by Lynn Berry | Jan 24, 2019 | Economic Newsletter, General, Tax, Wealth Management
In this month’s recap: equity and commodity markets experience major losses, the Fed sends a hawkish message, home sales improve, and the economy maintains its momentum.
THE MONTH IN BRIEF
December 2018 will be remembered for its volatility and its challenges. The S&P 500 flirted with bear market territory, dropping 10.16% for the month. Appetite for risk declined here and abroad in the face of tariffs, concerns about the Federal Reserve raising interest rates too quickly, a federal government shutdown, and questions about the Brexit. It was also a difficult month for commodities. In contrast, Main Street seemed in good shape: low unemployment, high consumer confidence, and strong consumer spending were all evident.1
DOMESTIC ECONOMIC HEALTH
While the Federal Reserve certainly pays attention to Wall Street’s mood, it adjusts its monetary policy in respect to the economy, not the preferences of market participants. In December, the central bank did not exactly tell investors what they wanted to hear. Following the announcement of another quarter-point rate hike (the target range is now 2.25-2.5%), Fed chair Jerome Powell stated that monetary policy “does not need to be accommodative,” and affirmed that the Fed would continue to remove up to $50 billion per month of Treasury and mortgage-backed securities from its balance sheet. According to the latest Fed dot-plot, there would be no pause in tightening: two rate hikes were still envisioned for 2019. Major indices fell sharply after Powell’s remarks.2
To justify its stance, the Fed could point to a number of economic indicators. The manufacturing and service sectors were seeing considerable expansion, by the look of the Institute for Supply Management’s November purchasing manager indices. ISM’s non-manufacturing PMI rose 0.4 points to 60.7, and its factory PMI climbed 1.6 points to 59.3; these were great readings. (Additionally, the Federal Reserve said that industrial production rose 0.6% in November.) Department of Commerce data showed personal spending up 0.4% in October and retail sales advancing a decent 0.2%. Consumer confidence remained high. The University of Michigan’s index finished December at 98.3, higher than its final November mark of 97.5. The Conference Board’s monthly gauge came in at 128.1 – notably below its (revised) November reading of 136.4, but still at an impressive level.3,4
The Consumer Price Index was flat in November. The main reason? Cheaper fuel. Gasoline prices dropped 4.2%. Annualized inflation weakened to 2.2%, the smallest advance seen since February. Wholesale inflation, as measured by the Producer Price Index, ticked north 0.1%; in October, the gain was 0.6%. 4,5
Job creation did fall short of expectations in the eleventh month of the year. Employers added 155,000 net new workers to their payrolls in November, the Department of Labor stated, and the October increase was revised down to 237,000. A Bloomberg survey of analysts projected a November jobs gain of 198,000. Headline unemployment stayed remarkably low, just 3.7%; the U-6 rate, which also counts the underemployed, rose 0.2% to 7.6%. Annualized wage growth remained at 3.1%. Average net monthly payroll growth for the September-November period was 170,000.4,6
By December, the ongoing U.S.-China trade dispute had cooled a bit, with negotiations continuing. December 1 marked the start of a 90-day “ceasefire,” with both nations agreeing not to impose additional import taxes until late in the first quarter of 2019. China actually scaled back some tariffs as the year ended; the U.S. was set to boost tariffs on as much as $200 billion of Chinese goods effective this month.7
Lastly, the end of 2018 was very good for retailers. Mastercard Pulse measured a 5.1% year-over-year increase in retail purchases between November 1 and December 24, resulting more than $850 billion in purchases – the best holiday retail sales season in six years.8
GLOBAL ECONOMIC HEALTH
In December, the United Kingdom witnessed a parliamentary deadlock over the Brexit, with Prime Minister Theresa May withdrawing a scheduled vote over her deal with the European Union in the face of probable legislative defeat. In fact, as Christmas approached, there was no clear majority in Parliament favoring any of the Brexit options: May’s deal, the no-deal Brexit (an outcome that would dismay corporations), a “managed” no-deal, or another national vote on the matter. The U.K.’s March 29 deadline to leave the E.U. remains. In other euro area news, yearly inflation fell sharply in the region to 1.9% in November, descending from 2.2% in October.9,10
While China’s statistics bureau said recently that the country was on track to reach its 6.5% economic growth target for 2018, signs of a slowdown emerged. In December, the country’s factory output contracted for the first time in nearly three years, with its official manufacturing PMI falling to 49.4. The November Markit manufacturing PMIs for other key Asian economies indicated either minor month-over-month factory sector expansion (slightly above 50) or contraction (below 50). Japan’s Markit PMI came in at 51.8 (though it recovered to 52.4 in December); Taiwan’s, at 48.4; South Korea’s, at 48.6.11,12
WORLD MARKETS
Yes, December brought substantial losses for other major equity benchmarks – though generally speaking, the losses were smaller than the ones seen in the U.S. While the Nikkei 225 slid 10.10% last month, the common December loss was single-digit: 5.76% for the TSX Composite, 1.53% for the Bovespa, only 0.22% for the Bolsa, 6.55% for the DAX, 5.46% for the CAC-40, 3.61% for the FTSE 100, 5.92% for the IBEX 35, 2.49% for the Hang Seng, 4.14% for the Shanghai Composite, and just a respective 0.35% and 0.13% for the Sensex and the Nifty 50.13
How about some of the regional and multinational indices? Well, the MSCI World slipped 7.71%, while the MSCI Emerging Markets declined 2.92%. The FTSE Eurofirst 300 took a 5.44% loss. On a positive note, two emerging market benchmarks saw double-digit gains in 2018: Russia’s Micex advanced 12.16%; Brazil’s Bovespa, 15.03%.13,14
COMMODITIES MARKETS
Dollar strength put pressure on this sector in 2018; the U.S. Dollar Index gained 4.64% for the year, a performance better than that of many commodities. Gold and silver moved up in December. The yellow metal gained 5.11% to reach $1,284.50 on the COMEX on New Year’s Eve. Silver rose 9.90% for the month to $15.54 on the COMEX. Across 2018, gold lost 2.42%; silver, 9.14%. Copper retreated 5.17% last month, and platinum settled 1.29% lower.15,16
Oil prices kept falling. In December, WTI crude declined 9.64% to finish out the year at $45.83 on the NYMEX. For all of 2018, crude retreated 24.05%. Unleaded gasoline suffered a 7.45% December setback. Heating oil fell 7.83%. All of that paled next to natural gas, which plunged 36.01%. Most key crops also went negative on the month: soybeans lost 1.26%; wheat, 2.42%; coffee, 2.88%; sugar, 3.50%; cotton, 8.52%. Cocoa and corn were notable exceptions, the former advancing 11.85%, and the latter, 2.46%.16
REAL ESTATE
More homes sold in November – more existing homes, that is. The National Association of Realtors said that resales improved 1.9% in the penultimate month of the year, and that followed the 1.4% gain seen in October. The trend might not continue, though, as NAR’s pending home sales index retreated 0.7% in November. (Due to the federal government shutdown, the Census Bureau’s November new home sales report was still pending at this writing.) Housing starts and building permits were both up for November: groundbreaking increased 3.2%, and the pace of permits issued improved 5.0%.4
Home loans grew cheaper in December. Back on November 29, Freddie Mac’s Primary Mortgage Market Survey listed the mean interest rates on the following loans: 30-year FRM, 4.81%; 15-year FRM, 4.25%; 5/1-year ARM, 4.12%. By the December 27 Freddie Mac survey, everything was cheaper: 30-year FRM, 4.55%; 15-year FRM, 4.01%; 5/1-year ARM, 4.00%.17
The NAR reported a median existing home sale price of $257,700 in November, up 4.2% from November 2017. Another key measure of annualized gains, the 20-city composite S&P CoreLogic Case-Shiller home price index, had risen 5.0% year-over-year through October.18,19
T I P O F T H E M O N T H
If you have a high-interest credit card, you may want to search to see if you can refinance the balance to a lower-interest card. A lower-interest card means a greater percentage of your payments will be applied to principal rather than interest.
LOOKING BACK, LOOKING FORWARD
During one of the most volatile months in recent Wall Street history, the S&P 500 had nine intraday moves of at least 1% (as opposed to eight such instances during all of 2017), and the Dow Jones Industrial Average gained 1,000 points in a day for the first time. The ups and downs tested the patience of investors large and small. When the month ended, the most esteemed Wall Street indices were considerably lower. The S&P 500 ended the year at 2,506.85; the Dow, at 23,327.46; the Nasdaq Composite, at 6,635.28. The small-cap Russell 2000 wrapped up 2018 at 1,348.56, taking a 12.94% December fall and losing 12.18% for the year. The CBOE VIX soared 54.62% for the month and 130.25% for 2018, settling at 25.42 on December 31.1,20
| MARKET INDEX | Y-T-D CHANGE | 1-MO CHANGE | 2017 |
| DJIA | -5.63 | -9.68 | 25.08 |
| NASDAQ | -3.88 | -10.83 | 28.24 |
| S&P 500 | -6.24 | -10.16 | 19.42 |
| | | |
| YIELD | 12/31 RATE | 1 MO AGO | 1 YR AGO |
| 10 YR TIPS | 2.69 | 3.01 | 2.40 |
Sources: wsj.com, bigcharts.com, treasury.gov – 12/31/181,21,22
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
At this moment, investors old and young are looking at their portfolios and wondering what moves might be appropriate. How about no moves at all? At its core, a saving and investment strategy for a pre-retiree is developed based on risk tolerance, time horizon, and goals, and that big-picture approach takes episodes of market instability (and market downturns) into account. A deviation from that strategy may be ill-advised. If you are wondering about the outlook for Wall Street for 2019, many prognostications are bullish, some to remarkable degree. USA TODAY recently polled a range of Wall Street investment strategists, and they thought the S&P 500 would gain about 25% this year, on average. Is this just wishful thinking, drenched in blue sky? Anything is possible, but to encourage returns like that, it might help to have a pause in tightening by the Fed, an end to the trade war between China and the U.S., a comeback for oil, and earnings calls that contradict worries about corporations becoming slightly less profitable. January will likely see more of the volatility witnessed in December, hopefully less pronounced. This month and this year, investors will appreciate the core principle of diversification, for little is certain about the next few months on Wall Street.23
Q U O T E O F T H E M O N T H
“Make your life a mission – not an intermission.”
ARNOLD GLASOW
UPCOMING RELEASES
January’s roll call of major economic news items includes the December employment report from the Department of Labor (1/4), ISM’s December non-manufacturing PMI (1/7), a new Consumer Price Index (1/10), the latest Producer Price Index (1/15), December retail sales and a new Federal Reserve Beige Book (1/16), December housing starts and building permits (1/17), December industrial output and the preliminary January University of Michigan consumer sentiment index (1/18), the latest existing home sales report from the National Association of Realtors (1/22), a fresh Conference Board leading indicators index (1/24), December new home sales and durable goods orders (1/25), the latest Conference Board consumer confidence index and the November S&P CoreLogic Case-Shiller home price index (1/29), a Federal Reserve policy decision, ADP’s January payrolls data, and NAR’s index of housing contract activity for December (1/30), and finally, the December PCE price index and consumer spending report (1/31).
T H E M O N T H L Y R I D D L E
You can see right through me. Different lights make me strange, and for each one, my size may change. What am I?
LAST MONTH’S RIDDLE: It is often surrounded by water and at risk from waves, and it has a fin rather than a sail or motor, but without water and waves, there would be no real use for it. What is it?
ANSWER: A surfboard.
Remember, we are never too busy to be a resource or sounding board for the people you care about.
Just call and let us know how we can help out.
KeyStone Team may be reached at 920-969-0717 or admin@kfgwi.com
www.kfgwi.com
Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The DAX 30 is a Blue-Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Nifty 50 (NTFE 50) is a well-diversified 50-stock index accounting for 13 sectors of the Indian economy. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. The MICEX 10 Index is an unweighted price index that tracks the ten most liquid Russian stocks listed on MICEX-RTS in Moscow. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
1 – markets.wsj.com/us [12/31/18]
2 – reuters.com/article/us-usa-fed/fed-lifts-rates-now-sees-some-further-hikes-ahead-idUSKBN1OI0DV [12/19/18]
3 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?SSO=1 [12/6/18]
4 – investing.com/economic-calendar/ [12/27/18]
5 – streetinsider.com/Economic+Data/U.S.+consumer+prices+flat%3B+underlying+inflation+firm/14915363.html [12/26/18]
6 – bloomberg.com/news/articles/2018-12-07/u-s-payrolls-rise-below-forecast-155-000-as-wage-gain-misses [12/7/18]
7 – scmp.com/news/china/diplomacy/article/2179505/us-china-trade-war-timeline-first-tariffs-90-day-truce [12/26/18]
8 – cbsnews.com/news/2018-holiday-sales-soar-to-6-year-high/ [12/20/18]
9 – nasdaq.com/article/british-ministers-split-over-next-brexit-steps-if-pms-deal-fails-20181220-00145 [12/20/18]
10 – ec.europa.eu/eurostat [12/17/18]
11 – cnbc.com/2018/12/31/china-december-pmi-manufacturing-activity-contracts-more-than-expected.html [12/31/18]
12 – forbes.com/sites/davidvolodzko/2018/12/21/asias-manufacturing-decline-is-the-wake-up-call-it-needs [12/21/18]
13 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [12/31/18]
14 – msci.com/end-of-day-data-search [12/31/18]
15 – marketwatch.com/investing/index/dxy/historical [12/31/18]
16 – money.cnn.com/data/commodities/ [12/31/18]
17 – freddiemac.com/pmms/archive.html [12/27/18]
18 – cleveland.com/business/2018/12/ohio-us-home-sales-down-in-november-from-last-years-levels.html [12/19/18]
19 – zillow.com/research/october-case-shiller-home-prices-22533/ [12/26/18]
20 – cnn.com/2018/12/28/investing/stock-market-december-volatility/index.html [12/28/18]
21 – markets.wsj.com/us [12/29/17]
22 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yieldAll [12/26/18]
23 – tinyu
by Lynn Berry | Dec 14, 2018 | Economic Newsletter, General, Retirement, Tax, Wealth Management
In this month’s recap: equities rise with a little help from the Fed, oil dives, and most key domestic indicators look quite strong.
THE MONTH IN BRIEF
Presented by KeyStone Team, December 2018
For most of November, the stock market was plagued by the same skepticism evident in October: the sense that corporate profits were declining and economic growth was slowing. Then Federal Reserve chairman Jerome Powell threw investors a line: he delivered a speech late in the month that soothed some of the considerable anxiety in the equity markets. Helped by Powell’s comments, the S&P 500 gained 1.79% on the month. While analysts sensed the bull market was in its late phase, consumers remained confident, enthusiastic participants in an apparently thriving economy. In a surprise, home sales picked up. Oil fell. The United Kingdom scheduled a critical parliamentary vote on the Brexit; China and the U.S. returned to the negotiating table regarding tariffs.1
DOMESTIC ECONOMIC HEALTH
Speaking to the Economic Club of New York on November 28, Federal Reserve chair Jerome Powell delivered a rather dovish message: if interest rates were not quite where they should be, given the robust economy, they were at least close. In his view, rates were “just below the broad range of estimates of the level that would be neutral for the economy – that is, neither speeding up nor slowing down growth.” This was what Wall Street wanted to hear. The Dow Industrials rocketed north 618 points on the day. Just a month earlier, Powell had sounded distinctly hawkish, commenting that rates were a “long way from neutral.”2,3
A trio of reports affirmed that the economy was indeed in good condition. Even after nine years of recovery from the Great Recession, the pace of hiring was still noteworthy: the Department of Labor’s October jobs report said that 250,000 net new jobs were created in the tenth month of the year. Annualized wage growth was at 3.1%, the best in ten years; headline unemployment was at 3.7%, and U-6 unemployment (unemployed and the marginally employed), at 7.4%. According to a Census Bureau report, the pace of retail sales improved 0.8% in October, quite a change from the 0.1% retreat a month before. Finally, as the month ended, the Department of Commerce announced a 0.6% rise in personal spending in October along with a 0.5% improvement for personal incomes.4,5
Burgeoning economies go hand in hand with inflation, and the annualized gain in the Consumer Price Index did grow in October to 2.5% from the previous 2.3%. The yearly advance for the core CPI ticked down 0.1% to 2.1%, however. The federal government affirmed third-quarter growth at 3.5% in its third GDP estimate.5
Consumer confidence indices retreated slightly from recent lofty heights. The University of Michigan’s monthly barometer ended the month at 97.5, down from 98.3; the Conference Board’s index declined to 135.7 from the prior 137.9.5
Now to the factory front. The latest monthly reports from the Institute for Supply Management showed its manufacturing purchasing manager index at 57.7, below the 59.8 level it was at in September. ISM’s service sector PMI dipped 1.3 points last month to 60.3. While these were descents, both readings were quite strong. Hard goods orders declined 4.4% last month, but that mostly had to do with aircraft orders in the defense industry; minus defense and plane orders, they were simply flat for October.5,6
Industrial output rose 0.1% in October, while manufacturing production advanced 0.3%. The Producer Price Index rose 0.6% in October; a 7.6% jump for wholesale gas prices was instrumental in the gain. The October PPI increase left yearly wholesale inflation at 2.9%.5,7
GLOBAL ECONOMIC HEALTH
Last month, lawmakers in the United Kingdom scheduled a parliamentary vote on a draft of the Brexit deal for December 11. If Parliament supports the plan created by Prime Minister Theresa May’s government, the next step would be a vote on a withdrawal agreement from the European Union, pursuant to a European Parliament vote and approval from the E.U. Council. If May’s deal is defeated in London, then the U.K. government will have 21 days to make a choice: it could authorize a renegotiation of the Brexit with the E.U., break off ties with the E.U. without any deal, schedule another U.K. referendum on the Brexit, or call for a general election. May’s deal received formal approval from E.U. leaders in late November.8
On November 30, President Donald Trump, Canadian Prime Minister Justin Trudeau, and Mexican President Enrique Peña Nieto formally signed the United States-Mexico-Canada Agreement (USMCA), the trade pact designed to replace the North American Free Trade Agreement (NAFTA). The accord must still be approved by the legislature of each member nation, and approval may not be easy on Capitol Hill. In the east, the major news item was the evident deceleration in Chinese factory output. China’s official manufacturing PMI dipped to 50.0 in November, meaning no month-over-month expansion for the sector. (Anything below 50 means contraction.) Some analysts see China’s GDP declining to the vicinity of 6.0% in 2019, which would be its poorest GDP in three decades. Its government may need to resort to an economic stimulus if things weaken further.9,10
WORLD MARKETS
Many foreign stock markets saw November gains. Among the biggest: the Hang Seng in Hong Kong, 7.81%; the Merval in Argentina, 6.99%; the Nifty 50 and Sensex in India, at a respective 6.65% and 6.80%. Japan’s Nikkei 225 rose 4.17%, South Korea’s Kospi added 4.08%, MSCI’s Emerging Markets index improved 4.06%, and Russia’s Micex advanced 4.02%. In Spain, the IBEX gained 3.08%; in Brazil, the Bovespa added 3.01%. There were also gains of 2.04% for Canada’s TSX Composite, 1.26% for Taiwan’s TSE 50, 0.96% for the MSCI World index, 0.82% for the FTSE Eurofirst 300, and 0.78% for the Shanghai Composite.11,12
Some indices suffered November setbacks. Germany’s DAX lost 0.27%, the United Kingdom’s FTSE 100, 0.79%. Australia’s All Ordinaries fell 2.35%, while Mexico’s Bolsa retreated 4.15%.11
COMMODITIES MARKETS
A barrel of oil was worth only $50.42 on the NYMEX at the close on November 30. WTI crude dropped 21.80% for the month. Heating oil sank 19.00%, and unleaded gasoline plummeted 20.22%. Natural gas? Quite the opposite. With winter quickly appearing, the value of that commodity jumped 41.29%.13
In crops, soybeans rose 6.74%, and coffee fell 7.88%. In between those extremes, wheat gained 2.84%; cotton, 2.37%; corn, 0.76%. Sugar retreated 2.43%, and cocoa, 3.73%. Copper advanced 4.38% in November; gold also improved, gaining 0.70% to close out the month at a COMEX value of $1,222.10 an ounce. Silver and platinum lost ground last month: silver was off 1.94%; platinum, 4.57%. As November concluded, silver was worth $14.14 an ounce. The U.S. Dollar Index ended November at 96.79 after a one-month loss of 0.35%.13,14
REAL ESTATE
In mid-November, the National Association of Realtors reported a 1.4% October gain for existing home sales. On November 29, however, it said that its pending home sales index had weakened by 2.6% in the tenth month of the year, so the autumn improvement in the pace of residential resales may prove fleeting.5
October also brought less new home buying: sales fell 8.9%. (It must be noted that these initial numbers tend to be revised later.) The Census Bureau also announced a 0.6% decline for building permits in October, but housing starts did pick up 1.5%.5
In terms of mortgages, only adjustable-rate loans grew significantly more expensive in November. The average rate on a 5/1-year ARM was 4.04% on November 1, according to Freddie Mac, but 4.12% on November 29. Mean interest on the 30-year, fixed-rate mortgage went from 4.83% to 4.81% in that period; the average interest rate for the 15-year FRM went from 4.23% to 4.25%.15
Annual home price gains were clearly lessening: the latest 20-city S&P CoreLogic Case-Shiller home price index showed only 5.1% appreciation in the 12 months ending in September.5
T I P O F T H E M O N T H
Many couples buy life insurance when they start a family, insuring both partners (even if one elects to stop working). There is a good reason to insure both partners: If a stay-at-home spouse or partner passes away and is uninsured, a surviving spouse could face sizable expenses to pay for childcare and other household needs.
LOOKING BACK, LOOKING FORWARD
Closing at 7,330.54 on November 30, the Nasdaq Composite eked out a monthly gain of 0.34%. The S&P 500’s 1.79% November rise left it at 2,760.17 at the end of the month, while the small-cap Russell 2000 ascended 1.45% to 1,533.27. (The Russell ended November down 0.15% YTD, lagging well behind the performance of the big three.) The Dow Jones Industrial Average advanced 1.68% to 25,538.46.1,17
| % CHANGE | Y-T-D | 1-YR CHG | 5-YR AVG | 10-YR AVG |
| DJIA | 3.31 | 5.22 | 11.75 | 21.34 |
| NASDAQ | 6.19 | 6.64 | 16.11 | 42.43 |
| S&P 500 | 3.24 | 4.25 | 10.57 | 23.82 |
| | | | |
| REAL YIELD (%) | 11/30 RATE | 1 YR AGO | 5 YRS AGO | 10 YRS AGO |
| 10 YR TIPS | 1.04 | 0.56 | 0.60 | 2.38 |
Sources: wsj.com, bigcharts.com, treasury.gov – 11/30/1818,19,20,21
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
While words from Jerome Powell gladdened investors last month, Wall Street expects another interest rate move from the Fed this month. On November 30, the CME Group’s FedWatch tool put the chances of a December 19 rate hike at 82.7%. The market has probably priced in a hike, but the Street may not be in the mood for a Santa Claus rally, given the seemingly entrenched perception that the business cycle has seen its peak and the glory days of this bull market have faded. This month, investors will carefully examine the latest jobs report and Fed policy statement, react to the new agreement between the U.S. and China to suspend further trade tariffs, and watch what happens with the Brexit parliamentary vote and the OPEC-Russia meeting early in the month. Hopefully, a turbulent year for equities will end on a positive note.22,23
Q U O T E O F T H E M O N T H
“I am certain there is too much certainty in the world.”
MICHAEL CRICHTON
UPCOMING RELEASES
Here is the docket for the rest of the year: the latest Department of Labor employment report and the initial December University of Michigan consumer sentiment index (12/7), the November wholesale inflation report (12/11), November consumer inflation (12/12), November retail sales and industrial production (12/14), November housing starts and building permits (12/18), an interest rate decision at the Federal Reserve and a fresh existing home sales snapshot from the National Association of Realtors (12/19), the Conference Board’s newest leading indicator index (12/20), November personal spending and hard goods orders, the latest PCE price index, and the final assessment of Q3 growth (12/21), November new home sales and the Conference Board’s December consumer confidence gauge (12/27), and November pending home sales and the year’s final University of Michigan consumer sentiment index reading (12/28).
T H E M O N T H L Y R I D D L E
It is often surrounded by water and at risk from waves, and it has a fin rather than a sail or motor, but without water and waves, there would be no real use for it. What is it?
LAST MONTH’S RIDDLE: It is as old as the world, and yet new each month. What is it?
ANSWER: The moon.
Keystone Team may be reached at 920-969-0717 or admin@kfgwi.com
www.KFGWI.com
Know someone who could use information like this?
Please feel free to send us their contact information via phone or email. (Don’t worry – we’ll request their permission before adding them to our mailing list.)
| Securities and Advisory Services Offered Through Harbour Investments, Inc. FoxRiver Tax Centers LLC is privately held and is not affiliated with Harbour Investments, Inc. |
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All market indices discussed are unmanaged and are not illustrative of any particular investment. Indices do not incur management fees, costs, or expenses. Investors cannot invest directly in indices. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe. The CBOE Volatility Index® (VIX®) is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The Nifty 50 (NTFE 50) is a well-diversified 50-stock index accounting for 13 sectors of the Indian economy. It is used for a variety of purposes such as benchmarking fund portfolios, index-based derivatives and index funds. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MICEX 10 Index is an unweighted price index that tracks the ten most liquid Russian stocks listed on MICEX-RTS in Moscow. The IBEX 35 is the benchmark stock market index of the Bolsa de Madrid, Spain’s principal stock exchange. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The FTSE TWSE Taiwan 50 Index consists of the largest 50 companies by full market value and is also the first narrow-based index published in Taiwan. The MSCI World Index is a free-float weighted equity index that includes developed world markets and does not include emerging markets. The FTSEurofirst 300 Index comprises the 300 largest companies ranked by market capitalisation in the FTSE Developed Europe Index. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The DAX 30 is a Blue-Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. The Mexican Stock Exchange, commonly known as Mexican Bolsa, Mexbol, or BMV, is the only stock exchange in Mexico. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.
CITATIONS:
1 – markets.ft.com/data/world [11/30/18]
2 – marketwatch.com/story/seemingly-dovish-powell-says-interest-rates-are-just-below-level-where-they-wont-stimulate-economy-2018-11-28 [11/28/18]
3 – markets.wsj.com/ [11/28/18]
4 – fortune.com/2018/11/02/october-jobs-report-unemployment-rate/ [11/2/18]
5 – investing.com/economic-calendar/ [11/30/18]
6 – instituteforsupplymanagement.org/ISMReport/NonMfgROB.cfm?SSO=1 [11/5/18]
7 – ww2.cfo.com/the-economy/2018/11/producer-price-index-rises-0-6-in-october/ [11/9/18]
8 – tinyurl.com/ydcrfazs [11/26/18]
9 – businessinsider.com/g20-summit-trump-signs-usmca-nafta-update-mexico-canada-2018-11 [11/30/18]
10 – foxbusiness.com/economy/china-reports-weakest-factory-growth-in-over-2-years [11/30/18]
11 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [11/30/18]
12 – msci.com/end-of-day-data-search [11/30/18]
13 – money.cnn.com/data/commodities [11/30/18]
14 – marketwatch.com/investing/index/dxy/historical [11/30/18]
15 – freddiemac.com/pmms/archive.html [12/2/18]
16 – marketwatch.com/story/house-price-growth-slows-to-nearly-two-year-low-as-case-shiller-makes-the-slowdown-official-2018-11-27 [11/27/18]
17 – money.cnn.com/data/markets/russell/ [12/2/18]
18 – markets.wsj.com [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F30%2F17&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F30%2F17&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F30%2F17&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=11%2F29%2F13&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=11%2F29%2F13&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=11%2F29%2F13&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F1%2F08&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F1%2F08&x=0&y=0 [11/30/18]
19 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F1%2F08&x=0&y=0 [11/30/18]
20 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [11/30/18]
21 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [11/30/18]
22 – cmegroup.com/trading/interest-rates/countdown-to-fomc.html [11/30/18]
23 – reuters.com/article/us-g20-argentina-trump-statement/us-china-declare-90-day-halt-to-new-tariffs-white-house-says-idUSKCN1O101U [12/1/18]
by Lynn Berry | Nov 28, 2018 | Charitable Gifting, Financial Planning, General, Tax, Wealth Management
Here are some things you might want to do before saying goodbye to 2018.
Provided by Lynn K. Berry
What has changed for you in 2018? Did you start a new job or leave a job behind? Did you retire? Did you start a family? If notable changes occurred in your personal or professional life, then you will want to review your finances before this year ends and 2019 begins.
Even if your 2018 has been relatively uneventful, the end of the year is still a good time to get cracking and see where you can plan to save some taxes and/or build a little more wealth.
Do you practice tax-loss harvesting? That is the art of taking capital losses (selling securities worth less than what you first paid for them) to offset your short-term capital gains. If you fall into one of the upper tax brackets, you might want to consider this move, which directly lowers your taxable income. It should be made with the guidance of a financial professional you trust.1
In fact, you could even take it a step further. Consider that up to $3,000 of capital losses in excess of capital gains can be deducted from ordinary income, and any remaining capital losses above that can be carried forward to offset capital gains in upcoming years. When you live in a high-tax state, this is one way to defer tax.1
Do you want to itemize deductions? You may just want to take the standard deduction for 2018, which has ballooned to $12,000 for single filers and $24,000 for joint filers because of the Tax Cuts & Jobs Act. If you do think it might be better for you to itemize, now would be a good time to get the receipts and assorted paperwork together. While many miscellaneous deductions have disappeared, some key deductions are still around: the state and local tax (SALT) deduction, now capped at $10,000; the mortgage interest deduction; the deduction for charitable contributions, which now has a higher limit of 60% of adjusted gross income; and the medical expense deduction.2,3
Could you ramp up 401(k) or 403(b) contributions? Contribution to these retirement plans lower your yearly gross income. If you lower your gross income enough, you might be able to qualify for other tax credits or breaks available to those under certain income limits. Note that contributions to Roth 401(k)s and Roth 403(b)s are made with after-tax rather than pre-tax dollars, so contributions to those accounts are not deductible and will not lower your taxable income for the year. They will, however, help to strengthen your retirement savings.4
Are you thinking of gifting? How about donating to a qualified charity or non-profit organization before 2018 ends? In most cases, these gifts are partly tax deductible. You must itemize deductions using Schedule A to claim a deduction for a charitable gift.5
If you donate publicly traded shares you have owned for at least a year, you can take a charitable deduction for their fair market value and forgo the capital gains tax hit that would result from their sale. If you pour some money into a 529 college savings plan on behalf of a child in 2018, you may be able to claim a full or partial state income tax deduction (depending on the state).2,6
Of course, you can also reduce the value of your taxable estate with a gift or two. The federal gift tax exclusion is $15,000 for 2018. So, as an individual, you can gift up to $15,000 to as many people as you wish this year. A married couple can gift up to $30,000 in 2018 to as many people as they desire.7
While we’re on the topic of estate planning, why not take a moment to review the beneficiary designations for your IRA, your life insurance policy, and workplace retirement plan? If you haven’t reviewed them for a decade or more (which is all too common), double-check to see that these assets will go where you want them to go, should you pass away. Lastly, look at your will to see that it remains valid and up-to-date.
Should you convert all or part of a traditional IRA into a Roth IRA? You will be withdrawing money from that traditional IRA someday, and those withdrawals will equal taxable income. Withdrawals from a Roth IRA you own are not taxed during your lifetime, assuming you follow the rules. Translation: tax savings tomorrow. Before you go Roth, you do need to make sure you have the money to pay taxes on the conversion amount. A Roth IRA conversion can no longer be recharacterized (reversed).8
Can you take advantage of the American Opportunity Tax Credit? The AOTC allows individuals whose modified adjusted gross income is $80,000 or less (and joint filers with MAGI of $160,000 or less) a chance to claim a credit of up to $2,500 for qualified college expenses. Phase-outs kick in above those MAGI levels.9
See that you have withheld the right amount. The Tax Cuts & Jobs Act lowered federal income tax rates and altered withholding tables. If you discover that you have withheld too little on your W-4 form so far in 2018, you may need to adjust your withholding before the year ends. The Government Accountability Office projects that 21% of taxpayers are withholding less than they should in 2018. Even an end-of-year adjustment has the potential to save you some tax.10
What can you do before ringing in the New Year? Talk with a financial or tax professional now rather than in February or March. Little year-end moves might help you improve your short-term and long-term financial situation.
We may be reached at 920-969-0717 or admin@kfgwi.com.
www.KFGWI.com
This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
| Securities and Advisory Services Offered Through Harbour Investments, Inc. FoxRiver Tax Centers is privately held and is not affiliated with Harbour Investments, Inc. |
Citations.
1 – nerdwallet.com/blog/investing/just-how-valuable-is-daily-tax-loss-harvesting/ [4/16/18]
2 – marketwatch.com/story/how-to-game-the-new-standard-deduction-and-3-other-ways-to-cut-your-2018-tax-bill-2018-10-15 [10/15/18]
3 – hrblock.com/tax-center/irs/tax-reform/3-changes-itemized-deductions-tax-reform-bill/ [10/10/18]
4 – investopedia.com/articles/retirement/06/addroths.asp [2/2/18]
5 – investopedia.com/articles/personal-finance/041315/tips-charitable-contributions-limits-and-taxes.asp [10/1/18]
6 – savingforcollege.com/article/how-much-is-your-state-s-529-plan-tax-deduction-really-worth [9/27/18]
7 – fool.com/retirement/2018/06/28/5-things-you-might-not-know-about-the-estate-tax.aspx [6/28/18]
8 – marketwatch.com/story/how-the-new-tax-law-creates-a-perfect-storm-for-roth-ira-conversions-2018-03-26 [9/15/18]
9 – fool.com/investing/2018/03/17/your-2018-guide-to-college-tuition-tax-breaks.aspx [3/17/18]
10 – money.usnews.com/money/personal-finance/taxes/articles/2018-10-16/should-you-adjust-your-income-tax-withholding [10/16/18]
