Valley National News

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Did You Know…?

by Mae Gerhart, Tax / Financial Planning Professional
Miscellaneous Itemized Deductions were one item that was nixed in the Tax Cut and Jobs Act of 2017. While the deductions may still be allowable on your state and local returns, you are no longer able to write off unreimbursed employee business expenses on your federal return.

Unreimbursed business expenses are defined as an expense that is common and accepted in your trade or business and helpful or appropriate for your business. These expenses may include…

Transportation costs associated with using your personal vehicle for work-related reasons such as a business meeting away from your regular workplace, visiting clients or customers, or traveling between your regular place of business and a second office. The rate for unreimbursed business mileage is 54.5 cents per mile for 2018. You may also deduct the costs associated with parking or tolls. Regular commuting expenses are not deductible.

Travel expenses such as the cost of airline tickets, checked bags, a rental car or cab rides, meals while traveling, or a hotel stay for a work-related conference or out of state client or vendor meeting.

Other business expenses such as business cards, subscriptions to trade and business publications, professional dues (not for recreation, entertainment or pleasure) home office expenses, necessary tools and equipment, hospital scrubs, steel toed boots, union dues, business gifts (up to $25 per client), and work-related education that does not make you eligible for a new position.

If your employer has an accountable reimbursement plan, you may be able to provide receipts or mileage logs documenting these expenses to your employer for reimbursement. Whether your employer participates in an accountable reimbursement plan or you would be deducting it on your state and local returns, you will need to keep adequate records to substantiate the expense. Your records should include the date, amount paid, description of the expense, the business purpose, and other persons in attendance, if any.

Talk to your tax professional about planning strategies around changes in the tax law and how they may affect your individual situation.

“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:

“A retrospect on Your Financial Choices topics.”

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 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 remain healthy as individuals with lower tax rates spend their windfalls.

FED POLICIES

C-

Following its June meeting, the Federal Reserve implemented the second rate hike of 2018, and suggested that two more hikes should be expected before year-end. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A

Q1 Earnings were very strong, with US companies reporting YoY earnings growth of 25%.

EMPLOYMENT

A+

The unemployment rate has dropped below 4% for the first time since 2000. Additionally, there are over 6 million unfilled job openings throughout the economy; close to an all-time record.

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.

The Markets This Week

by Connor Darrell, Head of Investments
Global markets slid lower last week due in large part to ongoing global trade tensions.  Emerging markets stocks were hit hardest and are now down over 5% this year. On a rolling one-year basis however, they have still managed a return in excess of 10%.

Bond yields remained relatively stable, with the 10 Year Treasury still sitting at around 2.90%. The yield curve (which plots the yields of bonds of differing maturities along one line) continued its trend of flattening last week. The 10-2 Treasury Spread (measured as the difference in yields of the 10 Year and 2 Year Treasury Bond) now stands at just 0.33%, a 58% decline from just a year ago. Those in the business of trying to forecast market movements (a notoriously difficult, if not impossible proposition) typically watch the yield curve closely during the latter stages of an economic expansion, as an inversion of the curve has historically preceded a recession. An inversion of the curve occurs when the yield on longer term maturities drops below that of shorter term bonds.

The other major development in the US equity market last week was the removal of General Electric (GE) from the Dow Jones Industrial Average. GE was an original member of the oft quoted stock index but has fallen on hard times as its earnings and profitability have collapsed under the weight of its highly complex business model. GE has been replaced by Walgreens Boots Alliance, which contrary to its name is actually a retail pharmacy (of which you are likely familiar) and is not in the business of selling footwear. This was major news for markets in that GE has been a member of the DJIA for over 100 years. The fall from grace has been substantial for GE, which had the largest market capitalization of any company in the world as recently as 15 years ago.

Tariffs and Trade Wars Revisited
As a result of the Trump Administration’s hard stance on trade, it has been difficult to avoid discussing the potential implications of the policies that the US, China, and now the EU, Canada, and Mexico have been threatening each other with. The probability that rhetoric evolves into policy, and to what extent the policies under discussion change prior to implementation is extremely difficult to ascertain, and the market is having a difficult time making sense of everything as a result.  It is for this reason that we have not been able to point to one major market move while placing blame on trade tensions. Instead, we have experienced a number of smaller moves as the market reacted to the latest headlines. This is likely to continue until the market either has reason to focus on other news (strong Q2 GDP growth anyone?), or we get more clarity regarding what is a threat and what is likely to actually be implemented.

The only things we can say with confidence are the following:

  • Tariffs are an inflationary force. Any time a tax is levied on a product, regardless of its nation of origin, the price of that product is likely to increase.  Rising prices are the definition of inflation.
  • Tariffs will reduce global economic growth potential in the long run. Trade works because it creates a mutual benefit among the parties involved.  Goods and services are produced by those who can do so most efficiently.  Trade barriers create inefficiencies that lead to a sub-optimal allocation of resources in the global economy, which reduces growth in the long-term.

This is not intended to serve as a critique or endorsement of any political view. There are very real problems that need to be addressed in the way that countries do business with one another, and after all of the dust has settled, those of us with a stake in the success of the global economy may very well be better off. But our job as investors and asset allocators is to identify the key issues that can impact financial markets so that we may best position our portfolios to protect our hard-earned money. This often involves trying to gain an understanding of how economics and policy react with one another.

Valley National News

InvestmentNews selected our CEO, Matt Petrozelli, as one of its 2018 40 Under 40. investmentnews.com/40

Matt was selected was selected as an honoree from a pool of almost 1,000 nominees by a panel of reporters, editors, and other representatives of InvestmentNews. Winners were chosen based on their level of accomplishment, contribution to the financial advice industry, leadership and promise for the future.

“It is an honor to represent our firm and our Lehigh Valley community with this recognition,” said Matt. “I am grateful to be named among the nation’s top emerging talent in our industry.”

He is featured as part of the 5th annual 40 Under 40 list in the June 18 issue of InvestmentNews.

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 remain healthy as individuals with lower tax rates spend their windfalls.

FED POLICIES

C-

The Federal Reserve implemented the second rate hike of 2018 last week, and suggested that two more hikes should be expected before year-end. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

A

Q1 Earnings were very strong, with US companies reporting YoY earnings growth of 25%.

EMPLOYMENT

A+

The unemployment rate has dropped below 4% for the first time since 2000. Additionally, there are over 6 million unfilled job openings throughout the economy; close to an all-time record.

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.