Concerns over a global economic slowdown depicted in recent economic data moved Central Banks to telegraph future easing of monetary policy. As a result, interest rates continued their decline throughout the 2nd quarter. The lower rates have translated to positive results for the U.S. stock and bond markets. In addition, President Trump and Chinese President Xi’s much anticipated and widely expected but somewhat orchestrated meeting at the G20 resulted in a trade truce. However, without a long-term deal in place, trade policy and posturing will undoubtedly continue to cause market volatility.
U.S. Stock Market
Lower interest rates and an easing monetary policy is supportive of higher equity prices. Accordingly, we currently have the S&P 500 near its all-time high. Despite the selloff in May, the bulls roared back in June and large cap stocks produced a 4.3% gain for the quarter. The S&P 500 has seen a total return of 18.54% year to date, marking its largest first half gain since 1997. Nasdaq Composite Index returned 7.51% but was out paced by the S&P Midcap 400 which returned 7.64%. The US Broad market index returned just shy of 7%.
International Stock Markets
Developed international stocks also fared well for the quarter, returning 4%. Emerging markets lagged but were at least positive producing a .7% return for investors. If you find this market commentary informative email Kelli@crafinancial.com and put IREAD in the subject line prior to August 1. We will send you a $50 gift card as your reward.
The ten year treasury ended the quarter at a yield of 2.0%, a full 85 basis points lower than just one year ago! The US Aggregate bond returned 3.08% during the quarter. The municipal bond market also performed well and was enhanced by supply constraints returning 2.14%. For the six month period the muni index has returned 5.09%. The 30 Year treasury yields just 2.52%.
For now the on again-off again trade war is currently on hold. That is good for global equities. According to Barron’s WSJ magazine, when stocks have an above average first half like we just witnessed, the market is about 60% more likely to rise in the second half than it is in the second half of other years. We are also in the 3rd year of a Presidential cycle which is often good for the stock market (the best of the 4). One thing we do know by now is that the current White House incumbent measures his presidency by the stock market’s results. Therefore, it is not unreasonable that policy will work in favor to achieve this objective, at least prior to November 2020. Today’s jobs report numbers which exceeded expectations, sends us back to a place where good economic news translates into bad news for the bond and equity markets. Regardless, we will stay in tune with the data and adjust if need be.
As always please contact us if we can help you in any way. Enjoy your summer and we are looking forward to visiting with you at our Summer Party- August 28th 2019!
If you’ve been living in the Garden State for any length of time, you don’t need to read a magazine to know that you’re being taxed at every turn. Property taxes, state income taxes, even sales taxes are higher than in most other states. Luckily, the state of New Jersey does have some rather unique tax laws in place designed to help retirees. Like many tax laws, this relief comes with some complicated rules that could cost you thousands if you’re not planning carefully.
In the first quarter, the bull market celebrated its 10 year anniversary since bottoming out on March 6, 2009. Ten years later, the S&P 500 sits above 2,800, a rise of 2,133 points from the 667 crater seen during the financial crisis. While the 4th quarter of 2018 was tumultuous, it now appears that it may have been a good buying opportunity as stocks shrugged off slower growth concerns to come within around 3% of their all-time high. Bond investors were also rewarded in Q1 with a decline in interest rates boosting their prices. With both stocks and bonds performing well, investors that had the discipline to ride out the 4th quarter storm were rewarded handsomely for accepting portfolio risk.
Markets in 2018 turned out to be a roller coaster ride of ups and downs, but ultimately finished on a very sour note after a horrible 4th quarter. We began 2018 with optimism, having just come off a tremendous year in 2017 which saw 20%+ equity returns. Many investors were hoping the Tax Cut & Jobs Act of 2017 would continue the stock market rally for another year. January of 2018 appeared to do just that as the S&P 500 gained almost 6% for the month. The rise was short lived, however, and the market declined just under 12% over the next two months before bottoming near the end of March. From there, the stock market was either flat or up for the next six months and the S&P 500 ended September 30 with a year to date gain of 10%.
In the 4th quarter a second correction for 2018 was experienced as stock market investor concerns grew over whether the U.S. economy reached its peak earnings growth potential. Additionally, continued trade negotiations and uncertainty regarding the Federal Reserve’s monetary policy led to a tumultuous end to 2018. While investors saw some relief in the last few trading sessions of the year, Christmas Eve’s sharp decline put the S&P 500 within a few points of what would be considered a bear market (that is a 20% decline in the S&P 500 from its peak).
Don’t miss the opportunity to save on your taxes
This time of the year, many people start thinking about year end tax planning. An often-integral part of tax planning involves the potential for tax-loss harvesting in your taxable portfolio. What we are going to discuss below can only be done in taxable accounts (i.e. individual, joint, UTMA’s, Trusts) and does not apply to IRA or other tax deferred accounts.
We continue to see back and forth trade posturing between the United States and foreign trading partners and expect this to continue throughout the remainder of 2018. With that being said, the U.S. and Canada reached a deal after a lengthy negotiation. The new “United States-Mexico-Canada Agreement” (USMCA) is a reworking of NAFTA and hopes to bring more jobs into the U.S. Despite this trade uncertainty in quarter 3, the American economy advanced. In the 3rd quarter of 2018, U.S. stocks once again performed well seeing momentum from U.S. growth and strong earnings reports. The trade concerns and other political uncertainty has continued to put pressure on international markets. Emerging market stocks slid slightly while Europe continues to struggle as the United Kingdom’s negotiations to “Brexit” from the European Union leads to continued uncertainty for the region. Fixed income markets remain a challenging place to invest as interest rates continue to rise.
Expertly Riding the Waves of Volatility
We have prepared this piece to reiterate what we should all know, understand, and believe if we are going to own stocks in our portfolios. We look forward to continuing to educate you to help you stay well-informed and continue to watch our financial markets closely.
Why do we invest in stocks?
Quite simply, the reason we invest in stocks is because over the last 100 years they have illustrated again and again that if you invest for the long-term that you will, on average, receive about a 10% annual average return. This 10% return is about 40-50% higher than the return from bonds and about 50-60% higher than the returns from cash over that same 100 year period. Arguably, the excess returns over bonds and cash will be higher in the low interest rate environment we have become accustomed to for some time now.
Easing the burden of paying for education
The Tax Cuts and Jobs Act of 2017 will expand the use of 529 Plans to allow savers to accumulate money and pay for education on a tax-free basis. Before we discuss the changes let’s review the basics. A 529 Savings Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. You are not required to use the 529 in your domicile state and your plan, regardless of which state is the sponsor, can be used for any college in any state. Contributions to a 529 Plan are invested and grow tax deferred. If the funds are ultimately used for education, distributions come out federally tax-free. Contributions to the plan qualify for the $15,000 annual gift tax exclusion. The Plan has to have a named donor and a designated beneficiary. The donor of a Plan retains control indefinitely and only the donor can request withdrawals and can close the account at any time. However, if the funds are used for anything other than education, the earnings portion of the account is subject to income tax plus a 10% penalty. Most plans allow for lifetime contributions of $300,000 or more.
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.