What To Make Of Rising Lumber Prices

Plus: Don’t Count on a Payroll Tax Break You are receiving this limited-time email resource as a subscriber to Kiplinger's free e-newsletters. We will continue to publish this throughout the height of the coronavirus outbreak. To unsubscribe at any time, simply click the link in the footer below. AUGUST 21, 2020 [View in browser]( WHAT YOU NEED TO KNOW ABOUT THE CORONAVIRUS OUTBREAK What’s next for the stock market? Wood you like a clue? As investors hunt for signals about what this frothy market is going to do next, ignore for a moment Washington’s stimulus deliberations, Chinese trade, and the latest coronavirus count, and check out … lumber. Lumber prices have rocketed some 90% this year to more than $800 per 1,000 board feet, and BCA Research writes in a Friday note that “we cannot ignore what the surge in lumber prices means.” Specifically, BCA says that lumber prices are driven by construction activity, indicating that the Federal Reserve’s policies are “having a meaningfully positive impact on the economy” … so much so that conditions might warrant the Fed raising interest rates “in a future nearer than it currently seems.” In fact, BCA points out that over the past 30 years, “there has been a very robust inverse relationship between lumber prices and bond returns.” (Remember: When yields rise, bond prices fall). What that means for stocks is a bit murkier. Improving economic conditions would no doubt be a continued boon for stocks, especially in more cyclical market sectors that have been slow to recover. Yet a rise in Fed rates could also weigh on most of corporate America, which would have to deal with higher borrowing costs. SEE ALSO: [The 25 Best Low-Fee Mutual Funds to Buy in 2020]( However, it’s important to note that lumber prices are also rising because many sawmills were shut down this spring, when their owners assumed that the COVID-19 pandemic would cause a drop in construction activity, according to this week’s issue of The Kiplinger Letter. Some of those mills are not yet back up and running. So while rising lumber prices do reflect an improving housing market – and hopefully a recovering economy – they are also unusually high because of limited supply. Workers who are looking forward to a bigger paycheck starting in September due to President Trump's payroll tax deferral might be disappointed. Their employer still might continue to withhold the tax from their wages. The president's memorandum, signed on Aug. 8, suspends collection of the 6.2% Social Security tax withheld from each employee's paycheck from Sept. 1 to Dec. 31, but it doesn't eliminate the tax debt. So, workers will still have to pay the deferred tax in 2021 without an act of Congress to actually eliminate the tax liability for that period. Many businesses don't want to halt withholding for four months if they just have to collect the tax from their employees later. Since the president's order doesn't force businesses to stop withholding the Social Security tax, a lot of workers won't see any difference in their paycheck come September. In a letter sent to House Speaker Nancy Pelosi, Senate Majority Leader Mitch McConnell and Treasury Secretary Steven Mnuchin, the U.S. Chamber of Commerce and 32 other U.S. business organizations said that "many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law." Free download, [The Kiplinger Letter's Forecast](. No information required from you. SPONSORED CONTENT FROM PERSONAL CAPITAL [6 Investing Mistakes Every Investor Must Know]( Here are 6 mistakes every investor should be aware of in order to develop a successful long-term financial plan, regardless of market volatility. [READ MORE]( RELATED LINKS [10 Things You Must Know About Bull Markets]( [The Pros and Cons of Buying an RV in Retirement]( [The Most-Overlooked Broker Promotions and Perks]( [The Finances of Joint Custody Agreements: 10 Things You Must Know]( [Millions of Americans Will Receive a Tax Refund Interest Check from the IRS]( [Kiplinger] [Facebook]( [Twitter]( [LinkedIn]( Send this to a friend. [Click here.]( All content ©2020 The Kiplinger Washington Editors 1100 13th Street, NW, Suite 1000 Washington, D.C. 20005 Thank you for subscribing to Kiplinger's A Step Ahead, a free resource to help readers navigate special circumstances such as the coronavirus outbreak. If you ever wish to stop receiving this service, please [click here to unsubscribe](.