Heads Up!

When the new tax law was passed late last year, many economists expected its effect to stimulate the U.S. economy. Now we are seeing how this stimulus is happening: (1) millions of employees have received or will receive bonus payments, (2) tens of millions of employee paychecks jumped this month because of lower tax withholdings, (3) corporations are transferring hundreds of billions from overseas to the U.S. This is serious amount of money which will most probably improve the economy and support the stock market.

Did You Know…?

Employee job related expenses are no longer deductible, effective 1/1/2018, under the new tax law (Tax Reduction and Jobs Act of 2017). That means employees will lose the following types of deductions on 2018 and future Federal income tax returns. Note: some states, such as Pennsylvania, continue to permit many of these deductions.

* Safety equipment, small tools, and supplies needed for your job.

* Meals and entertainment expenses.

* Travel and expenses away from home.

* Vehicle expenses while using your vehicle for employment related activity.

* Uniforms required by your employer that are not suitable for ordinary wear.

* Protective clothing required in your work, such as hard hats, safety shoes, and glasses.

* Physical examinations required by your employer.

* Passport for a business trip.

* Job search expenses in your present occupation.

* Depreciation on a computer your employer requires you to use in your work.

* Dues to professional organizations and chambers of commerce.

* Licenses and regulatory fees.

* Subscriptions to professional journals.

* Occupational taxes.

* Union dues and expenses.

* Fees to employment agencies and other costs to look for a new job in your present occupation, even if you do not get a new job.

* Certain work-related educational expenses.

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. THE MOST SIGNIFICANT TAX LEGISLATION IN A GENERATION WAS SIGNED INTO LAW LAST YEAR.  CUMULATIVE PROGRESS TOWARD GOAL: 100% 
  2. Infrastructure spending of up to $1 Trillion over the upcoming 7 to 10 years. PROGRESS TOWARD GOAL: 20%. 
  4. Roll back of government regulations and Executive Orders considered to be difficult for businesses. ROLL BACKS HAVE CONTINUED. CUMULATIVE PROGRESS TOWARD GOAL: 55%

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+ (extremely favorable). Consumer spending is expected to strengthen as individuals with lower tax rates spend their windfalls.

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

BUSINESS PROFITABILITY: This factor’s grade is A- (very favorable). Corporations are in the midst of releasing 4th quarter earnings. Earnings season has been stellar, with S&P profits growing at a fast pace.

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, Foreign Stocks decreased, and Bonds remained unchanged. During the last 12 months, STOCKS outperformed BONDS.

Returns through 2-23-2018







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 will discuss:

“Employer and Retirement plan benefits – what to consider.”

Laurie 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

Stocks ended the week on a strong note as the Dow Jones Industrial Average gained 348 points, or 1.4%, on Friday to finish at 25,310. The Standard & Poor’s 500 index rose 43 points, or 1.6%, in the session to end the week at 2,747, while the Nasdaq Composite was up 1.8% to 7,337.

Equity investors lately have focused on the bond market and the upward move in the 10-year Treasury note yield toward 3%. Higher bond yields—which often reflect expectations of rising inflation—have been viewed negatively, so the drop in the 10-year yield by about 0.05 percentage point on Friday, to 2.87%, provided support to stocks.

For the week, the Dow industrials added about 91 points, or 0.4%, and the S&P 500 rose 0.6%. Both indexes now have recouped more than half of what they lost during the market pullback that ended on Feb. 8. That move had left the S&P 500 about 10% below its peak of 2,873 set on Jan. 26.

(Source: Barrons Online)

Heads Up!

The probability of a bond market sell-off has risen during the past 3 months due to: (1) an increase in deficit spending due to the new tax law; (2) an increase in deficit as a result of the Bipartisan Budget Act; (3) the Fed’s decision to sell $200 to $400 Billion of Treasuries instead of buying Treasuries; and (4) Secretary Mnuchin’s statements on allowing a weaker dollar.

This is something we have anticipated for some time. Interest rates are beginning to move higher, from almost 10 years at historic lows. If interest rates were to rise sharply, the principal value of bonds and bond mutual funds already owned in your portfolio may decrease. Long-term maturities would decrease the most.  In preparation, our asset allocation models have substantially reduced the maturity of bonds in an attempt to manage the effect of a bond market selloff (if one were to occur). We are watching this event closely and will keep you posted on any further impact this may have on our overall fixed income strategy.

Did You Know…?

Last week we reported on the fact the stock market had indeed suffered a “Correction.” A Correction is a series of stock market declines over several days or weeks leading to a 10% to 20% decline from a stock market high. The stock market typically recovers from a Correction in a relatively short time of 3 to 12 months.