Heads Up!

The income tax Bill made progress through Congress this week to make serious changes in the formula to calculate your federal income taxes. Many of these changes will have a negative impact on your income taxes. The Bill is not guaranteed to pass; but, if it is passed, it will not be passed until the joint conference between the House and the Senate hash-out their differences. These differences are significant, and we cannot forecast how they will be reconciled.

The timeline, according to our estimate, indicates we will not see the results of the House/Senate conference until December 15th. That leaves only 2 weeks to react, to figure out how it affects you, and to take advantage of year-end tax planning opportunities. For example, some experts predict 90% of taxpayers will not itemize after 2017 if the Bill passes-this means 2017 could be the last year 90% of taxpayers can deduct charitable contributions (those affected taxpayers should consider prepaying 2018 and 2019 charitable contributions before 12/31/17). We will not know for sure which of these strategies are right for you until about 12/15/17.

The Weekly Commentary will continue to report on this time critical topic as it is finalized.

Did You Know…?

You may be entitled to appeal higher Medicare premiums for Parts B and D of Medicare. You may have recently received a nasty surprise in the form of a Medicare letter notice. This letter puts you on notice your premiums will be higher in 2018 (and your Social Security benefit will be lower since these Part B and D premiums are deducted from your Social Security) because your income exceeds certain levels in 2016.

You can appeal the Medicare notice if you have experienced a “life-changing event” that caused your income to decrease in 2017 from 2016.  The definition of life-changing event is (1) retirement or reduced work hours or (2) marriage or (3) divorce or annulment or (4) death of a spouse or (5) loss of income producing property due to natural disaster or (6) loss of a pension.

However, a one-time boost in 2016 income due to sale of a vacation home or large portfolio distribution, for example, would not qualify as a life-changing event – in these cases your Medicare parts B and D premiums will be increased for at least one year.

If you qualify for the appeal, click here to obtain the form needed to make an appeal.

Update – Washington

The U.S. stock market has jumped since the November 8th election. We identified 4 initiatives on which the U.S. stock market is speculating to be successfully accomplished early in the Trump administration.  What will happen next? it is still to be determined!

The 4 initiatives will have a tremendous influence on the “Heat Map” which forms the basis of our forward looking view of the U.S. economy. I consider the success or failure of the 4 initiatives to be “leading” indicators for the Heat Map.

Below are the 4 Trump administration initiatives upon which the stock market is speculating and what progress, if any, has been made:

  1. Tax cuts and tax reforms benefiting most individuals and businesses. SIGNIFICANT PROGRESS HAS BEEN MADE RECENTLY. CUMULATIVE PROGRESS TOWARD GOAL: 75%

  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS MADE ON TAX REFORM POINTS TOWARD PROGRESS IN THIS AREA, TOO. CUMULATIVE PROGRESS TOWARD GOAL: 25%

  3. Affordable Care Act amendment, reform or reorganization. CONGRESS HAS STUMBLED EVERY TIME IT TRIED TO ACT. CUMULATIVE PROGRESS TOWARD THIS GOAL IS 0%.

  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 50%

As the action happens in Washington on these 4 initiatives, don’t be surprised if the political “tug and pull” contest results in a wilder than normal stock and bond market.

We will continue to report in future issues on the progress on each initiative.

The “Heat Map”

Most of the time, the U.S. stock market looks to 3 factors (call them the “pillars” which support the stock market) to support its upward trend – let’s grade each of the pillars.

CONSUMER SPENDING: This grade is a B+ (favorable).

THE FED AND ITS POLICIES: This factor is rated C- (Below average).

BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). So far, earnings reports for the 3rd quarter have been solid.

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in OK shape ASSUMING 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 Numbers

Last week, Bonds increased but U.S. stocks and Foreign Stocks declined. During the last 12 months, STOCKS outperformed BONDS.

Returns through 11-17-2017







Bonds- BarCap Aggregate Index







US Stocks-Standard & Poor’s 500







Foreign Stocks- MS EAFE Developed Countries







Source: 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.

“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®. This week Laurie is participating in a charitable event and a pre-recorded show will be aired.

No calls or questions will be possible this week.  This show will be broadcast at the regular time. WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet.  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

If the market were a watch, we would say it could take a licking and keep on ticking. If it were a prizefighter, we’d say it knew how to ride a punch. But it’s a market, and that simply means investors are willing to take chances again and again and buy the dips.

You wouldn’t know it by looking at the major indexes, which finished mixed on the week. The Dow Jones Industrial Average dropped 63.97 points, or 0.3%, to 23,358.24 last week, while the Standard & Poor’s 500 index dipped 0.1% to 2578.85. The Nasdaq Composite rose 0.5% to 6782.79.

The Market’s Journey: Don’t Stop Believing

The final tally, however, doesn’t do justice to the beatings the market took at the open early in the week. The Dow traded down nearly 80 points on Monday, 170 points on Tuesday, and 170 points on Wednesday, but each time the blue-chip benchmark finished off its lows. That was followed by the Dow’s 187-point rally on Thursday, as everyone bought the dips. “We saw a bit of a shakeout,” says Todd Lowenstein, director of research at HighMark Capital Management. “But the market has been resilient.”

Has it ever. The S&P 500 has now gone 62 weeks without a drop of 2% or more, the longest such streak since 1965. And it isn’t as if there haven’t been reasons to sell, from the narrowing difference between short-term and longer-term Treasuries—known as a flattening yield curve—to tax-reform hiccups in Washington and a selloff in high-yield bonds that briefly caused investors to wonder if the credit market was acting as an early warning signal.

They needn’t have worried. See, it isn’t just equity investors who are looking to turn selloffs into buying opportunities. The iShares iBoxx $ High Yield Corporate Bond exchange-traded fund (ticker: HYG)—a reasonable facsimile of the overall junk-bond market—rose 0.4% last week after dropping 1% the week before. Despite the fact that equity investors were watching junk bonds, junk-bond investors were—you guessed it—buying the credit dip. “That will have to change before the ‘HYG leading stocks story’ becomes a truly lethal one,” says Nomura Instinet technical analyst Frank Cappelleri.

The truly scary thought is that even volatility can’t seem to kill the speculative bug. What if higher volatility, instead of scaring investors away from the stock market, brings them in? In that case, this bull market could still have a long way to go.

(Source: Barrons Online)

Heads Up!

Update on the Income Tax bill

Senate Republicans released an overview of their version of tax reform legislation on Nov. 9, and there are a number of key differences between their version and the bill under consideration in the House of Representatives.

Also on Nov. 9, the House Ways and Means Committee, after four days of debate over dozens of amendments, approved the bill on a party-line vote of 24-16. That action sends the bill to the House floor, where it is expected to be considered this week. A vote to pass the bill in the House is expected before lawmakers break for the Thanksgiving holiday on November 16th or 17th.

Many changes are expected to both versions of the legislation in the days and weeks ahead, but here is our initial take on some of the notable differences between the tax reform approaches of the Senate and the House:

  • Seven individual tax brackets. While the House bill reduces the current seven tax brackets to four, the Senate bill would retain seven brackets, reportedly with rates of 10%, 12%, 22.5%, 25%, 32.5%, 35% and 38.5%. The Senate bill’s top rate is lower than the 39.6% rate for the highest earners under the House plan.
  • Deduction for state and local taxes completely repealed. The House bill repeals the deduction for state and local income taxes, but preserves a deduction for state and local property taxes, up to $10,000. The Senate has no such provision.
  • Estate tax exemption increased, but not repealed. The House bill doubles the current $5.49 million exemption amount for individuals and then eliminates the estate tax entirely in 2024. The Senate plan increases the exemption by the same amount, but does not repeal the tax in the future.
  • Corporate tax cut delayed by a year. Both plans lower the corporate tax rate to 20%. The House does so in 2018, while the Senate version delays the tax cut until 2019.
  • Home mortgage interest deduction maintained. The Senate proposal maintains the deduction for interest paid on newly purchased homes for mortgages up to $1 million, the same as current law. The House bill proposes to cap the deduction at mortgages of $500,000.
  • Deduction for medical expenses would continue. The Senate plan preserves this deduction, which was eliminated in the House bill.
  • No changes to taxation of investment income or retirement savings incentives. As with the House bill, tax rates for capital gains and dividend income will remain the same as current law. In addition, the bill does not make dramatic changes to retirement savings. Some reports in recent days indicated that the Senate may require some or all contributions to retirement plans to be made to Roth plans, which tax contributions up front. Pressure from the public and the White House to maintain the status quo for retirement savings plans forced the House to back off any changes, and the Senate has followed suit.

Next steps

The two bills are likely to move on parallel tracks this week. The full House is expected to debate that version of the bill, with the hopes of passing the bill on the House floor on or before November 17th. At the same time, the Senate Finance Committee will consider amendments to the Senate bill. Consideration on the floor of the Senate is not expected until after the Thanksgiving break. If and when both chambers have passed their bills, a conference between the two chambers would take place to iron out differences and produce a single, consensus piece of legislation. That compromise would have to be approved by both the House and Senate before the bill could be sent to the president for his signature.

Source: Charles Schwab & Co.

Did You Know…?

Charles Schwab & Co. and Valley National want you to have the highest level of confidence when you do business with Charles Schwab. So, Charles Schwab offers you this simple guarantee: Schwab will cover 100% of any losses in any of your Schwab accounts due to unauthorized activity.

The highest levels of security are only possible when we work together. To ensure your protection under this guarantee, it is your responsibility to:

  • Safeguard your account access information. If you share this information with anyone, Schwab will consider their activities to have been authorized by you.
  • Report any unauthorized transactions to us as quickly as possible. If you suspect you are a victim of fraud, please contact us and Charles Schwab immediately at 888-3-SCHWAB.

Schwab is committed to safeguard your accounts and the privacy of your information, and Schwab will continually review their privacy policy and update them as necessary to protect you.

You do not have to do anything to get this protection. Schwab automatically provides this protection.

Here is how this guarantee works. If you suspect you have been a victim of unauthorized activity in your Schwab account, notify Valley National and Schwab at 888-3-SCHWAB immediately. Schwab will promptly review your claim and assist you in taking measures necessary to protect you from further loss. You will be required to complete a notarized affidavit of fraud and to identify items of unauthorized activity.

The guarantee applies to all Schwab Bank products (bank accounts and loans). If you suspect you have been a victim of unauthorized activity in your Schwab Bank account, notify Schwab at 888-3-SCHWAB immediately. If an unauthorized advance is made on your Schwab Bank loan account, you will not be responsible for repaying the amount of the unauthorized advance or any related interest or transaction charge.

This guarantee applies to all individual retirement accounts held at Schwab including those accounts managed by independent investment advisors doing business with Schwab Advisor Services like Valley National Advisers.  However, keep in mind that transactions initiated by Valley National Advisers, as your investment advisor, or other people to whom you have granted authority to act on your behalf are considered authorized and not covered.

The Guarantee does not apply to 529 college savings plan accounts at Schwab because the assets are maintained by or held at a third party and Schwab cannot be responsible for any failure of those third parties to safeguard your information or protect your account.