Second Quarter 2018 Review

Second Quarter 2018 Review

Market Overview

The quarter was marked by a continued rally in the U.S. Dollar sparked by strong U.S. growth and economic data, much to the detriment of emerging market stocks and commodities (with oil being the only exception).  The quarter was roiled by tariff posturing, most notably between the United States and China.  Although President Trump softened his trade stance in recent days, the projected tariffs are still due to take effect as soon as July 6th.  Needless to say there is still a fair amount of angst and a high level of uncertainty associated with the lack of resolution, even at this late date.

Equity Markets

Volatility in our equity markets was in effect throughout the second quarter.  By way of example, the Dow Jones Industrial Average rallied 8 straight days in May but also declined in June another 8 straight days. U.S. equities still managed positive performance during the quarter with the Dow Jones squeezing out a 1.26% gain and the broader S&P 500 Index returning 3.43%.  Leading sectors were U.S. small cap companies and large cap technologies.  For example, the Russell 2000 advanced by 7.75%.  These smaller companies had the advantage of receiving more of their revenue from within the U.S. compared with larger companies that are often multinational whose revenue from overseas was negatively affected by the stronger dollar.  As stated, tech stocks also continued to perform well as the NASDAQ composite advanced by 6.61%.  International developed markets declined modestly by 1.24%.  Emerging market equites were the worst performing equity sector, declining by 7.96%.

Bond and Credit Markets

On June 13th the Federal Reserve raised its benchmark Federal Funds Rate 25 basis points to the range of 1.75% to 2.00%, marking the seventh time since the financial crisis that it has raised its key rate.  A more hawkish Federal Reserve also reiterated its targeted forecast of two more rate hikes for later this year. The Fed additionally noted that inflation has finally reached its 2% targeted level.  The 10-year U.S. Treasury ended the quarter with a yield of 2.84%.  Despite these changes, the yield curve remains very flat on the long end with the 30 year treasury just below 3%.  Accordingly, municipal bonds rallied returning .87% for the quarter.  Finally, The Fed removed a key statement that existed from previous statements, in that it no longer sees a need to keep rates low for an extended period of time.

Oil, Gold and the U.S. Dollar

Oil rallied during the quarter and closed up 15% at $74.15 per barrel which is more than 61% higher than just twelve months ago. Oil began the year at $60.42 per barrel. Gold closed the quarter at $1,251 per ounce, 6% lower than $1,323, its closing price on March 31st 2018.  Gold began the year at $1,306.00.  The WSJ Dollar Index, which measures the currency against a basket of 16 others, rose 5.1% in the second quarter for its first quarterly gain since 2016.

Moving Forward

S&P consensus earnings forecasts are still trending higher for the 3rd and 4th quarters of 2018 and into 2019.  Increased corporate earnings are what ultimately drive stock prices higher, despite the political rhetoric, which often wins the news feeds. That being said, we are continuing to favor U.S. equities over International holdings.  However, the lack of resolution regarding U.S. trade policy is a cloud hanging over the entire market.  The U.S. is showing no signs for imminent recession but, given this trade uncertainty, there will undoubtedly be volatility ahead.  Taking a disciplined approach can be best in this uncertain environment with no big bets being placed either way.  History has shown that the markets quickly adapt to any new policy that could affect earnings.  We continue to monitor any policy changes on your behalf and will advise accordingly.

Respectfully submitted,
CRA Financial, L.L.C.

NJ Governor signs SALT deduction workaround into Law

New Jersey Governor Phil Murphy signed into law May 4th, 2018 the State and Local Tax Deduction bill that would allow New Jersey municipalities to create charitable funds through which NJ taxpayers can donate in exchange for a tax credit of up to 90% of their donation to reduce their property tax bill.  Generally, the charitable deduction would then be fully deductible on the federal income tax return.  The legislation will go into effect in July 2018.
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First Quarter 2018 Review

First Quarter 2018 Review

Market Overview

The overwhelming story of the 1st quarter of 2018 was the return of volatility to our financial markets. In the past quarter, investors saw the S&P 500 experience 6 trading days of plus or minus 2% moves; something that did not occur during a single trading day in 2017. The stock market in 2018 is proving to be more sensitive to political posturing, threats of a trade war, rising interest rates, and inflationary fears. This volatility, however, is far from abnormal with a 12% decline at some point during each year being the average. Lack of volatility during 2017 spoiled investors.

CRA Financial First Quarter 2018 Review

Equity Markets

The quarter started out similar to last year, with the S&P 500 advancing 5.62% in January. In contrast, February and March proved to be a bumpy ride with the stock market retreating 3.89% and 2.69% respectively. The U.S. stock market saw a 1.22% decline compared with a 2.38% decline in developed international equities where the potential risk of a trade war is causing economic uncertainty in a similar fashion. International emerging market equities continued to be a bright spot for investment illustrating a 0.91% return for the first quarter due to improving economic conditions and earnings growth.

International Trade and the Markets

With the announcement of steel and aluminum tariffs and the more recent tariffs of up to $60 billion on Chinese imports, there is the potential for an increased risk of a trade war. A trade war would mean that tariffs are raised steeply and broadly across a range of products and potentially across multiple countries. A trade war among major countries hasn’t occurred in over 90 years but the results have been very bad for economies in the past. Most research and analysis indicates that the current situation would not be expected to deteriorate to this level; however, renegotiating existing trade agreements will have an effect on different businesses/sectors of the economy. Trade announcements from the current administration will likely continue to create volatility in the financial markets, most likely in the short-term.

Tech Stock Challenges

The very large and news grabbing FANG stocks (Facebook, Amazon, Netflix, Google) experienced challenges during the past quarter. Facebook, Twitter, and Alphabet (Google) in particular have recently found themselves in regulators’ sights due to concerns that privacy laws may have been violated. This could lead to more regulatory oversight causing an increase in operating costs. While the recent volatility in these stocks correlates somewhat to the rest of the NASDAQ, the NASDAQ as a whole actually still posted a positive gain for the quarter of 2.32%. The 7.36% gain of the NASDAQ in January perhaps was the market overbuying these stocks as they were 2017 winners.

Bond and Credit Markets

In March the Federal Reserve raised its benchmark 25 basis points to the range of 1.5% to 1.75%, marking the sixth time since the financial crisis that it has raised rates. The Fed also reiterated its forecast of three hikes for this year, meaning it expects two more for 2018. Given this backdrop of steadily increasing rates, fixed income markets were challenged during the first quarter. Both U.S. fixed income and global high yield were down 1.5% and 0.4% respectively. Municipal bonds also saw a 1.1% decline. In light of higher volatility, cash outperformed most other assets classes, returning a meager 0.3%.

The 10-year U.S. Treasury ended the quarter with a yield of 2.74%. The yield curve remains relatively flat.

Perspective for the rest of 2018

Looking to the rest of 2018, it is expected that market volatility will remain as it is the norm for stock markets. With that being said, analysts expect corporate earnings to continue to grow through the rest of 2018. Traditional stock market fundamentals remain supportive of an ongoing bull market and, in fact, the Index of Leading Economic Indicators rose again in March, continuing its robust upward trend. While sticking with an investment in stocks is more difficult when they aren’t moving straight up, the long- term return that these investments provide is often needed for investors to reach their financial goals. At CRA, we will continue to monitor our markets and portfolios carefully and thank you for your continued relationship with our firm.

Respectfully submitted,
CRA Financial, L.L.C.

2017 – The Year in Review

2017 – The Year in Review

2017 Year in Review Early Predictions

Heading into 2017, many analysts were predicting a modest year for investors. Fresh off the end of 2016 where stocks rallied strong in the fourth quarter to finish up almost 12% (S&P 500) for the year, both Credit Suisse and Goldman Sachs were predicting an S&P 500 return for 2018 of less than 3%. Further, many analysts were also predicting a rough ride for the bond market, where it was widely believed that rising interest rates would cause most bond returns to be flat or negative for the year. The S&P 500 posted a total return of 21.31% for 2018, its best year since 2013. And, although the Fed (FOMC committee) raised short-term interest rates three times in 2017, the long end of the interest rate yield curve (as indicated by the 10 Year US Treasury Rate) actually declined slightly during 2018, starting the year at 2.45% and finishing 2018 at 2.40%. The US Bloomberg Barclays Aggregate Bond Index finished 2017 with a respectable 3.54% return. If the last two years have taught us anything, it is that forecasting elections or market returns is a fool’s errand.
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Forth Quarter 2017 Overview

Forth Quarter 2017 Overview

Market Overview

Amidst a backdrop of unusually low volatility, United States and a broad swath of world equity markets rose sharply during 2017, based upon the expansion of 45 separate global
economies. The US broad market advanced 20.52% for the year, 6.2% coming during the final quarter. Developed international and emerging international markets climbed 25% and 37% respectively during 2017, while posting end of quarter gains of 4.23% and 7.44% respectively.
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Explaining “Backdoor Roth IRAs”


Learn how higher income earners can contribute to a Roth IRA

ROTH IRAS ARE A POWERFUL WAY TO SAVE FOR RETIREMENT

Contributions into a Roth IRA are not tax deductible. However, the earnings in the account accumulate tax deferred, and can be distributed completely tax free after age 59½, provided 5 years have elapsed since the tax year of your first Roth contribution. Many investors who might otherwise contribute to a Roth IRA find themselves constrained by the IRS income limits which restrict their ability to contribute to a Roth IRA based on their adjusted gross income (AGI).
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Third Quarter 2017 Overview

Third Quarter 2017 Overview

Market Overview

Global markets continued their broad advance during the third quarter 2017. Thus far 2017 has been a year where all major asset classes have advanced with international equities leading the field. Could we now be at an inflection point?
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CRA Financial Hosts Annual Client BBQ

On July 13, CRA Financial hosted a barbecue at the Atlantic City Aquarium, catered by Nobil Foods. Starting with a tour of the aquarium, a delicious barbecue and cocktails followed outside overlooking Clam Creek, with a performance by Strawberry Jam Band. Clients of all ages enjoyed the summer night of fun.

CRA Financial, LLC is a comprehensive wealth management firm whose primary objective is to assist clients in accumulating and preserving wealth. They are committed to providing value-added, wealth- enhancing services in a cost-effective manner that remains consistent with their philosophy of putting their clients’ best interest first. These services encompass six comprehensive areas of financial planning: investment, tax, insurance, retirement, education, and estate planning.

This article was originally published in the Summer Edition of NJ Lifestyle. Photos by Eric Weeks.

Mid-year Market Overview: Will the rally continue?

Mid-year Market Overview: Will the rally continue?

rallyRALLY: The markets are off to a great start so far in 2017. The S&P 500 closed the second quarter with a strong year-to-date gain of 9.34% (Total return including dividends). Investors saw a market that remained resilient in the face of uncertainty and volatility was kept at bay. Corporate earnings remained strong, global economies have been improving, and major central banks across the world have continued support. Markets shrugged off repeated global terrorist attacks and a seemingly stalled presidency as a gridlocked Congress wrangled with the questions of the government’s appropriate role in the U.S. health care system.
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HSA Benefits: Health Savings Account = A great retirement tool

HSA Benefits: Health Savings Account = A great retirement tool

Health Savings Account = A great retirement toolA Health savings Account (HSA) is a tax-advantaged savings account for individuals and families enrolled in a high-deductible health plan. Contributions to an HSA are tax deductible and can be made via payroll deductions, as well as from outside contributions. Withdrawals used to cover qualified medical expenses are not subject to federal taxes. These plans are designed to provide a tax break for the out-of-pocket medical costs associated with a higher deductible health plan, however they also can be used as a great vehicle to save for retirement.
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