Heads Up!

by Thomas M. Riddle, CPA, CFP®, Founder & Chairman of the Board
Here is another big PLUS for Americans’ wealth. Home prices are trending up nicely and that trend could last for years and maybe decades. The reason: the U.S. is facing a housing shortage. And, what happens when demand outpaces supply? Prices rise! Home prices nationally rose 6.2% in the year that ended in January, roughly twice the rate of incomes and three times the rate of inflation, according to the S&P CoreLogic Case-Shiller National Home Price Index.

America’s housing shortage is more wide-ranging than simply the coastal states. The shortage stretches from pricey locales such as California and Massachusetts to more surprising places, such as Arizona and Utah. According to Barrons, some 22 states and the District of Columbia have built too little housing to keep up with economic growth in the 15 years since 2000, resulting in a total shortage of 7.3 million units. Home construction per household remains near the lowest level in 60 years of record-keeping, according to Jordan Rappaport, an economist at the Federal Reserve Bank of Kansas City.

At the same time, it is becoming more difficult to build all across America due to shortages of land, labor and materials – trends which will takes years, or maybe decades, to resolve.

Now is a good time for renters to reconsider how home ownership can significantly add to long term wealth.

Valley National News

Our team is competing in the Volunteer Challenge for the third year in a row! Our entire staff participates in these projects to assist local non-profits and ultimately support the Volunteer Center of the Lehigh Valley. This year many of our clients and friends in the community assisted with our project by donating to our food drive. We were able to deliver 241 pounds of food. In addition, our team sponsored a monetary donation that will provide 12,000 meals. Last but not least, our staff split up and took the time to volunteer at the Second Harvest warehouse to package food boxes for seniors and food backpack for children. We are looking forward to the final event on Tuesday, May 15 – https://www.volunteerlv.org/volunteer-challenge

The Numbers & “Heat Map”

THE NUMBERS

Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac

US ECONOMIC HEAT MAP

The health of the US economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.

CONSUMER SPENDING

A+

Consumer spending is expected to strengthen as individuals with lower tax rates spend their windfalls.

FED POLICIES

C-

The Federal Reserve increased the Fed Funds Rate by 0.25% in March, and is expected to implement at least 2 more hikes this year. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A-

4th quarter earnings season was stellar, with S&P profits growing at a fast pace. Q1 2018 earnings season kicks into full gear this week.

EMPLOYMENT

A+

The unemployment rate currently stands at 4.1%, the lowest reading since 2000. March’s headline jobs growth number was slightly below expectations, but there is substantial evidence that the prospects for those seeking work are very favorable.

INFLATION

B

Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. The inflation rate remains benign at this time, but we see the potential for an increase moving forward. This metric deserves our attention.

OTHER CONCERNS

INTERNATIONAL RISKS

5

The above ratings assume no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. These risks deserve our ongoing attention.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

“Your Financial Choices”

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. Laurie will not host live shows for the next two weeks – April 18 & April 25. Instead you can tune in to WDIY at the normal time for a recorded show. Questions submitted online will be addressed on the next live show scheduled for May 2. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org.

The Markets This Week

by Connor Darrell, Head of Investments
Despite a busy week in Washington headlined by Speaker of the House Paul Ryan stepping down from his post, stocks managed to climb 2% higher last week. The market’s gains were bolstered by a rebound in technology and energy stocks.  Facebook CEO Mark Zuckerberg endured two difficult days of Congressional testimony surrounding data security and privacy on the web. The testimony was well-received by the markets. Bonds were down slightly after the minutes from the most recent Federal Reserve meeting were released and suggested further rate hikes remain likely.

Now that the first quarter of 2018 is in the books, investors can shift their attention to the first earnings season under the new tax laws. Throughout Q1, the stock market was hampered by shifting inflation expectations, a selloff in technology stocks, and fears of an all-out trade war, but the steady flow of new corporate earnings data that is set to commence this week should provide investors with a (much needed) new area of focus. According to Factset, the market is expecting 17.1% growth in corporate earnings, which would be the highest growth rate since 2011. The strong estimates are a product of the reduced corporate tax rates under the new law, as well as increasing consumer confidence and economic growth.

Time to Follow Through

The optimism for earnings growth is in stark contrast to some of the nervousness that markets have exhibited over the past few months, where intra-day selloffs of more than 1% have been commonplace.  That divergence is in many ways a microcosm of the increasingly conflicting signals that investors must grapple with moving forward. Shifting economic policies in the US and the potential for rising inflation and interest rates are offset by improving economic growth and consumer confidence around the world.  But if Q1 taught us anything, it’s that expectations can only get us so far. At some point we need to see real tangible progress, and Q1 earnings season is the market’s first opportunity to prove to us that all the optimism surrounding tax reform’s impact on corporate profits was justified. If earnings live up to all the hype, stocks could find more stable footing and finally put some of these trade fears in the rear view mirror. If it doesn’t, we could all be left a little disappointed.

Heads Up!

by Thomas M. Riddle, CPA, CFP®, Founder & Chairman of the Board
CLICK HERE TO GET TO KNOW TOM

The next three decades hold extraordinary promise.  Breakthroughs in robotics, healthcare & biomedical, 3D print manufacturing, artificial intelligence, and many other fields collectively hold the potential to spectacularly raise U.S. living standards.   But, and there is a “but” unfortunately, the U.S. faces a significant obstacle to achieving this promise.  That obstacle is high and quickly escalating U.S. debt levels and the annual interest payments on it.

Within 5 years the U.S. may enter a vicious spiral when debt is growing, interest payments are growing even faster and Treasury debt holders start to doubt our government’s ability to repay.  At such a time interest rates could rise to compensate Treasury debt investors for taking the risk.  Higher interest costs will be financed by even more debt – and the spiral continues.

When the spiral starts, Washington will face difficult choices to attempt to fix the problem:  cut expenses (including Entitlements) or raise taxes.  Based upon my 45 years of work experience, including 3 years with the U.S. Treasury Department, I believe it is highly likely Washington will raise taxes.  The tax increase will have to be substantial to stop the spiral.

What will result when the U.S. dramatically raises taxes?  Wealth, and the breakthroughs funded by it, may move to other countries with lower tax burden.  You do not have to too look far to find examples of this phenomena on a local level.  What caused the many corporate high rises in Conshohocken and City Line Avenue to be built instead of the highly taxed Philadelphia?  Same for the incredible number of commercial buildings in Northampton and Lehigh counties instead of the higher taxed state of New Jersey.  Or, southern Wisconsin instead of Illinois/Chicago.  Or, Nevada instead of California.  The bottom line is the debt spiral will probably continue.

In the near future we will report on the signs to look for when investors lose confidence in a country’s ability to repay its debts – history is full of examples.

Valley National News

We are hiring Associates through our Entry Level Professional (ELP) Program.

The ELP program, in its sixth year, is designed to immediately integrate talented individuals into Valley National’s expanding “one-stop” financial planning business model through hands-on training, continuing education, and mentorship in the areas of financial planning, tax preparation, and investment management.

Read more about this opportunity at our website, and share the link to the online application page.

The Numbers & “Heat Map”

THE NUMBERS

Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac

US ECONOMIC HEAT MAP

The health of the US economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.

CONSUMER SPENDING

A+

Consumer spending is expected to strengthen as individuals with lower tax rates spend their windfalls.

FED POLICIES

C-

The Federal Reserve increased the Fed Funds Rate by 0.25% in March, and is expected to implement at least 2 more hikes this year. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A-

4th quarter earnings season was stellar, with S&P profits growing at a fast pace. Q1 2018 earnings season starts in April.

EMPLOYMENT

A+

The unemployment rate currently stands at 4.1%, the lowest reading since 2000. March’s headline jobs growth number was slightly below expectations, but there is substantial evidence that the prospects for those seeking work are very favorable.

INFLATION

B

Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. The inflation rate remains benign at this time, but we see the potential for an increase moving forward. This metric deserves our attention.

OTHER CONCERNS

INTERNATIONAL RISKS

5

The above ratings assume no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. These risks deserve our ongoing attention.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.