Heads Up!

The income tax Bill made progress through the Senate this week to make substantial 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, the probability is high that it will become law.

The next step is for the joint conference between the House and the Senate to hash-out their differences.  These differences are significant, and we cannot forecast how they will be reconciled.

We had an opportunity to pose a direct question to Congressman Charlie Dent as to his estimate of when we will see the final version of the bill. He could not make an estimate – there are too many variables.

No matter when we see the final version, there will be very little time 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 becomes law. 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 we see the final version of the bill. So, we will stay alert.

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

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. We 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: 90%
  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: 35%
  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).

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, U.S. Stocks increased but Foreign Stocks declined.  Bonds were unchanged. During the last 12 months, STOCKS outperformed BONDS.

Returns through 12-1-2017







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 and guest host, Erika Riddle Petrozelli, Director of Donor Services of Lehigh Valley Community Foundation, will discuss:

“Charitable giving – now or later and how”

Laurie and Erika will take your calls on this or other topics.  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

It was the melt-up that wasn’t. And that’s probably good news for investors.

Last week, the major indexes were well on their way to new highs—the Dow Jones Industrial Average had gained more than 700 points through Thursday’s close—thanks to solid Thanksgiving shopping reports from retailers and progress on tax reform.

Headlines hit the newswires reporting that Michael Flynn, a former advisor to President Donald Trump, had agreed to plead guilty and testify, causing the Dow to shed 400 points from peak to trough in a matter of minutes. The drop happened so quickly that some opined that humans couldn’t have been responsible for the tumble. “No way real traders were moving that fast,” says Andrew Brenner, head of international fixed income securities at NatAlliance Securities. “Clearly, it was algorithms taking over.”

Not for long, however. The Dow rallied back and finished off just 40.76 points on Friday, ending the week, if not on a high note, then with a sigh of relief. The Dow industrials gained 673.60 points, or 2.9%, to close at 24,231.59—their largest weekly gain since December 2016. The Standard & Poor’s 500 index rose 1.5%, to 2642.22. Only the Nasdaq Composite finished lower: It dropped 0.6%, to 6847.59.

Yes, the Nasdaq, home to some of the year’s best-performing stocks, finished down on the week, as clear a sign of a market rotation as we’re likely to see. The seven top-performing stocks, including L Brands (ticker: LB) and Discovery Communications (DISCA), had all suffered double-digit declines this year, while the nine worst-performing stocks, including Micron Technology (MU) and Nvidia (NVDA), all had double-digit gains. That rotation might have exacerbated Friday’s selloff, says James Paulsen, chief investment strategist at the Leuthold Group. He contends that the move from one sector to another likely made the market more susceptible to some sort of surprise. “It could have been any news,” he explains. “If the rotation hadn’t been happening, it might not have mattered.”

But the rotation is happening. JPMorgan strategist Shawn Quigg attributes the shift from highflying growth stocks to beaten-down value plays to the increasing odds that tax reform will pass, as investors begin to shift money into the companies that will benefit if taxes are cut. If that’s the case, investors have two choices—either to put new money into what had been the market’s laggards, in which the former highfliers could lag but still rise with the market, or reduce their exposure to the former winners like Facebook (FB), Wynn Resorts (WYNN), and Netflix (NFLX) and put that cash to work elsewhere. Quigg leans toward the former, but notes that either way, investors should be more careful with their winners. “There’s some added risk into year-end,” Quigg says.

But Friday’s Flynn-inspired selloff that wasn’t can also be chalked up as just one more test for this bull market that began more than eight years ago. We’ve had selloffs related to Brexit, weakness in China’s yuan, and numerous others along the way. And yet the market keeps ticking higher. If you weren’t watching closely Friday, you might not have even noticed that anything exciting was happening.

It also pays to remember that politics doesn’t usually derail a bull market—it certainly didn’t during the Bill Clinton impeachment, says Krishna Memani, chief investment officer at OppenheimerFunds. And with the melt-up postponed, stocks are set to continue what has been a slow plod higher. “We’re in a good situation,” he adds. “We should fret less and enjoy it more.”

(Source: Barrons Online)