The IRS is at it again. The IRS changed the format for 1099’s (investment
account transactions) and many 1099 providers discovered the change too late to
make the January 31st deadline for mailing the 1099’s. Many providers received an extension of time
to provide them until February 15. You
should be receiving these “late” 1099’s this week.
Additionally, the IRS was late to release the final
version of several forms needed by tax prep software companies and tax
preparers. And, the IRS was late in
opening its doors to permit taxpayers to actually file their income tax
returns.
Additionally, many investors have added Master Limited
Partnerships (MLP’s) to their portfolio.
The investment returns for these MLP’s are NOT reported on the 1099’s. Instead MLP earnings are reported on Schedule
K-1 which is issued in early March (normally).
We recommend NOT waiting for your
K-1’s before giving your income tax information to us to prepare your income
tax return. We prefer to get started
as soon as possible and we will download your K-1 information for you, as soon
as it is available.
Most
of the time the U.S. stock market looks to 3 factors (call them the “pillars”
that support the stock market) to support its upward trend – let’s grade each
of the pillars.
CONSUMER SPENDING: I grade this factor a C- (below average). This is a downgrade from the last report. See more information under “The Economy”
below.
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.
BUSINESS PROFITABILITY: I continue to grade this factor an A (very favorable). With almost 90%
of the companies in the S&P 500 index having reported, the aggregate profit
growth in the fourth quarter was 9.3%, according to RBC Capital markets. This performance continues to support a grade
of A.
Economic
data indicates a slowdown of activity. Especially hard hit: retail sales activity including Auto sales. Leaders within many other industries are
indicating the same. Part of the slowdown
is weather related-the exact amount is unknown.
But,
I believe we have to go beyond the numbers.
There is some underlying strength in the US economy. Manufacturing and employment data has held up
well in light of the above. And, here is
an update on the very important housing
sector based upon data released last week: Inventory
is still very low, and with the low level of inventory, there is still upward
pressure on prices. If inventory doesn’t
increase prior to the spring busy season, prices will probably increase a
little faster than expected (a key reason to watch inventory right now).
Last week, US Stocks and Foreign Stocks increased. Meanwhile Bonds decreased. During the last 12 months, STOCKS outperformed BONDS.
Returns through 2-14-2014
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
-.2
1.4
0.0
4.0
4.9
4.5
US Stocks-Standard & Poor’s 500
2.4
-.3
23.4
13.8
19.9
7.0
Foreign Stocks- MS EAFE Developed Countries
2.4
-1.0
13.4
3.2
11.4
3.5
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®. Please join Laurie and her guest Attorney
Kirby Upright of King, Spry, Herman, Freund & Faul LLC when they discuss: “Legal
considerations for same sex couples”
Laurie and Kirby will take your calls on this topic
and other inquiries this week. 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; and, it is broadcast on FM 93.7 in the Fogelsville and
Macungie 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.
It’s true – I am an optimist. And, I have been optimistic on stocks for a
while so why wouldn’t I continue to be optimistic given earnings growth, and
the accommodative Fed. I’m looking beyond
the grueling winter weather. The basic supports to the economy remain the same.
Eventually, even this snow will melt.
Investors ignored weak economic data last week and
bid up stocks to nearly the record-high levels reached at the end of 2013.
Buoyant major indexes rose more than 2% from the previous Friday’s close.
A good season of fourth-quarter earnings reports and
reassuring policy talk from new Federal Reserve Chair Janet Yellen dispelled
potential worries about the pace of U.S. economic growth, which had gripped the
market since late January.
Given the figures, there could have been plenty of
concern: The Fed said Friday that January’s industrial production fell 0.3%,
the first drop since last July and weaker than the plus-0.2% consensus
projection. Meanwhile, retail sales fell 0.4% last month, below expectations of
a flat month. For now, severe weather in much of the country this winter is the
convenient fall guy, but soon enough it mightn’t be.
On the week, the Dow Jones Industrial Average tacked
on 2.3%, or 360 points, to 16,154.39. The Standard & Poor’s 500 index rose
42 points to 1838.63, within spitting distance of the 1848.38 record high. The
Nasdaq Composite index rose 118 points, or 2.9%, to 4244.03.
“Reasonably good fourth-quarter earnings
[indicating] 9% growth” helped propel stocks,” says Joseph Amato,
chief investment officer of Neuberger Berman. Yellen’s remarks Tuesday about
the “continuity” of accommodative policy also helped calm nerves that
otherwise might have been jittery due to the economic data.
Additional rally ammunition, adds Rick Fier, a
trader at Conifer Securities, came in the form of improving European economic
figures—albeit from low levels—as well as from a stabilizing bond market last
week and relatively quiescent emerging markets. Fourth quarter euro-zone gross
domestic product growth was a tepid 0.3%, but it beat forecasts. It feels like
the selling pressure is exhausted for now, he adds.
The market is discounting those soft economic
numbers, but next week, Amato says, will bring a new leg of data, with a number
of early indications of February purchasing-manager indexes from the U.S. and
euro zone. To break out of the trading range the market has been in—roughly
1750 to 1850 on the S&P 500 index—”we need a clearer sense of where
the economy is going,” says Amato.
The big surge late last year might have made
investors forget that there have been relatively lengthy periods inside this
bull market in which stocks traded in a narrow range. “We’ve gone through
sideways periods of four months or more in 2012, and even in 2013,” says
Dan Greenhaus, chief global strategist at brokerage firm BTIG.
THE FOLLOWING IS REPEATED FROM LAST WEEK FOR
EMPHASIS:
The Asian Financial crisis of
1997 – 1998 helped to cause some extraordinary volatility in the US markets in
1997 and 1998. Here is a look at price movements on the S&P:
Surprisingly, the stock market’s return for the two
years 1997 – 1998 were very attractive, even with the above volatility:
1997 S&P 500 (including dividends) +33%
1998 S&P 500 (including dividends) +28%
Bottom Line Based upon what we know at this time, we recommend
you “Stay the Course”. We may see additional volatility in 2014.
Although unnerving and panic creating, it is important to keep our investment
disciplines and review past episodes to ease your concerns. We note that
economic indicators across the developed world continue to show improvement. As graded below, the U.S. consumer is
spending a healthy amount, the FED continues to be accommodative, and corporate
earnings remain strong which should support continued increases in the US stock
markets for the long run. Our investment models are more heavily weighted
toward developed economies which arguably have preferable risk/reward
characteristics vs. that of emerging economies.
Most
of the time the U.S. stock market looks to 3 factors (call them the “pillars”
that support the stock market) to support its upward trend – let’s grade each
of the pillars.
CONSUMER SPENDING: I grade this factor a C (neutral). This is a downgrade from the prior week due to weakness noted in retail activity.
See more information under “The Economy” below.
THE FED AND ITS POLICIES: I continue to grade this factor an A+ (extremely favorable) because the
FED cannot do much more than it is doing to support the stock market and asset
prices.
BUSINESS PROFITABILITY: I continue to grade this factor an A (very favorable). We are now in
the midst of earnings reporting season for the quarter ending 12/31/13.
