3rd Quarter 2019 Review

3rd Quarter 2019 Review

Overview

With political news dominating the headlines, the U.K. set to “Brexit” in October, and tensions rising in Iran, there appears to be no shortage of external risks for investors both domestic and abroad. Nonetheless, low interest rates, unemployment, and strong corporate earnings indicate that the U.S. is still performing well economically, as the bull market marches toward an 11th year of expansion.

U.S. Stock Market

Despite the risks highlighted above, the stock market, as measured by the S&P 500, still remains positive by approximately 20% year to date. More specifically, stock performance for the 3rd quarter was somewhat muted, albeit slightly positive for U.S. market. Domestic stocks rose around 2% for both the S&P 500 and Dow Jones Industrial Average. Smaller stocks, as seen through the Russell 2000 Index, retreated (2.4%) during the period. The healthcare segment remains the biggest lagging sector of the year although these stocks still have posted a year to date gain of almost 5%. This sector will likely continue to see volatility as healthcare remains a focal point for politicians who may legislate price limits ultimately affecting corporate profits.

International Stock Markets

International stocks squeaked out similar gains for the quarter with developed market stocks advancing 2.9% as seen in the EAFE index. Emerging markets posted a similar 1.9% return for the quarter. Despite these gains, numerous conflicts remain globally that can provide for some added risk for investment. Manufacturing has contracted further as seen through data for the Eurozone and Japan. This suggests a further slowdown for these regions. Boris Johnson of the UK is continuing to offer proposals to the rest of the EU to reach an agreement. The UK is set to “Brexit” from the rest of the EU with or without a deal in place on October 31st.

Fixed Income & the Fed

As expected, the Federal Reserve lowered its key Federal Funds Rate by a quarter of 1 percentage point on September 18th to a range of 1.75 to 2 percent. This was their second cut since late July. Commentary from Fed Chair Jerome Powell suggests that there could be additional cuts forthcoming in order to support a weakening economy.

The 10-year Treasury yield fell over 60 basis points from July into August before rising slightly in September. Accordingly, this drop in interest rates led to a 2.3% return for the quarter in the Aggregate Bond Index. An important event worth noting for the quarter was the inversion of the 2 and 10 year treasury yield curve. This inversion is a popular indicator of an upcoming recession, however, as discussed in a previous commentary, an average return of 21% up to a market cycle’s peak has occurred prior to the last 5 recessions after the yield curve inverts. Additionally, this market cycle and bond market is very different then the past given the distortion of the bond market caused by The Fed’s Quantitative Easing Program.

Gold and Oil Prices

Gold prices continued to rally in the 3rd quarter gaining about 8.4% and closing the month of September with a price of $1,472 an ounce. This represents an almost 16% increase for 2019.

The year to date price for Brent crude oil has increased about 13% through September. Prices were particularly volatile in the 3rd quarter, with a bottom price of just $55 a barrel in the beginning of August to a peak of over $68 a barrel by the middle of September, before leveling out to about $60 by the quarter’s end. The September spike was the result of an attack on a Saudi oil facility on September 14th.

4th Quarter Perspective

Investors may be wondering if the end of 2019 will bring about another sharp downturn as seen in the later months of 2018. Past market data, however, indicates that the end of the year is often accompanied with rising stock market prices. In fact, the 4th quarter typically posts the strongest returns for the year. The 4th quarter has generated average gains, as measured by the S&P 500 from 1980-2018, of 4.1%. This compares favorably to average gains of 2.6%, 2.7%, and 0.3% for the quarters of the year, respectively. While risk of decline is always possible with stock investing, predicting that stocks will decline in the 4th quarter for 2019, based on just last year’s performance, appears illogical. Additionally, keep in mind that the cause of the market decline at the end of last year was the sudden rise in interest rates. Given the recent fall in interest rates, an about-face appears unlikely. We will continue to monitor the markets carefully and look forward to assisting and advising you through the rest of 2019 and beyond.

Respectfully Submitted

CRA Investment Committee

Matt Reynolds CPA, CFP®
Tom Reynolds, CPA
Francis C. Thomas CPA, PFS
Robert T. Martin, CFA, CFP®
Jeff Hilliard, CFP®, CRPC®
Gordon Shearer Jr., CFP®

Important Disclosure Information

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by CRA Financial, L.L.C. (“CRA”), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CRA. Please remember to contact CRA, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. CRA is neither a law Firm, nor a certified public accounting Firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the CRA’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.

Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CRA account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CRA accounts; and, (3) a description of each comparative benchmark/index is available upon request.

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2nd Quarter 2019 Review

2nd Quarter 2019 Review

Overview

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.

Fixed Income

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%.

Final Thoughts

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!

CRA FINANCIAL

Retiring in New Jersey? You might be eligible for some tax relief.

Retiring in New Jersey? You might be eligible for some tax relief.

retirementIf 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.
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First Quarter 2019 Review

First Quarter 2019 Review

Overview

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.
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2018: Year in Review

2018: Year in Review

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%.
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Fourth Quarter 2018 Review

Fourth Quarter 2018 Review

Overview

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).
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Tax-Loss Harvesting

Tax-Loss Harvesting

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.
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Third Quarter 2018 Review

Third Quarter 2018 Review

Market Overview

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.
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Contract with the Stock Market

Contract with the Stock Market

Expertly Riding the Waves of VolatilityStock market prices

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. 
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New Rules for 529 Plans

New Rules for 529 Plans

529 plansEasing 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.
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