First things first, when you hear cyber-anything your immediate thoughts may jump to computers. That’s reasonable, since the words “cyber” and “online” and “computers” tend to be used interchangeably. However, the exposure you have and the losses you may suffer extend far beyond your computer screen. It isn’t about simply not clicking on links from people you don’t know (you do know not to do that, right?) and the rest will be OK.

Here is a list of potential cyberexposure issues you could encounter that cyber insurance could help you deal with:

Cyberextortion. One day you try to turn on your computer only to find a message stating that you must pay a fee, either in cash or some form of cryptocurrency in order to get into your own computer. Yes, it happens, what expenses would you incur to get your computer back? Think about all that is on your machine — work documents, banking and tax information and personal photos. What wouldn’t you pay? A cyber insurance policy may cough up the bucks on your behalf to get your stuff back.

Network liability. While you’re lounging in your chaise lounge, a sudden pounding on the door startles you. It’s the FBI with a search warrant for your house. Seriously? Yes, seriously. Turns out a hacker gained access to a computer on your home network — maybe your laptop or a desktop computer, maybe even a phone that connects to your Wi-Fi — and was sending out messages threatening people and trying to extort money from them. Naturally, you haven’t a clue about any of this, but this is going to take time to explain and money to deal with.

Identity theft. Remember the name of that odd rectangular object that is mounted near the end of your driveway? I’ll help you — it’s your mailbox. Visiting your mailbox, you open it up to find a statement for a credit card that you don’t recognize. What’s more, it’s a pretty darn active credit card with charges for items that, again, you don’t recognize. Your personal identity has been stolen, and some lowly character parading around as you is opening up credit cards and going on shopping sprees. And that’s just the tip of the iceberg. Later, you find out they have applied for multiple credit cards and even a home equity line of credit. This can be one of the most costly events you can imagine. You will likely need an attorney who specializes in identity theft, because you will now need to actually prove to every bank or creditor that you did not make these charges or open these accounts.

Phishing attacks. Having nothing to do with putting a worm on a line and casting it out to poke some holes in fish, a phishing attack is when someone attempts to convince you they are a legitimate person or business in need of your personal information. What they do with this information can range from opening accounts to promoting illicit drugs, or worse. You may not be aware this has occurred or has been ongoing for months or longer. Just try to explain that away at the next PTA meeting.

Reputation management. Like it or not, you have an online reputation, even if you’re not a heavy user of social media. Type in your name at Google.com, and you may or may not be surprised. However, you will find results that purport to be about you. If a bad actor is out there spreading lies, attacking others or just generally being a jerk, it’s a pretty complex process to get those false narratives offline. If you are at all in the public spotlight, or work for a company that is, your reputation is everything.

It's expensive to put things right

As you can see, you have cyberexposure, whether you like it or not, whether you realize it or not. Sometimes through zero fault of yours, you may end up in a position where you have to endure the time and expense to put things right. You can do it yourself, perhaps, and foot the bill, but do you really want to?

Cyber insurance policies tend to be inexpensive, and there are many insurers offering them. Remember to read your policy carefully, since there is no standard package that exists; comparing the coverage from company to company is challenging. Talk to a broker, talk to the insurance company, find out what they offer and compare it with what you want or, more accurately, what you need.

Cyberexposure is here to stay. Your options are simply to weather the storm on your own or buy a heavy-duty raincoat and umbrella.

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The big news of the day was the June reading on consumer inflation, which showed that prices declined for the first time since 2022. Indeed, headline June CPI declined 0.1% month-over-month, or the first drop in 23 months, according to the U.S. Bureau of Labor Statistics.

Economists forecast inflation to increase by 0.1% vs May. On an annual basis, CPI rose 3.0% in June – down from 3.4% the prior month – to beat estimates for a 3.1% gain. 

Core CPI, which excludes food and energy costs, likewise surprised to the downside, rising just 0.1% in June vs the previous month. Forecasts called for a 0.2% increase.

"Shelter, which comprises the largest portion of CPI, decelerated meaningfully from 0.4% in May and was responsible for the downside beat," says José Torres, senior economist at Interactive Brokers.

Sticky inflation readings have been a stumbling block for the Federal Reserve as it seeks to achieve its long-term target of 2%. Although the June CPI report is dovish for rate policy, a quarter-point cut at the next Fed meeting is highly unlikely, experts say.

However, markets are now pricing in looser policy than the central bank signaled at its June meeting.

As of July 11, interest rate traders assigned an 86% probability to the FOMC enacting its first quarter-point cut to the federal funds rate in September, up from 70% a day ago, according to CME Group's FedWatch Tool. 

Markets were mixed on the dovish inflation data, however. "The reaction in equities is shocking, as investors clamor for small caps while ditching the popular tech trade," Torres says.

The tech-heavy Nasdaq Composite – fresh off yesterday's record high – plunged almost 2% to 18,283. The broader S&P 500, also coming off a record close, shed 0.9% to end at 5,584. The blue-chip Dow Jones Industrial Average added less than 0.1% to finish at 39,753.

The small-cap benchmark Russell 2000, however, rallied more than 3.7%. (See more on small-cap stocks below.)

Stocks making moves

Delta Air Lines (DAL, -3.9%) stock fell sharply after the air carrier satisfied analysts' expectations for its second quarter but provided a soft outlook for the third quarter.

In the three months ended June 30, Delta's operating revenue increased 6.9% year-over-year to $16.7 billion while its revenue per available seat mile decreased 1.2% to 22.3 cents. Its earnings per share (EPS) decreased 11.9% to $2.36 from the year-ago period.

The results satisfied Wall Street's expectations, but sentiment turned negative toward Delta after the company provided the outlook for its third quarter. Delta now anticipates total revenue growth in the range of 2% to 4% and earnings per share in the range of $1.70 to $2.00, which came up short of analysts' estimate of $2.05 per share.

PepsiCo (PEP, +0.2%) reported mixed results for its second quarter and revised its full-year revenue outlook. The snack food and beverage giant's revenue increased 0.8% year-over-year to $22.5 billion as volumes declined 4% and 3%, respectively, in its Frito-Lay and PepsiCo Beverages segments in North America. Its earnings per share (EPS) increased 9.1% to $2.28 from the year-ago period.

The results were mixed compared with analysts' expectations. Wall Street was anticipating revenue of $22.6 billion and earnings of $2.16 per share.

As a result of its soft performance in the first half, PepsiCo revised its full-year revenue guidance. It now expects organic revenue growth of 4% versus its previous guidance of growth of at least 4%. It reiterated its expectation for core EPS of at least $8.15, an increase of 7% from the prior year.

Costco (COST, -4.3%) is hiking membership fees for the first time since 2017. The warehouse club is raising its annual membership fees by $5 for non-executives and by $10 for executives in the United States and Canada.

The change is effective September 1 and will impact around 52 million memberships, Costco said in a statement. Costco has traditionally raised its membership prices by $5 to $10 every five-and-a-half years, so the latest increase should not come as a shock to members since the last increase was in June 2017.

Additionally, management has been clear about its plans to raise membership fees. On its conference calls in December 2023 and March of this year, Costco's chief financial officer said the fee increase was a matter of "when, not if."

Small caps rally

While select Magnificent 7 stocks such as Nvidia (NVDA), Apple (AAPL) and Microsoft (MSFT) have driven the majority of the market's gains in the bull market, small caps – which tend to be more sensitive to the economic cycle and interest rates – have been a dud.

Indeed, the small-cap benchmark Russell 2000 – struggling to stay positive for months – was slightly negative as we closed out the first half.

"We think the fact that higher rates are putting more pressure on small companies' profitability is driving the performance gap," writes Liz Ann Sonders, chief investment strategist at Charles Schwab.

That's why Thursday's action was potentially interesting. The Russell 2000 rallied sharply while the Mag-7-heavy Nasdaq-100 tumbled 2.1%. 

If interest rates come down farther and faster than previously thought, that could make the risk-reward scenario for the best small-cap stocks to buy much more compelling.

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Prices fell in June for the first time in almost two years. Headline CPI declined 0.1% month-over-month, for the first drop in 23 months, according to the U.S. Bureau of Labor Statistics. Economists forecast inflation to increase by 0.1% vs May. On an annual basis, CPI rose 3.0% in June – down from 3.4% the prior month – to beat estimates for a 3.1% gain. 

Core CPI, which excludes food and energy costs, likewise surprised to the downside, rising just 0.1% in June vs the previous month. Forecasts called for a 0.2% increase.

Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is decisively headed toward its long-term target of 2% before they move to cut the federal funds rate from a 23-year high. The latest CPI report adds a dovish data point to the Fed's deliberations on interest rates, experts say.

"Better than expected inflation readings in many key sectors should allow the Fed to start talking about adjusting policy in July and potentially allow the Fed to act in September," says George Mateyo, chief investment officer at Key Wealth. "In particular, housing, which has been elevated, showed some moderation. That said, we still see the Fed wanting to gain further confidence before cutting aggressively unless stress materializes in the labor market." 

As of July 11, futures traders assigned an 86% probability to the first quarter-point cut coming in September, up from 70% a day ago, according to CME Group's FedWatch Tool. 

With the June CPI report now a matter of record, we turned to economists, strategists and other experts for their thoughts on what the data means for markets, macroeconomics and monetary policy going forward. Please see a selection of their commentary, sometimes edited for brevity or clarity, below.

Expert takes on the CPI report

"The CPI report showed that prices for the consumer are slowing. The headline CPI month over month reported that prices actually fell for the first time in 23 months to -0.1%. This was lower than the forecasted 0.1%. This will be welcome news for the Fed although Chairman Powell did indicate in his remarks to Congress on Tuesday that there are risks to both sides of the economy. On the one hand we have the threat of inflation, which up to now has been the main point of focus for banks around the world including the Fed. On the other hand, with interest rates now on the restrictive side the Fed has to be careful not to stave off growth and push the economy into a recession." – Pete Tibbles, senior vice president, foreign exchange, financial risk management at BOK Financial

"The inflation print today appears to prove the hot data to start the year was mostly an outlier. It appears we've resumed the disinflationary trend lower – great news for the Fed. As economic data continues to slow, the implications are passing through to cost measures (and to the labor market where the unemployment rate is drifting higher). We imagine the Fed speak will turn more dovish, and the more promising data all but guarantees a September cut. We honestly wouldn't be surprised if the Fed went ahead with a quarter-point cut in July." – John Luke Tyner, portfolio manager at Aptus Capital Advisors

"Widespread disinflation; the Fed will cut soon. June's CPI data bring more evidence of broad-based disinflation, giving the Fed the green light to ease multiple times this year. Prices for core services ex-rents were unchanged for the second straight month. Looking ahead, the foundations remain in place for CPI inflation to drop further in the second half of this year. Labor market slack is building, dragging on wage growth and new rent increases, while retailers' margins are under mounting pressure from increasingly budget-conscious consumers. The CPI data will not stand in the way of the FOMC cutting interest rates quickly later this year in response to a faltering labor market. We continue to expect 1.25 percentage points of easing this year, beginning in September with a quarter-point cut. The sooner the better." – Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics

"Jerome Powell did his best Kobe Bryant impression this week, proclaiming the 'job's not finished' on inflation. But this CPI print below expectations will make the calls of the September doves pretty impossible to ignore. With the labor market no longer considered a source of inflationary pressure, markets will likely turn to employment data, where any softening will likely crank the volume up on September noise. Wake me up when it ends." – Dann Ryan, managing partner at Sincerus Advisory

"This report supports that we're getting close to the onset of Fed rate cuts. The risk narrative has become better balanced between inflation and a growth slowdown, and the June data showed a normalizing labor market and cooling price pressures. The soft landing remains in sight. For investors who are still feeling cozy holding onto excess cash, this should prompt consideration of whether that still makes sense. The case for extending duration is strengthening, and we see potential for stocks to continue making new record highs in the year ahead. Now, the focus shifts to earnings season to validate that optimism." – Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management

"Part of the reason for this decline in inflation was that household consumption, construction spending and the services sector inflation came in below analysts' expectations. Another area to note is rents – the cost of rent rose just 0.3% in June. This is the smallest increase in almost three years. As per Jerome Powell’s last Fed minutes, he needed to see more encouraging economic data before rate cuts are enacted. In a reversal of prior comments, he recognized that the economy is slowing, and he appears to be setting up for a September rate cut. Although it appears a September rate cut is more likely, we still have two more inflation prints prior to the September Fed meeting – anything can happen, and the Fed is closely monitoring the situation." – Robert Conzo, CEO and managing director at The Wealth Alliance

"Today's CPI report is a good scenario for the Fed and could help change Fed Chair Powell's perspective. Remember that just yesterday Powell testified he believes inflation is receding, but he was reluctant to say it’s moving substantially down toward the Fed’s 2% goal, but this CPI could change all that. The 3.3% core reading was the smallest since April 2021, and the so-called super core inflation – core services less shelter – was the lowest level in nearly three years. The June CPI report should give the committee confidence that the disinflation narrative is tracking and that rate cuts should begin in September." – Ivan Gruhl, co-chief investment officer at Avantax

"Today's data provide a welcome indication to the Fed that inflation is indeed coming down after several hot monthly numbers at the start of the year. Despite today's favorable CPI report, a rate cut at the Fed's meeting on July 31 remains unlikely. In the absence of a meaningful uptick in inflation in July or August, we would anticipate a rate cut at the September meeting. Overall, we see an economy that is weakening but not in imminent risk of recession. Today's report should be supportive of both equities and bonds." – David Royal, chief financial and investment officer at Thrivent

"June headline prices fell for the first time in over two years due to declines in energy and vehicles prices and substantial cooling in shelter price increase. This is great news when combined with last week's report on labor market moderation to consider more relaxation on monetary policy than anticipated. The federal funds rate dot plot from the June summary of Projections indicates that the Federal Open Market Committee (FOMC) members are split on one or two rate cuts this year. If the trend in inflation in the previous two months continues, the likelihood of having two rate cuts this year increases." – Dawit Kebede, senior economist at America's Credit Unions

"This morning's inflation report was much better than expected, showing a decline in headline inflation driven by lower energy costs. Core inflation also posted its smallest monthly gain since August 2021, helped by a slowdown in shelter growth and lower auto prices. While CPI readings remain high relative to the Fed's 2% target, they have come down sharply and are moving in the right direction. Overall, it's a very positive report for the Fed, which increases the likelihood of rate cuts in the second half of the year, with the September FOMC meeting firmly in play." – Mike Cornacchioli, senior vice president for investment strategy at Citizens Private Wealth 

"Powell has been very careful to leave the Fed's options open when it comes to rate decisions. He refuses to give any indication whether there could be future cuts or even hikes but has been clear that he wants to see more good data to strengthen the Fed's confidence that inflation is making its way to 2% before deciding to cut rates. I feel the print this morning would be considered good data even by Powell's standards. In addition to the data this morning we've been some cooling in the labor market, the tightness of which has been another hurdle that Powell has mentioned in the past, so when taken together the odds of future rate cuts become more realistic. The Fed doesn't rely just on the CPI report but should be indicative of a larger disinflation narrative when Core PCE, the Fed's preferred gauge, comes out on July 26. There are still two more inflation and jobs reports before the next meeting in September but should the disinflation progress stay on its current path there is a real possibility for multiple cuts in the latter part of the year rather than the one that was previously being priced in." – Clayton Allison, portfolio manager at Prime Capital Investment Advisors

"Investors have waited for a long time for shelter to soften and they got it in June. Given rising inventories in housing, this sizable component of the price index is finally starting to give the Fed what it needs to see for rate cuts. Goldilocks is here and a September cut looks more likely than ever." – David Russell, global head of market strategy at TradeStation

"Combined with the weaker than expected June jobs report, today's inflation reading builds a stronger case for a Fed rate cut in the coming months. It remains unlikely that the Fed will move at its meeting later this month, but if the dual trends of a weakening labor market and lower inflation continue, it will likely put the first rate cut in years firmly on the table for the FOMC's September gathering." – Eric Merlis, managing director and co-head of global markets at Citizens

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In the three months ended June 30, Delta’s operating revenue increased 6.9% year-over-year to $16.7 billion while its revenue per available seat mile decreased 1.2% to 22.3 cents. Its earnings per share (EPS) decreased 11.9% to $2.36 from the year-ago period.

“Thanks to the incredible work of our 100,000 people, Delta is delivering industry-leading operational performance and best-in-class service for our customers,” Delta CEO Ed Bastian said in a statement. “We delivered record June quarter revenue and pre-tax income of $2 billion with a 15% operating margin.”

The results satisfied analysts’ expectations. According to CNBC, Wall Street was anticipating revenue of $15.45 billion and earnings of $2.36 per share.

However, sentiment turned negative toward Delta after the company provided the outlook for its third quarter, which fell short of analysts’ expectations. Delta anticipates total revenue growth in the range of 2% to 4% and earnings per share in the range of $1.70 to $2.00, which came up short of analysts’ expectations of $2.05 per share.

"For the September quarter, we expect a double-digit operating margin and a pre-tax profit of approximately $1.5 billion,” Bastian said. “With strong first half results and visibility into the second half, we remain confident in our full-year guidance."

For the full year, Delta reiterated its guidance of earnings per share in the range of $6 to $7 and free cash flow of $3 billion to $4 billion.

Is Delta stock a buy, sell or hold?

Wall Street is bullish on the airline stock. According to S&P Global Market Intelligence, the average analyst target price for DAL stock is $60.58, representing implied upside of more than 36% to current levels. Additionally, the consensus recommendation is a Strong Buy.

"Delta is a well-run airline with industry leading operations, consistent pre-tax earnings pre-pandemic, and a focus on staying capacity disciplined,” BofA Securities analyst Andrew Didora said in a July 8 note. 

“DAL's free cash flow potential the next few years (targets >$2B in 2023 and >$4B in 2024) is the most differentiating factor between DAL and other airlines (LUV and UAL). DAL expects to return to more normalized capex of $5-5.5B per year. This spend is similar to 2018-2019 while other airlines are investing at least twice the levels as pre-pandemic."

BofA Securities rates DAL stock a Buy.

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In the 12 weeks ended June 15, PepsiCo’s revenue increased 0.8% year-over-year to $22.5 billion as volumes declined 4% and 3%, respectively, in its Frito-Lay and PepsiCo Beverages segments in North America. Its earnings per share (EPS) increased 9.1% to $2.28 from the year-ago period.

“During the second quarter, our business delivered net revenue growth, strong gross and operating margin expansion and double-digit EPS growth, remaining agile despite facing difficult net revenue growth comparisons versus the prior year, subdued category performance within North America convenient foods and the impacts associated with certain product recalls at Quaker Foods North America,” PepsiCo CEO Ramon Laguarta said in a statement.

The results were mixed compared with analysts’ expectations. According to CNBC, Wall Street was anticipating revenue of $22.6 billion and earnings of $2.16 per share.

As a result of its soft performance in the first half, PepsiCo revised its full-year revenue guidance. It now expects organic revenue growth of 4% versus its previous guidance of growth of at least 4%. It reiterated its expectation for core EPS of at least $8.15, an increase of 7% from the prior year.

“For the balance of the year, we will further elevate and accelerate our productivity initiatives and make disciplined commercial investments in the marketplace to stimulate growth,” Laguarta said. 

Is Pepsi stock a buy, sell or hold?

Wall Street is bullish on the consumer staples stock. According to S&P Global Market Intelligence, the average analyst target price for PEP stock is $183.51, representing implied upside of about 14% to current levels. Additionally, the consensus recommendation is a Buy.

Financial service firm CFRA is one of the more bullish outfits on PEP stock with a Buy rating and $200 price target.

“Notably, volumes were higher across both product types across the Europe, Africa, Middle East, and South Asia markets, helping offset weakness in North America, where Beverage volumes were -3% and Frito-Lay was -4%,” CFRA vice president and senior equity analyst Garrett Nelson said in a note following the earnings release. 

“Gross margin expanded 120 bps to 55.9% (90 bps ahead of consensus). Despite a second consecutive beat, PEP merely maintained full-year EPS guidance of at least $8.15, which compares to the $8.16 consensus. We continue to believe PEP is just being conservative, but think some investors might view it as a red flag.”

CFRA’s $200 price target represents implied upside of more than 24% to current levels.

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As we all know, long-term care costs are one of the biggest risks in retirement. Three of my four grandparents have needed long-term care, and the experience has been hard — not only emotionally but also financially. The cost of long-term care can be anywhere from $50,000 to $100,000 a year, depending on your location and the type of care. The average stay can be anywhere from two to five years, so that length affects the overall financial impact. 

Knowing that 70% of people will need long-term care at some point in their retirement means that it is especially important for you to plan for. The only problem is — how do we plan for such costs, especially when long-term care insurance is so expensive? Add to that the fact that we have to be insurable to be able to get it. So, instead, let's talk about another option that may be attractive to some people. 

The opportunity is called a Medicaid asset protection trust. The idea of this is to move money out of your estate into this type of trust so that the government cannot come after it for Medicaid planning purposes. Let's take a step back to understand how Medicaid planning works. The government will offer you free long-term care assistance after you spend down the majority of your assets. The good news is that you get the care you need. The bad news? You lose what you have worked so hard for. So how do we ensure we get the care we need but also protect what we've worked hard for? That's where this trust comes into play. 

This trust has to be set up the right way

First, we must set this trust up the right way and give it enough time to satisfy the look-back period. Then Medicaid will not consider those assets when deciding if you are eligible for Medicaid. This can be of a lot of value for those with larger amounts of non-qualified assets, such as multiple properties or non-retirement investments. The things to note with this trust is you will want to make sure it is an irrevocable trust. Now, that can be scary because an irrevocable trust typically means you have no access to those assets anymore. But if you set this trust up the right way, you can still have access to those assets. 

It's important to work with an estate planning attorney who specializes in this area. For our clients, we have an attorney who meets with them at our office to ensure this gets done the right way. 

You also want to make sure that you’re not getting sold this trust if you do not need it, because not everyone needs it. If you don’t have any non-qualified assets, and all of your assets are in an IRA, then it may not make sense for you. Current rules state that money in an IRA will not be spent down until after both spouses have passed. Keep in mind that these rules can change at any time, and that’s why it’s important to find an attorney that you can continue to work with to make changes to these trusts as needed. 

The attorney we work with meets with our clients periodically to make any adjustments required based on rule changes as they happen. We believe preparing for this now will better set you up for success if there are rule changes in the future. 

Setting one up can be costly

The other downside of this type of trust is cost. Depending on who you work with to get it done, the cost can be anywhere from $7,000 to $12,000. The attorney who works with our clients does it for a lower amount since we do not take a referral fee, and we have an exclusive relationship. You’ll likely get the best results when you work with a financial planner who partners with an estate planning attorney to ensure your trust gets done the right way, that you don't get sold something you don't need and that you get the best pricing. 

Other planning advantages and opportunities

A Medicaid asset protection trust can also lead to other advantages and opportunities in other areas of planning. For example, we can also use this trust to help plan for estate taxes. 

Estate taxes may not be a concern for many people, considering the current high threshold before it kicks in ($13.61 million for 2024). However, the threshold is likely to be lowered in the future. It has, in the past, been as low as $1 million or less, so it’s possible that if your net worth is more than $1 million, you could pay a 40% tax on everything above that in the future. 

A Medicaid asset protection trust could help you protect some of those assets by getting them out of the estate so they’re not subject to that estate tax. We do this for many of our clients who have been diligent savers. 

Also, with trusts, you can be more creative about ensuring the money goes to the people you want it to go to and when you want it to go to them. For example, if you wanted your kids to get only a certain amount each year for the rest of their lives, then you could have that set up. Or if you wanted a minor child to not get the money until the age of 25, then you could do that also. You could also ensure that if there were a divorce or one of your family members died, that the money stayed in the family. 

Those can all be reasons why setting up a trust can make sense. We work with many people in or near retirement who have been diligent savers, but only about half of them need trusts. That's why it's important to do your due diligence and see if this makes sense for your specific situation.

The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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Appearing before a House committee, Powell on Wednesday reiterated the Fed's data-dependent path toward interest-rate policy. Equity markets perked up, however, when the central banker suggested the Fed has become more concerned about a slowing economy and softer labor market. 

"Powell noted that disinflation has returned after price pressures gained in the latter part of 2023," writes José Torres, senior economist at Interactive Brokers. "He opined that the most likely path for the Fed is to ease, but he refrained from speculating on when the organization will make its initial move. He added that recent data show that the job market is softening, and much like before the pandemic, the economy is no longer overheated."

Powell's presumed dovishness was just what markets wanted to hear. After all, they're desperate for the Federal Open Market Committee (FOMC) to enact its first quarter-point cut to the short-term federal funds rate. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

Indeed, as of July 10, futures traders assigned a 70% chance the FOMC will start easing at its September meeting, up from 45% a month ago, according to CME Group's FedWatch Tool. 

Against that backdrop, the next CPI report, released ahead of Thursday's open, will be dissected closely for clues as to when the first rate cut might land.

"Tomorrow's Consumer Price Index (CPI) will likely offer the second report of the year when price pressures arrive in the Fed's 2% ballpark on an annualized, month-over-month (m/m) basis," writes Interactive Brokers' Torres. "Inflation reports from January to April weren't cooperative."

Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis. 

S&P 500 powers past 5,600

By the closing bell, two of the three main benchmarks set record closing highs – and one of them even set a milestone – thanks to mega-cap tech stocks.

The broader S&P 500 added more than 1% to close at 5,663, topping the 5,600 level for the first time ever. The tech-heavy Nasdaq Composite gained 1.2% to finish at its own record of 18,647. The blue-chip Dow Jones Industrial Average rose 1.1% to end at 39,721.

Once again, Nvidia (NVDA, +2.7%) and Apple (AAPL, +1.9) led the market's charge. With their massive market caps, NVDA and AAPL – at 6.7% and 7.01% of the S&P 500, respectively – are two of the three most heavily weighted stocks in the benchmark index. Microsoft (MSFT, +1.5%) is No 1 in the S&P 500 with a 7.4% weight.

Nvidia stock alone added $87 billion in market value Wednesday, or more than the entire market cap of Starbucks (SBUX). Apple shareholders saw their wealth expand by $65 billion.

Nvidia has been the market's favorite pure-play bet on all things AI, but NFLX has been generating outsized returns for ages. Anyone who put $1,000 into Nvidia stock 20 years ago would be very pleased with their returns today.

And as for the iPhone maker? Apple's 20-year returns are incomparable to any other stock.

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When it comes to withdrawing from your portfolio, many retirees fear that their cash flow might run out before they do. As illustrated in part one of this series, relying on stock sales to meet retirement expenses can be risky, especially during a market downturn early in retirement. 

How can we leverage the insights from parts one and two to safeguard our retirement income? Here are four actionable steps to consider.

Redefine and reframe your principal risk

Price volatility is a popular measure of risk but not a great one for retirement planning. Volatility on its own is simply a probability statistic (and hence why it’s described with technical terms such as alpha, beta, R-squared and the Sharpe ratio). 

For our financial planning purposes, volatility needs to be linked with a consequence to provide a practical measure of risk. For example, the fundamental risk in your portfolio is not having the cash available when you need it to meet your spending needs. In measuring your success, your personal monthly spending need is your ultimate yardstick and the only benchmark that matters.

If an adviser says to you (or you tell yourself) that you beat the market last year, your response should be, “Interesting information, but not my primary focus. Much more important, where am I relative to my financial goals, and do I need to course-correct?”

Utilize a goals-based safety-first strategy

With a more practical and fundamental definition of risk, it’s time to let your financial goals guide your planning and investing, not simply your risk tolerance. Match your assets and income with future liabilities and spending. 

The premise of our goals-based safety-first strategy is to rely as little as possible on the sale of stocks to cover basic needs, especially when the stock market is falling. Your primary objective during the withdrawal stage is not to maximize investment returns, but rather to meet your spending needs.

Add a margin of safety to your projections

Lower your projected withdrawal rate in your modeling to account for the sequence of returns risk (that is, the risk that you start withdrawing during a bad stretch of market returns). Financial author William Bernstein calculated that a particularly bad sequence of returns can penalize your safe withdrawal amount by about 1.5 to 2 percentage points. 

So, for example, if you are projecting a 5% withdrawal rate, consider lowering that estimate to an amount closer to 3% to 3.5% to provide cushion against “bad” market returns in the early years of the withdrawal stage. This may also lead you to conclude that you need to make other course corrections — for example, targeting a larger portfolio balance on your retirement date than you originally assumed. Simply put, plan to spend less and save more.

Maintain a cash reserve

As you approach your retirement date, have a cash cushion. Keep three to five years of spending needs out of the stock market and in cash. Since you hopefully won’t need to sell and withdraw from the equity portion of the portfolio if the market is declining, you avoid the negative compounding effects we saw illustrated in part one. (Remember, compounding works with you during the accumulation stage and against you in the withdrawal stage.) And as the market eventually recovers, you can then sell some of your equity investments to replenish your cash reserve. 

Three to five years of cash is my personal comfort zone. What do others say? Author and investor Darrow Kirkpatrick found that the S&P 500 recovers from declines, on average, in about three years. For business cycle declines going back to the 1800s, it’s about five years. Citing research by Wade Pfau, Kirkpatrick notes that worst-case real stock market losses of greater than 50% take, on average, nine years to recover.

Based on Kirkpatrick’s findings, on a worst-case basis, you might consider having upwards of 10 years of spending needs in cash, plus potentially more in other conservative investments. 

Take as little risk as you need

The above suggestions are but four considerations as you make personal course corrections to your robust financial plan. My primary message is this: Make sure to reconcile cash withdrawal plans with what your modeling and current market conditions indicate you can support. 

In other words, as you plan for the withdrawal stage, don’t take as much risk as you can tolerate; take as little risk as you need.

With a focus on safety first to cover basic spending needs and the right balance of liquidity, the fragile decade can be a lot less frail.

As always, invest often and wisely. Thank you for reading.

This content is for informational purposes only. It is not intended to be, nor should it be construed as, legal, tax, investment, financial or other advice. 

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CEFs are a type of investment fund, and in fact, they are older than mutual funds. The very first closed-end fund was launched in 1893 – more than 30 years before the first traditional mutual funds (like those you might find in your 401(k) plan) were created.

As with their mutual fund cousins, CEFs are pooled investment vehicles that hold portfolios of stocks, bonds or other assets. But that's where the similarities stop.

Mutual funds are open-ended. When you want to invest, you or your broker sends cash to the fund, and the manager takes that fresh cash and uses it to buy assets. When you want to sell, the manager will sell a small amount of assets to cash you out. Money is always coming and going, and there's no hypothetical limit to the amount of new money a popular fund can take in and invest.

Closed-end funds are different. CEFs have initial public offerings (IPOs) like stocks, and there is a fixed number of shares that then trade on the stock market. If you want to buy shares, you buy them the same way you'd buy a stock.

And here's where the fun starts. CEF prices are set by the market the same way a share of Apple (AAPL) or Amazon.com (AMZN) would be, but that price can vary wildly from the value of the assets the fund holds. It's not uncommon to see CEFs trading at a premium to the value of the assets they own. But just as you'd never pay $1.10 for a dollar, you're generally better off avoiding CEFs trading a premium.

Discounts, however, are another story. Closed-end funds often sell at massive discounts to net asset value (NAV). In these cases, they're effectively worth more dead than alive!

Another nice aspect of CEFs is that, unlike mutual funds, they can use debt leverage to juice their returns. That same leverage also allows closed-end funds to sport some of the highest yields you're likely to find.

Today, we're going to take a look at a few of the best CEFs on the market. Each of these funds trades at a reasonable discount to NAV and offers a yield that's at least competitive, if not downright extravagant.

Data is as of July 9. Distribution rate is an annualized reflection of the most recent payout and is a standard measure for CEFs. Distributions can be a combination of dividends, interest income, realized capital gains and return of capital.

• Market value: $221.0 million
• Distribution rate: 8.9%
• Discount to NAV: -10.2%
• Expenses: 3.64%*

It's been a rough stretch for real estate investment trusts (REITs). Because REITs have always had a major emphasis on income, investors came to view them as a bond substitute over the past two decades. But when bond yields surged last year – and bond prices collapsed – REIT prices also fell in sympathy. 

But now that prices in the sector have reset, investors have a chance to buy quality real estate assets on the cheap. And there's an inflation angle as well. Land and building prices tend to at least keep pace with inflation over time, and commercial rental contracts will generally have rent escalators that will rise.

REITs are a fine way to get exposure to real estate. But why pay retail for them if you don't have to?

The Nuveen Real Estate Income Fund (JRS, $7.67) is one of the best closed-end funds that invests in REITs. It owns essentially the same collection of REITs you'd expect to find in any mutual fund or exchange-traded fund (ETF), such as logistics REIT Prologis (PLD), data center REIT Equinix (EQIX) or self-storage operator Public Storage (PSTG), but it has the added benefit of owning them at a discount.

At current prices, JRS trades at a 10.2% discount to NAV, which is wide given this CEF's history. It also yields a very juicy 8.9%.

The Fed might be successful in bringing inflation to heel. Or we might see several more quarters of sticky inflation. Only time will tell. But either way, it makes sense to own a little real estate, and JRS is a smart way to do so.

*Includes 1.21% in advisor fees.

Learn more about JRS at the Nuveen provider site.

• Market value: $775.7 million
• Distribution rate: 11.3%
• Discount to NAV: -3.2%
• Expenses: 4.77%*

We may get a recession at some point in the next 12 months, though any slowdown is likely to be fairly shallow. That makes the Nuveen Credit Strategies Income Fund (JQC, $5.68) a solid play. JQC invests in floating-rate loans, which benefited from the Federal Reserve's interest rate hikes. The fund accepts a fair amount of credit risk, however, as it owns a portfolio of senior-secured and second-lien loans made to companies that are mostly below investment grade.

The fund manages this risk by holding a first-lien position in 80% of the portfolio. This means that if anything goes sideways, JQC is first in line to get paid, and its claims are backed by real collateral. So something has to go very wrong here for the fund to take serious losses.

The 20% in second-lien loans are riskier, of course, as the owner of a second lien generally gets whatever is left over after the senior creditors have been paid. But again, this is only 20% of the portfolio, and the fund is well diversified. 

The potential returns here look juicy, which is why JQC is one of the best closed-end funds to buy. The Nuveen Credit Strategies Income Fund trades at a 3.2% discount to NAV. As market sentiment improves, that discount should shrink, adding additional returns to the fat 11.3% yield.

* Includes a 1.33% management fee.

Learn more about JQC at the Nuveen provider site.

• Market value: $157.3 million
• Distribution rate: 9.3%
• Discount to NAV: -21.0%
• Expenses: 2.67%*

The discount to NAV is one of the most appealing aspects of closed-end funds. Who wouldn't want to buy the whole for less than the sum of the parts?

The problem, of course, is that cheap CEFs can stay cheap forever in the absence of a catalyst to close the discount to NAV. And herein lies the appeal of term funds.

Term funds are CEFs with a shelf life. They are designed to liquidate at NAV at a specific date in the future. So if you buy one at a discount and hold until liquidation, you should benefit handsomely as that discount narrows.

As a case in point, consider the Ecofin Sustainable and Social Impact Fund (TEAF, $11.67), which invests primarily in an eclectic mixture of traditional and alternative energy across both the public and private sectors.

TEAF's quirkiness has contributed to it perpetually trading at a deep discount to NAV. Investors in traditional energy stocks tend to overlook anything with "sustainable" in the name, and renewable energy investors tend to be put off by the fund's holdings of pipelines. 

Perhaps unsurprisingly, this orphan status has contributed to the fund having a discount to NAV of over 20%. 

But here's the fun part – and what makes TEAF one of the best closed-end funds to own: The CEF is designed to liquidate in 2031. So anyone buying today can enjoy the 9.3% dividend while waiting for the discount to close. Not too shabby!

* Includes 1.54% in advisor fees.

Learn more about TEAF at the Ecofin provider site.

• Market value: $337.6 million
• Distribution rate: 6.8%
• Discount to NAV: -12.2%
• Expenses: 7.51%*

Good old fashioned oil stocks were some of the best performers in 2022. The energy sector has stalled since then, but could see some tailwinds as geopolitical issues persist. One way to jump on this train is the ClearBridge MLP and Midstream Fund (CEM, $45.26).

The Clearbridge fund invests in a portfolio of midstream oil and gas pipeline stocks. That's been a rough business to be in since the domestic energy glut became an issue in late 2014. But after years dealing with brutal competitive conditions, the energy infrastructure sector is the leanest and best capitalized it's been in living memory. 

Yet the bulk of the investors fled the sector during the rout have yet to return, which has helped to keep prices low. That's fantastic news for anyone looking to buy today.

And here's the best part of all: CEM trades at a steep discount to NAV. This means we're getting a massive discount on an already cheap sector.

ClearBridge MLP and Midstream, which is leveraged at 40%, can be a volatile fund. It comes with the turf. But you also get the opportunity to enjoy a 7.51% distribution rate while you wait for the fund's discount to NAV to shrink to something a little closer to normal. That's not a bad gig.

* Includes 1.46% in management fees.

Learn more about CEM at the ClearBridge provider site.

• Market value: $257.5 million
• Distribution rate: 6.7%
• Discount to NAV: -12.6%
• Expenses: 4.68%*

If you liked CEM, you should also like its sister fund: The ClearBridge Energy Midstream Opportunity Fund (EMO, $40.59). Like CEM, EMO invests primarily in a portfolio of oil and gas pipeline stocks.

Most pipeline stocks are organized as master limited partnerships (MLPs). These can be something of a chore to own in that they tend to make your tax returns more complicated. Rather than simply show up on your normal broker 1099-B or 1099-Div, MLPs come with complicated K1 tax statements.

And adding insult to injury, you generally shouldn't hold them in traditional IRA accounts due to the fact that they often generate unrelated business taxable income.

Well, as a closed-end fund, ClearBridge Energy Midstream Opportunity doesn't have these issues. EMO allows you to get access to some of the biggest and best names in the MLP space without all the irritating tax complications. A few of its biggest holdings are solid pipeline firms Energy Transfer (ET), Enterprise Products Partners (EPD) and MPLX (MPLX).

Another reason EMO is on this list of best closed-end funds: At current prices, it trades at a deep 12.6% discount to NAV. It also yields a very competitive 6.7%.

* Includes 1.46% in management fees.

Learn more about EMO at the Clearbridge provider site.

• Market value: $7.3 billion
• Distribution rate: N/A
• Discount to NAV: -1.2%
• Expenses: 0.41%*

Gold has held been hot this year, and the precious metal could get a bigger lift once global central banks start cutting interest rates. 

One way to play this is via the Sprott Physical Gold Trust (PHYS, $18.34). Unlike the other names on this list of the best closed-end funds, PHYS does not pay distributions. It doesn't really "do" anything. It simply holds a passive portfolio of gold bullion. 

PHYS is not the only way to play gold, of course. The SPDR Gold Shares (GLD) offers exposure to the yellow metal in an ETF wrapper, for example. But PHYS, because it is a closed-end fund, can and does often trade at a discount to net asset value. Today, that discount is 1.2%. So via PHYS, you can buy gold at a modest discount to market prices. 

* Includes 0.35% in management fees and 0.06% in other expenses.

Learn more about PHYS at the Sprott provider site.

• Market value: $1.4 billion
• Distribution rate: 8.2%
• Discount to NAV: -10.7%
• Expenses: 2.70%*

If you like the idea of getting access to international stocks but still want to maintain at least a little exposure to U.S. stocks as well, a global fund like the Eaton Vance Tax-Advantaged Global Dividend Income Fund (ETG, $18.92) is a solid choice. 

ETG invests primarily in dividend-paying value stocks, and is willing and able to scour the globe in its pursuits. Nearly half the portfolio is allocated to foreign equities, with exposure to the United Kingdom, France and Germany, as well as emerging markets, such as Taiwan and India. 

The vast majority of the portfolio, at roughly 80%, is invested in common stocks. But the fund also has exposure to preferred stock and bonds, as well as a few smaller positions in other assets. 

At current prices, ETG trades at a 10.7% discount to net asset value and yields a very competitive 8.2%.

The discount to net asset value is noteworthy to investors seeking out the best closed-end funds because as recently as November of 2022, ETG actually traded at a slight premium to net asset value.

* Includes 1.08% in management fees.

Learn more about ETG at the Eaton Vance provider site.

• Market value: $1.4 billion
• Distribution rate: 2.7%
• Discount to NAV: -12.1%
• Expenses: 2.52%*

Muni-bond CEFs have the same problem that many equity CEFs have. They often trade at deep discounts to NAV, can persist like that for years, and nothing seems to shake them out of that rut.

We already covered the Ecofin Sustainable and Social Impact Fund (TEAF), which has a liquidation date in 2031. Let's cap this off this list of the best closed-end funds with another solid term fund: The BlackRock Municipal 2030 Target Term Trust (BTT, $20.86).

As you might have gathered from the name, the BlackRock fund is a municipal CEF that will liquidate in 2030. It targets a $25 net asset value at the end of its term, and the fund trades at a deep 12.1% discount to NAV. So, apart from the potential gains due to the underlying bonds rising in value and from the tax-free dividend, we should enjoy a nice kicker as the fund's share price approaches NAV at liquidation.

The CEF is also structured so that the underlying bonds it owns should be approaching maturity by 2030, further reducing the risk of price declines due to rising yields.

Investors should note, however, that the fund is powered by a high 34% in leverage. In a "normal" year, that acts as a return booster. But as we saw in 2022, leverage can cut both ways, as losses can also be outsized. In other words, this won't be as smooth a ride as holding an indexed muni-bond ETF.

At current prices, BTT sports a yield of 2.7%. If you're in the 37% tax bracket, that translates to a tax-equivalent yield of around 5%.

You're not going to get wealthy on that, of course. But BTT is a good place to park cash for the rest of this decade to get a competitive, tax-free yield.

* Includes 0.61% in management fees.

Learn more about BTT at the BlackRock provider site.

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The Fed chief's words helped keep the bears at bay, allowing mega-cap tech stocks to continue to propel two of the three major benchmarks higher. 

All eyes were on the central bank chief as he delivered the first of two days of semiannual testimony before Congress. Speaking to the Senate on Tuesday, Powell reiterated the key conclusions from the Federal Open Market Committee's June meeting.

"Chair Powell's written semi-annual Monetary Policy Testimony is mostly a carbon copy of the June FOMC statement," writes Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics. "Mr. Powell remains reluctant to signal the onset of monetary easing well in advance, scarred by the burst of inflation in Q1, but reading between the lines we think his base case is a September easing."

The economist notes Powell gives "a hint of rising anxiety" about waiting too long to cut. "The Jackson Hole symposium, held between August 22 and 24, provides an ideal opportunity for him to give customary notice of an impending policy change," Shepherdson says. 

Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing jobs market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.

As of July 9, futures traders assigned a 70% probability to the FOMC enacting its first cut to the federal funds rate in September, up from 63% a week ago, according to CME Group's FedWatch Tool. 

At the closing bell, stocks were little changed on light volume. The broader S&P 500 inched up 0.07% to 5,577, while the tech-heavy Nasdaq Composite gained 0.1% to 18,429. The blue-chip Dow Jones Industrial Average was off 0.1% at 39,292.

Econ news and earnings on tap

Fed Chief Powell wraps up his second day of testimony before Congress on Wednesday, this time appearing before the House. The central banker will face more questions about inflation, a subject which will come into greater focus on Thursday with the release of the next CPI report.

Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis. 

On the earnings front, the tempo should pick up on Thursday when Delta Air Lines (DAL) reports ahead of the opening bell. Morgan Stanley analyst Ravi Shanker says that DAL is one of the "cleanest stories" in airlines right now, citing Delta's outsized exposure to corporate travel vs peers. The analyst rates DAL at Overweight (the equivalent of Buy), calling it a "top pick."

On Friday, JPMorgan Chase (JPM), the nation's biggest bank by assets, is slated to post results, as is Citigroup (C). Jefferies analyst Ken Usdin, who rates JPM at Buy notes that loan growth for many banks remains sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.

Tesla stock notches 10th straight win

Not too long ago, Tesla (TSLA, +3.7%) was the little Magnificent 7 stock that couldn't. At one point in late April, shares were off more than 40% for the year-to-date. Concerns about price cuts and sluggish deliveries had the market undergoing a major re-rating of this stock.

Cut to today, and Tesla stock just notched its 10th straight win – a rally supported in part by better-than-expected deliveries in the second quarter. Not only is TSLA stock up more than 40% over the past 10 sessions – it's now up 6% for the year-to-date. 

If nothing else, the Mag 7 stock – at 3% of the Nasdaq-100 index – has finally started pulling its weight. 

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