Category Archives: Individual and Medicare

March 2014 Economic Report

MONTHLY ECONOMIC UPDATE

 

 

MONTHLY QUOTE

 

“We must believe that we are gifted for something, and that this thing, at whatever cost, must be attained.”

– Marie Curie

MONTHLY TIP

 

Are your financial needs and priorities the same as they were five years ago? Time may have subtly changed them. Every few years, you should review your financial strategy to see if it needs altering in light of new needs and goals.

MONTHLY RIDDLE

 

It is born in the air and it hears and speaks even though it has no ears, mouth or body. What is it?

 

 

Last month’s riddle:
What possesses a foot, yet no legs?

 

Last month’s answer:

A snail.

 

March 2014

THE MONTH IN BRIEF
Wall Street staged an impressive comeback in February – emerging market currency troubles, middling economic indicators and unrest brewing on multiple continents couldn’t stop the bulls from running. The Dow gained 3.97% for the month and the S&P 500, Nasdaq and Russell 2000 all gained more than 4%. Important commodities and most foreign stock exchanges also rallied. While existing home sales slipped, new home sales jumped. New Federal Reserve chair Janet Yellen soothed the markets with reassuring remarks on Capitol Hill.1

 

DOMESTIC ECONOMIC HEALTH
Why were so many economic indicators so feeble? Maybe it was the weather. Janet Yellen thought so – on February 27, she told Congress that the miserable winter much of the U.S. was enduring was likely distorting economic reports for the worse. The unemployment rate fell to 6.6% in January, but hiring fell off as well with the economy generating 113,000 new jobs (payrolls had grown by an average of 182,000 positions a month during 2013). The federal government also revised its estimate of Q4 GDP down to 2.4%.2,3

 

Consumer spending represented a bright spot – personal spending was up 0.4% for January and personal incomes rose 0.3%, even as overall retail sales declined 0.4%. Still, the Commerce Department revised December’s consumer spending gain down to 0.1% and the Q4 gain down to 2.4%.4,5

 

Consumer prices moved north just 0.1% in January while producer prices rose 0.2%; the gains in the core CPI and PPI matched the respective headline numbers.6

 

As for consumer sentiment … the Conference Board and University of Michigan indices told slightly different stories. Last month’s final University of Michigan index came in at 81.6, a minor improvement from the final January mark of 81.2. The Conference Board’s consumer confidence index (which arguably carries greater weight) slipped 1.3 points to 78.1 for February. The CB’s leading economic indicator index was up 0.3% in January.6,7

 

American industrial output had fallen 0.3% in January; economists polled by Briefing.com had expected a gain of that magnitude. Durable goods orders fell 1.0% in the first month of 2014, though they advanced 1.1% in January minus transportation orders.5,7

 

The much-watched purchasing manager indices maintained by the Institute for Supply Management showed factory and service sector growth holding up even with the severe cold. ISM’s manufacturing PMI improved from 51.3 in January to 53.2 in February. Weeks earlier, its service sector PMI had shown a 1% gain for January to 54.0.8,9

 

GLOBAL ECONOMIC HEALTH
As February came to a close, the threat of combat in Ukraine hadn’t unsettled the markets to the degree it would in early March. The currency problems and capital flight plaguing the “Fragile Five” – as Morgan Stanley christened the economies of South Africa, Turkey, Brazil, India and Indonesia – moderated in February, with the average implied volatility of their currencies hitting 3-month lows weeks after touching 4-month highs.10

 

China’s official factory PMI read just 50.2 in February, an 8-month low. The preliminary HSBC/Markit PMI for China came in at 48.3 for January, signaling contraction of its manufacturing sector. China’s official service sector PMI, however, was at 55.0 last month (a 3-month high). India’s HSBC/Markit PMI was at 52.5 in February (its best reading in a year); South Korea’s fell to 49.8 (the first reading below 50 since October).11,12

 

In the euro area, consumer inflation was still very low in February (0.8%) while the jobless rate was still high at 12.0%. Markit’s PMI for the eurozone manufacturing sector showed slower growth at 53.2 in February, down from 54.0 a month earlier – yet Markit manufacturing PMIs improved in Germany, Spain, Italy and France.13,14

WORLD MARKETS
As U.S. benchmarks reversed course and turned north in February, so did many others. Take the MSCI Emerging Market Index, up 3.19% last month; the MSCI World Index topped that gain with a 4.81% February climb. The Global Dow gained 3.95%, the Asia Dow 3.33% and the Europe Dow a tremendous 7.28%; the STOXX Europe 600 was up 4.81% for the month.1,15

 

While Canada’s TSX Composite advanced 3.76% in February, the same couldn’t be said of Mexico’s IPC All-Share (-5.13%), Brazil’s Bovespa (-1.14%) or Argentina’s MERVAL (-3.89%). In the Asia Pacific region, Australia’s S&P/ASX 200 gained 4.14% in February; the Nikkei 225 dipped 0.49%.  Both the Shanghai Composite (1.14%) and the Hang Seng (3.64%) posted February gains. India’s Sensex rose 2.96%, Indonesia’s Jakarta Composite 4.96%; Pakistan’s KSE 100 lost 3.74%. In Europe, the FTSE 100 improved 4.60% in February; the CAC 40 was up 5.82%, the DAX 4.14%. Ireland’s ISEQ advanced 11.69%, and Russia’s RTS fell 2.59%.1i COmposite : the TSX Composite (-2.30%), the  gan’

 

COMMODITIES MARKETS

Coffee was hot in February – to put it mildly. Coffee futures jumped 42.57% for the month, the biggest gain by far among many in key crops. Soybeans rose 10.07% in February, corn 5.30%, wheat 7.67%, cotton 0.65%, cocoa 1.63% and sugar 5.92%.16

 

COMEX gold ended February at $1,321.60 per ounce following a 6.59% ascent for the month. Silver beat that, rising 10.78%. Copper rose just 0.59%; platinum futures advanced 5.20%. The U.S. Dollar Index slipped 1.99% for February, ending the month at 79.69.16,17

 

Naturally, oil futures rose with emerging market concerns. NYMEX crude wrapped up February at $102.59. Its 5.49% monthly gain paled to that of the 13.58% rise made by unleaded gasoline futures. Natural gas was up 5.87% for February, while heating oil futures descended 6.23%.16

 

REAL ESTATE
According to the National Association of Realtors, January saw a 5.1% plunge in residential resales, with sales of single-family homes down 5.8%. Existing home sales were also down 5.1% across the past year.7,18

 

NAR also had pending home sales up just 0.1% in January; across the past 12 months, they had declined 9.0%. The Census Bureau delivered better news regarding new home purchases: a 9.6% January gain. December’s edition of the S&P/Case-Shiller Home Price Index showed a 13.4% annualized rise in house prices across 20 cities, slightly lower than the 13.7% yearly gain reported in the November edition.7

 

January’s harsh weather meant no increases in groundbreaking: housing starts were down 16.0% in the largest monthly retreat seen since February 2011. Building permits declined 5.4%.19

 

While 30-year home loans grew a little more expensive in February, Freddie Mac’s Primary Mortgage Market Survey showed average interest rates for other types of mortgages lower. From the January 30 survey to the February 27 survey, the average interest on a 30-year FRM increased 0.05% to 4.37%. Average rates on a 15-year FRM, however, were 0.01% lower on February 27 at 3.39%. Freddie’s February 27 survey also found average interest rates on 5/1-year ARMs and 1-year ARMs respectively at 3.05% and 2.52%; those averages declined 0.07% and 0.03% from the January 30 PMMS.20

 

LOOKING BACK…LOOKING FORWARD
February’s percentage gains are even more striking when you realize that the first market day of the month saw a 326-point dive for the Dow. The S&P finished February with yet another record close – 1,859.45 – after a 4.31% ascent for the month. The Dow wrapped up February at 16,321.71, rising 3.97% in the second month of the year; the Nasdaq advanced 4.98% to wrap up February at 4,308.12. Last month was great for the small caps as well, with the Russell 2000 improving 4.61% to a February 28 close of 1,183.03. The CBOE VIX slid 23.95% during the month, ending February at 14.00.1,21

 

% CHANGE Y-T-D 1-YR CHG 5-YR AVG 10-YR AVG
DJIA -1.54 +16.13 +26.22 +5.42
NASDAQ +3.15 +36.32 +42.53 +11.22
S&P 500 +0.60 +22.76 +30.59 +6.24
REAL YIELD 2/28 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.49% -0.64% 2.06% 1.61%

 
Sources: online.wsj.com, bigcharts.com, treasury.gov – 2/28/141,22,23

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

 

March started much like February, with a triple-digit loss for the Dow as tensions in Ukraine weighed on investors’ minds. Would this be the “black swan” event so long absent from the stock market? Or would the current bull, now a week from its fifth anniversary, keep stampeding? The biggest possible economic threat stemming from the crisis might be the chance of eurozone economic sanctions against Russia, which in the worst-case outcome leads Russia to reduce energy exports to the euro area and sends the eurozone back into another recession. So far, this feels like a short-term event with an impact that may be muted on Wall Street (oil prices aside). The bull market has managed to saunter through many geopolitical and economic shocks since 2009, and its resilience may take investors through this one without too much negative impact.21

 

UPCOMING ECONOMIC RELEASES: Here is the data stream for the rest of March: February’s ISM services index and ADP employment change report, plus the latest Fed Beige Book (3/5), the February Challenger job-cuts report (3/6), the Labor Department’s February jobs report (3/7), January wholesale inventories (3/11), January business inventories and February retail sales (3/13), the University of Michigan’s initial March consumer sentiment index and February’s PPI (3/14), February industrial output and March’s NAHB housing market index (3/17), February housing starts and building permits, and the February CPI (3/18), a Fed policy announcement (3/19), February existing home sales and the Conference Board’s February leading indicator index (3/20), February new home sales data, the Conference Board’s March consumer confidence index, the January Case-Shiller home price index and the January FHFA housing price index (3/25), February durable goods orders (3/26), February pending home sales figures from NAR and the final estimate of Q4 growth from the federal government (3/27) , and then the University of Michigan’s final March consumer sentiment index and February consumer spending data (3/28).

 

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«RepresentativeDisclosure»

 

This material was prepared by MarketingLibrary.Net 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. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. 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 not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, 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 an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. 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 MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. The Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. 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 Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican 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 MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires Stock Exchange. The S&P/ASX 200 is recognized as the institutional investable benchmark in Australia. The index covers approximately 80% of Australian equity market capitalization. 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 SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. 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 IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX). Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. The FTSE 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The RTS Index (abbreviated: RTSI, Russian: ?????? ???) is a free-float capitalization-weighted index of 50 Russian stocks traded on the Moscow Exchange. The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. 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. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. 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 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [2/28/14]

2 – money.cnn.com/2014/02/28/investing/stocks-markets/ [2/28/14]

3 – ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [3/3/14]

4 – bloomberg.com/news/2014-03-03/consumer-spending-in-u-s-rose-0-4-in-january-incomes-up-0-3-.html [3/3/14]

5 – briefing.com/investor/calendars/economic/ [2/14/14]

6 – marketwatch.com/economy-politics/calendars/economic [2/21/14]

7 – nasdaq.com/article/economic-report-summary-week-ending-22814-cm331513 [2/28/14]

8 – ism.ws/ISMReport/MfgROB.cfm [3/3/14]

9 – ism.ws/ISMReport/NonMfgROB.cfm [3/3/14]

10 – bloomberg.com/news/2014-02-26/traders-reject-lagarde-s-warning-as-volatility-falls-currencies.html [2/26/14]

11 – marketwatch.com/story/china-pmi-drops-to-8-month-low-2014-03-02 [3/2/14]

12 – main.omanobserver.om/?p=61436 [3/3/14]

13 – epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home [3/3/14]

14 – tinyurl.com/l9ogm6q [3/3/14]

15 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [3/1/14]

16 – money.cnn.com/data/commodities/ [3/1/14]

17 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [3/1/14]

18 – 247wallst.com/housing/2014/02/21/january-sales-of-existing-homes-at-18-month-low/ [2/21/14]

19 – reuters.com/article/2014/02/19/us-housing-starts-idUSBREA1I11V20140219 [2/19/14]

20 – freddiemac.com/pmms/archive.html?year=2014 [3/3/14]

21 – money.cnn.com/2014/02/03/investing/stocks-markets/ [2/3/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F28%2F12&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F28%2F12&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F28%2F13&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F27%2F09&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F27%2F09&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F27%2F09&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=2%2F27%2F04&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=2%2F27%2F04&x=0&y=0 [2/28/14]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=2%2F27%2F04&x=0&y=0 [2/28/14]

23 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [3/3/14]

 

 

 

 

 

 

A whie back I wrote about the coming student loan crisis.  Here is an update on that issue…

Student loans now have the highest rate of delinquency of any form of debt – 11.5% is 90 days or more late.  The balance due has grown to $1.08 trillion!

While delinquency rates for mortgages, auto loans, second mortgages and credit cards all began dropping in 2010, student loan delinquencies continue to climb.

According to FICO, The average student loan has grown  $17,233 in 2005,  to $27,253 in 2012–a 58% increase in just seven years.

“There are several reasons for the rising student debt problem. The rising cost of education is certainly one of them, but the relationship between lender and student borrower is particularly troubling.

Students without much of a credit score or credit history are being approved for thousands of dollars in loans by lenders who are betting they’ll be able to pay it back after getting a college degree.” according to Forbes.  click here for the full article.

When they graduate into a high-unemployment economy, IF they can get a job, it is below their skill level and doesn’t pay enough to pay back the loans:  one-third of millennials say they would have been better off working, instead of going to college and paying tuition.

The result?  they delay other life purchases, like new cars and homes (home ownership is 36% lower in those paying back student loans).  And student loans cannot be escaped by bankruptcy – and all of this has a significant imact on the economy.

Some regulators are starting to pay attention. The Consumer Financial Protection Bureau says it’s received over 30,000 complaints and comments about how student loans are affecting consumers. CFPB Director Richard Cordray compared the student loan environment to the “broken mortgage market before the crisis” and said his agency is watching it closely.

“The burden of student debt is jeopardizing the ability of young Americans to buy homes, start small businesses, and save for the future,”  said CFPB Director Richard Cordrayn last month.

 

Retire at 65 – or not?

 

Your assets matter more than your age.

Isn’t 65 the traditional retirement age? Perhaps, but baby boomers are modifying the definition of a traditional retirement (if not redefining it altogether). The Social Security Administration has subtly revised its definition of the traditional retirement age as well.

If you glance at the SSA website, the “full” retirement age for Americans born from 1943-1954 is 66, and it is 67 for those born in 1960 and later. (The “full” retirement age increases gradually from 66 to 67 for those born during the years 1955-1959.)1

When Social Security started, the national retirement age was set at 65. In 1940, a 21-year-old American man had a 54% chance of living another 44 years (according to the federal government’s actuarial estimates). By 1990, that chance had improved to 72%. For 21-year-old women, the probability of reaching age 65 increased from 61% to 84% in that same time frame. Americans also began living longer after 65. Increased longevity led to financial dilemmas for Social Security and the necessary redefinition of “traditional” retirement age.2

What do you lose by retiring at 65? The financial opportunity cost is considerable, and maybe greater than some baby boomers realize. If your full retirement age is 67, you’ll reduce your monthly Social Security income by around 13.3% if you start taking benefits at age 65. Moreover, for every year that you refrain from claiming Social Security until age 70, your Social Security benefits will rise by 8%.1,3

In addition to trimming your long-term retirement benefits, you may also forfeit some salary. If you are still working at age 65, you might be at or near your peak earnings level, and if that is the case, Social Security income may pale in comparison.

Think of life after 65 as your “third act” that needs funding. Do you think of 65 as late middle age? It may be. As the SSA website notes, about 25% of today’s 65-year-olds should live to age 90. About 10% of them should reach age 95. Even if that doesn’t happen for you, you should know that the average 65-year-old today can expect to live into his or her mid-eighties.4

Let those statistics serve as a flashing red light, illuminating two new truths of seniority. The first truth: for many Americans, “retirement” will represent 10, 20 or even 30 years of activity and opportunities. The second truth: to stay active and pursue those opportunities, retirees will need 10, 20 or 30 years of financial stability.

Most Americans haven’t amassed the equivalent 10, 20 or 30 years of retirement savings. Many want to “stay in the game” a little longer: a 2013 Gallup poll found that 37% of Americans expect to retire after age 65, compared with 14% in 1995.5

How many Americans can work full-time until age 65? The bad news is that according to the same Gallup poll, the average retirement age in America is 61. The good news is that it was 57 in 1991. Assuming we keep living longer and healthier, it seems plausible that the average age of retirement might hit 65 – if not for the boomers, then for Gen Xers.5

Regardless of when baby boomers retire, growth investing will continue to have merit. Even moderate inflation erodes purchasing power over time, and its effects can be felt in less than a decade. Who knows: the portfolios held by 65- and 70-year-olds in 2035 might look more like the ones they hold now instead of those held by their parents generations before.

When should you retire? If that question is on your mind to any degree, consider an evaluation of your retirement readiness – a review of what you have, an estimation of what you need and a clear look at the possibilities before you. It should be time well spent.

Reeve Conover may be reached at reeve@reevewillknow.com, or 877-423-9990

This material was prepared by MarketingLibrary.Net 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.

 

Citations.

1 – ssa.gov/retire2/retirechart.htm [2/20/14]

2 – ssa.gov/history/lifeexpect.html tml [2/20/14]

3 – money.usnews.com/money/blogs/on-retirement/2013/10/18/why-65-is-too-young-to-retire [10/18/13]

4 – ssa.gov/planners/lifeexpectancy.htm [2/20/14]

5 – money.usnews.com/money/retirement/articles/2013/06/10/the-ideal-retirement-age [6/10/13]

 

 

Monthly Economic Update

THE MONTH IN BRIEF
Stocks finished 2013 with a flourish. The S&P 500 rose another 2.36% last month to return 29.60% on the year. As Wall Street celebrated, good news came to Main Street as well; the jobless rate fell and many signs of economic improvement emerged. Performance of Asian and European stock indices varied widely. Gold stumbled further and oil rebounded. Mortgages grew more expensive, and the pace of home buying reflected that reality. Midway through the month, the Federal Reserve announced it was tapering its economic stimulus – and investors applauded the move.1

DOMESTIC ECONOMIC HEALTH
In a late-November CNN poll, only 24% of Americans felt that an economic recovery was underway; 39% felt the U.S. was still in a downturn. Perception aside, economic indicators out in December showed an economy clearly on the way back.2

Unemployment? Thanks to 203,000 net new jobs, the jobless rate fell to a 59-month low of 7.0% in November. GDP? A final Q3 estimate of 4.1%, helped by a 2.0% gain in Q3 personal spending. Consumer spending was up 0.5% in November alone.3,4,5

According to the Institute for Supply Management, the service and manufacturing sectors expanded again in November – its factory PMI was at 57.3, its service sector PMI at 53.9. The service sector expanded for the 47th consecutive month. A Federal Reserve report showed industrial production up 1.1% in November and matching a pre-recession peak.4,6

The federal government’s Consumer Price Index was flat for November, with annualized inflation at just 1.2%. Gasoline prices dropped 1.6% in November while retail sales jumped 0.7%.7

Durable goods orders were up 3.5% in November, rebounding from the 0.7% decline in October. Wholesale prices retreated for a third straight month in November – the headline Producer Price Index showed a 0.1% retreat, with the PPI rising just 0.7% in 12 months.5,8

How were households feeling? The Conference Board’s December consumer confidence index rose 6.1 points to 78.1; the University of Michigan’s final December consumer sentiment index came in at 82.5.5

The Federal Reserve’s December 18 decision to taper QE3 caught some investors by surprise – wasn’t the central bank going to wait until 2014? Wall Street didn’t panic; in fact, it was pleased. The Dow climbed 292 points on the day of the announcement. The Fed is now purchasing $75 billion of bonds monthly, as opposed to the $85 billion per month it bought in 2013.9

Enrollment finally surged at the Health Insurance Marketplace. The White House stated that by Christmas Eve, about 2 million people nationwide had signed up for health coverage, 1.1 million of them via the HealthCare.gov site serving 36 states. That still fell short of the Obama administration’s year-end goal of 3 million.10

GLOBAL ECONOMIC HEALTH
As December ended, available data showed that the eurozone economy was growing, albeit weakly. Euro area GDP was but 0.1% in Q3, down from 0.3% in Q2. (For the record, euro area GDP has never exceeded 1.3% since Eurostat first measured it in 1995 and hit a nadir of -2.5% in 2009.) Euro area unemployment was running at 12.1% after the first monthly decline since February 2011; yearly consumer inflation was at 0.9%, up from the 45-month low of 0.7% recorded in October.11,12,13

The official PMI reading for China’s factory sector was 51.0 in December, down from the prior mark of 51.4. Political tension between China and Japan threatened to undo progress toward a new trilateral free-trade pact between China, Japan and South Korea. Territorial disputes in the South China Sea were one factor, and China took insult when Japanese prime minister Shinzo Abe visited a shrine honoring WWII veterans including convicted war criminals from the Chinese occupation. Still, December ended with no injury to the trade ties between the two nations.14,15,16

WORLD MARKETS
December seemed to bring as many ascents as descents. The Global Dow rose 1.37%, the Asia Dow lost 0.53% and the Europe Dow advanced 1.95%; the MSCI Emerging Market Index lost 1.53%, yet the MSCI World rose 2.00%. Other benchmarks: Nikkei 225, +4.02%; Kospi, -1.64%; Hang Seng, -2.41%; Sensex, +1.82%; Jakarta Composite, +0.42%; Shanghai Composite, -4.71%; Bovespa, -1.86%; IPC All-Share, +0.54%; MERVAL, -5.73%; TSX Composite, +1.69%; FTSE 100, +1.48%; DAX, +1.56%; DJ STOXX 600, +0.95%; CAC 40, +0.02%. Among notable European, Asian  and multi-country indices, four yearly gains stand out: Nikkei 225, 56.72%; Ireland’s ISEQ, 33.64%; Pakistan’s KSE 100, 49.43%; MSCI World, 24.10%.1,17i COmposite : the TSX Composite (-2.30%), the  gan’

COMMODITIES MARKETS

The twelfth month of 2013 saw gold futures fall again: a loss of 4.23% to $1,202.30 at year’s end. Silver dropped 5.16% in December, but copper rose 6.47%. NYMEX crude ended 2013 at $98.42, up 6.35% on the month. Natural gas futures soared 7.44%, heating oil rose 1.13% and unleaded gasoline jumped 4.79% in December. Among marquee crops, the best performer was cotton at +6.69%; the worst was wheat at -7.75%. Performances in between: cocoa, -2.90%; coffee, +4.57%; soybeans, -1.68%; sugar, -3.91%; corn, +1.75%. The U.S. Dollar Index posted a 0.64% December loss, concluding the year at 80.16.18,19

REAL ESTATE
With mortgage rates on the way up, new and existing home sales declined in November. In fact, the National Association of Realtors said existing home sales were actually down 1.2% year-over-year. New home buying dipped just 2.1% for the month, but residential resales decreased 4.3%. (The NAR did report a 0.2% rise in pending home sales in November.) Home price gains had yet to moderate: the October S&P/Case-Shiller Home Price Index showed a 13.6% yearly gain in home values across 20 cities. While building permits fell 3.1% in November, housing starts rose 22.7% (the largest gain in any month since January 1990).4,5,20

Freddie Mac’s December 26 Primary Mortgage Market Survey found mortgage rates averaging as follows: 30-year FRMs, 4.48%; 15-year FRMs, 3.52%; 5/1-year ARMs, 3.00%; 1-year ARMs, 2.56%. Compare the November 27 averages: 30-year FRMs, 4.29%; 15-year FRMs, 3.30%; 5/1-year ARMs, 2.94%; 1-year ARMs, 2.60%.21

LOOKING BACK…LOOKING FORWARD
Closing values from December 31: DJIA, 16,576.66; NASDAQ, 4,176.59; S&P 500, 1,848.36; Russell 2000, 1,163.64. Incidentally, the Dow Jones Internet Index soared 56.15% in 2013 and the NASDAQ Biotechnology Index rocketed 65.61%.1

% CHANGE 2013 1-MO CHG 5-YR CHG 10-YR AVG
DJIA +26.50 +3.05 +17.78 +5.86
NASDAQ +38.32 +2.87 +32.96 +10.85
S&P 500 +29.60 +2.36 +20.93 +6.62
REAL YIELD 12/31 RATE 1 YR AGO 5 YRS AGO 10 YRS AGO
10 YR TIPS 0.80% -0.67% 2.14% 2.00%

Sources: online.wsj.com, bigcharts.com, treasury.gov – 12/31/131,22,23,24,25

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

Could 2014 bring stock market gains anywhere near those of 2013? Even the most ardent bulls don’t see the market soaring so high. Bears see little or no upside to stocks this year, pointing to an aging bull, further tapering of QE3 and the potential for a long-overdue correction. Bulls counter with the argument that the Fed’s easy money policy hasn’t yet reached its endgame, and point to continual signs of solid economic improvement. Hopefully, January sets a nice tone for the quarter and the year, and double-digit gains will come to pass.26

UPCOMING ECONOMIC RELEASES: The new year unfolds with a full slate of economic reports: December auto sales (1/3), December factory orders and December’s ISM service sector PMI (1/6), the December Fed policy meeting minutes (1/8), the December Challenger job-cut report (1/9), the December jobs report and October wholesale inventories (1/10), December retail sales and November business inventories (1/14), the December PPI and a new Fed Beige Book (1/15), the December CPI and the January NAHB housing market index (1/16), the University of Michigan’s initial January consumer sentiment index, December housing starts and building permits and December industrial output (1/17), December existing home sales, the Conference Board’s December index of leading indicators and November’s FHFA housing price index (1/23), December new home sales (1/27), the Conference Board’s January consumer confidence index, November’s Case-Shiller home price index and December durable goods orders (1/28), a Fed policy statement (1/29), December pending home sales and the first estimate of Q4 GDP (1/30), and last but not least, December’s consumer spending report and the University of Michigan’s final January consumer sentiment index (1/31).

 

Reeve Conover Disclosure

 

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. 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 not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, 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 an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. 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 Global Dow is a 150-stock index of corporations from around the world created by Dow Jones & Company. The Asia Dow measures the Asia equity markets by tracking 30 leading blue-chip companies in the region. The Europe Dow measures the European equity markets by tracking 30 leading blue-chip companies in the region. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. 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 Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. 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 IDX Composite or Jakarta Composite Index is an index of all stocks that are traded on the Indonesia Stock Exchange (IDX).  The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai 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 Mexican IPC index (Indice de Precios y Cotizaciones) is a major stock market index which tracks the performance of leading companies listed on the Mexican Stock Exchange. The MERVAL Index (MERcado de VALores, literally Stock Exchange) is the most important index of the Buenos Aires 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 100 Index is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. Karachi Stock Exchange 100 Index (KSE-100 Index) is a stock index acting as a benchmark to compare prices on the Karachi Stock Exchange (KSE) over a period. The ISEQ Overall Index is a capitalization-weighted index of all official list equities in the Irish Stock Exchange, excluding U.K.-registered companies. 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. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. 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 – online.wsj.com/mdc/public/page/2_3023-monthly_gblstkidx.html [12/31/13]

2 – politicalticker.blogs.cnn.com/2013/11/29/cnnorc-poll-jump-in-percentage-of-those-saying-things-not-going-well/ [11/29/13]

3 – ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx [12/30/13]

4 – investorplace.com/2013/12/gdp-inflation-housing-economic-data/#.UrTDwOJljs8 [12/20/13]

5 – investing.com/economic-calendar/ [12/31/13]

6 – ism.ws/ISMReport/NonMfgROB.cfm [12/4/13]

7 – tinyurl.com/kor8a2p [12/17/13]

8 – reuters.com/article/2013/12/13/us-producerprices-idUSBRE9BC0HJ20131213 [12/13/13]

9 – nj.com/business/index.ssf/2013/12/stocks_surge_after_fed_announc.html [12/18/13]

10 – latimes.com/nation/politics/politicsnow/la-obamacare-enrollment-increase-december-20131229,0,6740442.story [12/29/13]

11 – tradingeconomics.com/euro-area/gdp-growth [12/30/13]

12 – tradingeconomics.com/euro-area/inflation-cpi [12/30/13]

13 – bbc.co.uk/news/business-25151974 [12/30/13]

14 – investing.com/news/economic-indicators/china-manufacturing-pmi-falls-more-than-expected-257876 [1/1/14]

15 – tinyurl.com/n74afz7 [12/29/13]

16 – world.time.com/2013/12/25/japans-hawkish-pm-abe-visits-controversial-shrine-that-honors-war-criminals/ [12/25/13]

17 – mscibarra.com/products/indices/international_equity_indices/gimi/stdindex/performance.html [12/31/13]

18 – money.cnn.com/data/commodities/ [12/31/13]

19 – online.wsj.com/mdc/public/npage/2_3050.html?mod=mdc_curr_dtabnk&symb=DXY [12/31/13]

20 – mortgagenewsdaily.com/data/home-sales-existing.aspx [12/27/13]

21 – freddiemac.com/pmms/ [12/27/13]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=12%2F31%2F08&x=0&y=0 [12/31/13]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F31%2F08&x=0&y=0 [12/31/13]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F31%2F08&x=0&y=0 [12/31/13]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=12%2F31%2F03&x=0&y=0 [12/31/13]

22 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=12%2F31%2F03&x=0&y=0 [12/31/13]

23 – marketwatch.com/story/dow-closes-2003-strong-nasdaq-holds-2000 [12/31/13]

24 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [12/31/13]

25 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [12/31/13]

26 – usatoday.com/story/money/markets/2013/12/29/stock-bull-and-bear-offer-different-outlook/4205637/ [12/29/13]

 

New Year’s tax changes: what to expect

By

December 13, 2013

With the New Year will come a new set of tax rates and tax codes for your clients to deal with. Many of these will affect not only their estate planning in the coming year, but quite possibly the last-minute moves they wish to make from now through the end of 2013.

Many of the changes are indexed to inflation, and with the consumer price index running at a tepid 1.0 percent, the increases have been modest. Still the numbers present a bit of a moving target and are worth keeping an eye on. Here’s a rundown of some of the changes that are already in the books for 2014:

Estate taxes

The estate tax exemption is going up but just marginally, to $5.34 million in 2014 from $5.25 million in 2013. The American Taxpayer Relief Act of 2012 set the estate exemption to remain static, although it’s indexed to inflation, which is why it increased by 1.7 percent for next year. The estate tax rate itself remains unchanged at 40 percent.

Gift taxes

The annual gift tax exemption amount remains static at $14,000 per recipient, although the lifetime exclusion rises to $5.34 million. One rather esoteric change: The annual gift exemption amount for noncitizen spouses increases to $145,000 in 2014 from $143,000 in 2013.

Alternative minimum tax

The AMT is always a potential problem for even middle-class people who itemize deductions. The exemption is projected to rise to $82,100 for married couples filing jointly and surviving spouses, $52,800 for unmarried single filers and heads of household and $41,050 for married couples filing separately in 2014.

Clients who fear being subject to the AMT this year but might miss it next year could try to defer some of their deductions into 2014, when they would actually be able to use them.

Income taxes

While individual income tax rates will remain the same in 2014, some of the threshold amounts at which taxpayers become affected by those rates are rising. The threshold amount for the maximum tax rate of 39.6 percent is rising to $457,600 for married couples filing jointly, $228,800 for married couples filing separately, $432,200 for heads of households, and $406,750 for single filers.

Capital gains taxes

The thresholds at which people will become subject to the different levels of capital gains taxes has been ratcheted up a notch. The top capital gains rate of 20 percent now applies to incomes of $457,600 for married couples, up from $450,000 last year.

For single filers, the threshold rises to $406,750 from $400,000. Remember, those figures are for taxable income, not just the amount of the capital gains themselves.

Standard Deductions and Exemptions The standard deduction increases to $12,400 for married couples filing jointly, up from $12,200 for 2013; and $6,200 for singles and married people filing separately, up from $6,100. The personal exemption amount jumps to $3,950 from $3,900 for 2013. But the amount begins to phase out between $305,500 and $427,550 for married couples, and between $254,200 and $376,700 for single filers.

 

Medicare surtaxAs part of the ObamaCare reform, many people are now paying a Medicare surtax: The income limits are not indexed to inflation, and remain the same for 2014 as they were for 2013: $200,000 for single filers, $250,000 for married filers filing jointly, $125,000 for married filers filing separately, and $11,950 for trusts and estates.

Also unchanged are the tax rates: a 3.8% Medicare surtax on investment income and 0.9% Medicare surtax on earned income.

Pease limitations

The minimum income threshold to claim itemized deductions in 2014 is $254,200 for single taxpayers ($305,050 for married couples filing jointly). This limit — known as the “Pease Limitation,” after the Ohio congressman who first introduced the idea back in 1990 — had been scaled back in previous years but returned with the American Taxpayer Relief Act of 2012.

If your income is higher than $305,050 for married couples ($254,200 for single filers) the amount of itemized deductions that you can claim is reduced by 3% of the amount by which your adjusted gross income exceeds those limits.

It’s not likely to be a huge adjustment for most taxpayers, but the bottom line is that your clients can’t just assume they will be able to fully itemize their deductions. In making year-end adjustments to their estate plan, that’s an important consideration to keep in mind.

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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