email protected].

This material was prepared by the Spotlight Asset Group (“SAG”) Chief Financial Officer (“CFO”) and is presented for information purposes only. This information is not intended to provide legal, tax, accounting, financial or other advice. All information and data

Recent market volatility during the month of May has made many investors nervous and for good reason. The market is in the midst of a change in momentum and the shift has been sudden. First, it’s important to note, the U.S. economy is recovering rapidly from the COVID-19 pandemic. Many different factors are at play in the recovery: the rollout of vaccines, the lifting of restrictions, loose monetary policy, and a massive increase in government spending. The problem is that the massive government “stimulus” checks have put the economy in a strange position, where retail sales are far above where they would be if COVID had never happened, even as the production side of the economy remains relatively weak. Pandemic unemployment benefits, paired with lack of childcare options has resulted in a strange dynamic for employment, plenty of jobs and not enough job seekers. Add to that the inflationary effect of the economic recovery and suddenly we find ourselves with very unusual market dynamics.

One of the questions we are most frequently asked is about the rotation from growth to value. Growth stocks tend to be companies that are smaller or are in more volatile sectors of the market like technology.  Tesla would be a good example of a growth company.  Value companies are usually larger and are more likely to be staples of the economy.  Walmart would be a good example of a value stock.  This rotation from growth to value which began in October, is not an unusual market event. Growth had been outperforming value for the better part of a decade, as economic conditions strongly favored growth stocks (interest rates trending lower, inflation at historically low levels, slow and steady economic growth). The chart below illustrates the relationship between growth and value over time.

Typically, value does best in the recovery stage of a recession when interest rates are moving upwards and when inflation is rising. Value sectors like energy, materials and financials thrive under those conditions.  

At Spotlight we anticipated this shift and began positioning our portfolios accordingly earlier this year. Specifically, we added more active managers to our investments over the last several months. We believe active management is more successful when the market is more volatile, and we feel we have had success in selecting high quality active managers. The table shown below illustrates how well our active managers have performed in the last 12 months. All our active equity managers are outperforming the S&P 500. This is even more apparent in the fixed income space, as all four of our fixed income strategies are actively managed, and all four are handily beating the Barclays U.S. Aggregate benchmark. 

Additionally, over the past year we have implemented a risk budgeting approach to our portfolio construction.  Rather than of only looking at whether we want to overweight/underweight equities, our Investment Committee is now focused on the amount of risk we are taking with each model.  Our first step in constructing portfolios is to decide if we want to be overweight, equal weight, or under-weight risk compared to our benchmarks.  Currently all of our portfolios are equal weight to risk.  We then decide which areas of the market appear to be the most likely to out-perform and will use our “risk budget” to select excellent managers in those asset classes.  Our goal has been to take on risk where the upside potential is most attractive. Currently, in most models, we have used our risk budget to increase exposure to Value, Small/Mid Cap Companies, and Alternative funds that can go Long or Short equities depending on how the manager feels the market will perform.  Given this approach, we are comfortable that we have positioned our portfolios well for the current market conditions and believe that this approach will help you reach your long-term goals. As always, we are here to address your questions or concerns. 

This material was prepared by the Spotlight Asset Group (“SAG”) Chief Investment Officer (“CIO”) and is presented for information purposes only. The views offered are those of the author and are subject to change. This information is not intended to provide investment advice or solicit or offer investment advisory services. All information and data presented herein has been obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but SAG does not guarantee its accuracy. You should not make any financial, legal, or tax decisions without consulting with a properly credentialed and experienced professional. Investing involves risk and past performance is no guarantee of future results.

2021 is off to a rocky start as equity markets declined across the board. The S&P 500 Index fell -1.01%. The world was captivated by the trading frenzy over heavily shorted stocks such as GameStop (GME) and AMC Entertainment Holdings (AMC), which drove volatility in equities to the highest levels since October. The lone bright spot was small cap stocks which continued their run of outperformance, ending the month up +5.03%.

To say that month was crazy for the markets seems like a bit of an understatement. Rampant speculation being driven by anonymous investors on a Reddit chat board called “Wall Street Bets” captivated the headlines, as what seemed to be a David versus Goliath scenario played out in one of the most public short squeezes seen in years. As retail investors jumped on board in the hopes of beating the big hedge funds at their own game, hedge funds seemed to be on their heels, cutting bets by decreasing their long equity positions to cover short bets that had turned against them, causing downward pressure across the equity markets. The drama heightened as retail brokerage firm Robinhood suspended buying activity in the targeted stocks and closed out many investors existing positions. The sensational headlines caught the eye of the regulators and politicians who immediately demanded answers and solutions to protect retail investors, despite their clear willingness to participate in the speculation. 

The challenge in moments of frenzy is being able to look beyond the noise and focus on the broader picture. Very little attention has been paid to the strong earnings that have been reported thus far. According to FactSet with 37% of the companies in the S&P 500 reporting actual results, 82% of S&P 500 companies have reported a positive EPS surprise and 76% have reported a positive revenue surprise. If 82% is the final percentage, it will mark the second-highest percentage of S&P 500 companies reporting a positive EPS surprise since FactSet began tracking this metric in 2008. Improving economic data and the increasing pace of vaccinations in the U.S. continue to support rising equity prices in the near term. While the headlines focus on the frenzy, smart investors have an opportunity to buy quality companies at an attractive price, setting themselves up to take advantage of the explosion of pent-up demand that is anticipated in the second half of the year. While it is easy to get caught up in the excitement, I would not allow the temptation to earn a quick buck in the battle against the shorts distract from the more lucrative opportunity that such a frenzy presents smart investors who are focused on the long-term. 

This material was prepared by the Spotlight Asset Group (“SAG”) Chief Investment Officer (“CIO”) and is presented for information purposes only. The views offered are those of the author and are subject to change. This information is not intended to provide investment advice or solicit or offer investment advisory services. All information and data presented herein has been obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but SAG does not guarantee its accuracy. You should not make any financial, legal, or tax decisions without consulting with a properly credentialed and experienced professional. Investing involves risk and past performance is no guarantee of future results.

As the markets shook off the election uncertainty of October and positive vaccine news dominated the headlines, equity markets quietly drove toward record highs in November. Additionally, as investors breathed a sigh of relief that checks and balances would remain in place within the federal government, increased optimism of renewed fiscal stimulus rose. The S&P 500 finished the month higher +10.95%. 

Mondays in November seemed to be for positive vaccine news. As it became increasingly apparent that the end of the pandemic was nearing, investors began to rotate their equity exposure by moving their allocations from sectors and industries that benefited from the lockdowns and shifting to more cyclical names badly hurt by the restrictions of the pandemic. All 11 major sectors of the index were positive on a total return basis. Energy, a perpetual laggard, saw the greatest rebound during the month, returning a whopping +28.03%. 

Small cap stocks continued to blaze a trail forward. The Russell 2000 Index ended November  +18.43%, putting small cap stocks on pace for their best quarter in history.

Source: Strategas Technical Strategy Daily Report, December 16, 2020

In my opinion, the biggest risk to the market is that it is too optimistic. As I have personally witnessed, anyone who suggests near-term caution is viewed as a little out of touch, but signs persist that we may see real economic weakness in the coming months. The market doesn’t appear to be accounting for this weakness. Strategas’ Sentiment Dashboard currently shows that signs of bullishness are more pronounced, with three statistically extreme readings among the basket of sentiment indicators.

Source: Strategas Technical Strategy Daily Report, November 30, 2020

While sentiment is bullish, the double dip in Europe is clear. Lockdowns overseas have had serious economic consequences and there are signs that the United States could see similar results. Consumer sentiment and consumer confidence came in below consensus during November, weekly jobless claims are rising, and personal income fell in October. Fiscal stimulus continues to be incredibly important at this juncture. More and more individuals are shifting to emergency unemployment benefits, which are currently at risk of expiring. State & local governments continue to seek aid from Washington to support the growing health care burden. The biggest concern is the survival of small businesses. Many small businesses are making decisions on whether to close, or to continue to give it a go for a few more months. It is reasonable that the broader macro economy can look past some of these items (for example, if a restaurant closes, another will likely take its place in the future). Unfortunately, the costs of the pandemic are falling on those least able to bear it, which only increases the urgency for overdue stimulus, especially if the U.S. labor market data weakens more significantly. 

2021 is certainly going to be a year where the story is about pent up demand as vaccines allow for lives and economies to begin to return to normal. The question is how difficult will the climb be from now until then? Only time will tell. 

This material was prepared by the Spotlight Asset Group (“SAG”) Chief Investment Officer (“CIO”) and is presented for information purposes only. The views offered are those of the author and are subject to change. This information is not intended to provide investment advice or solicit or offer investment advisory services. All information and data presented herein has been obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but SAG does not guarantee its accuracy. You should not make any financial, legal, or tax decisions without consulting with a properly credentialed and experienced professional. Investing involves risk and past performance is no guarantee of future results.

As the third quarter came to a close, the month of September was a difficult one for stocks. Global equity markets finished in the red after 5 straight months of gains. The S&P 500 lost -3.80% during the month. Only 2 of the 11 GIC sectors were positive during the month. Momentum previously seen in technology and communication services stalled, as those sectors declined -5.37% and -6.47% respectively. The declines continued to hit the energy sector the hardest, as the sector declined -14.51% during the month. The sector is now down a whopping -48.09% for the year. 

With just over a month to go, the focus has begun to turn to the upcoming presidential election, with both Democrats and Republicans searching for an edge with voters. This shift of focus paired with the battle over the now vacant supreme court seat, following the passing of Justice Ruth Bader Ginsburg, has made the prospects of another round of fiscal stimulus unlikely. The lack of additional stimulus makes the impact of the COVID-19 limitations weigh on many sectors, especially those that are service related, likely stalling any additional economic improvements in the U.S. This is already evident in the labor markets. Initial jobless claims have been flat since late August and small business employment has begun to show signs of weakness.

Despite the doom and gloom, the market correction we have experienced in September should be viewed positively. Throughout the summer months the market seemed to get well ahead of itself and valuations have come down from their highs in August. Market corrections are healthy and normal. They act as a self-correcting mechanism often chasing away speculators. Corrections also provide investors with more attractive entry points into stocks that have strong momentum and sustainable long-term earnings growth. Overall, September was difficult but not necessarily a sign of impending doom. As we enter the final stretch of 2020, we all want to focus on 2021, putting this difficult year behind us. However, I caution you from ignoring the fact that the remaining months of 2020 are likely to be just as unpredictable and volatile as the 9 months that proceeded them. There will likely be more opportunities to take advantage of technical and fundamental dislocations as investor behavior continues to be heavily influenced by the headlines.

This material was prepared by the Spotlight Asset Group (“SAG”) Chief Investment Officer (“CIO”) and is presented for information purposes only. The views offered are those of the author and are subject to change. This information is not intended to provide investment advice or solicit or offer investment advisory services. All information and data presented herein has been obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but SAG does not guarantee its accuracy. You should not make any financial, legal, or tax decisions without consulting with a properly credentialed and experienced professional. Investing involves risk and past performance is no guarantee of future results.