Daily Archives: November 12, 2014

Heads Up!

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Many tax deductions and tax credits have “expired” which means these tax deductions and tax credits were on the 2013 Form 1040 (or business tax return); but, as of today they will not appear on the 2014 1040. There is ongoing discussion in Washington to “extend” these to make them available for 2014-with an uncertain outcome. The following tax deductions and tax credits currently not available for 2014 are:

  1. Sales tax deduction.
  2. Certain education supplies of teachers deduction.
  3. Qualified tuition and related expenses deduction.
  4. Tax free distributions of taxpayers over 70 ½ to charitable organizations.
  5. Research tax credit.
  6. Work Opportunity tax credit.
  7. Bonus depreciation and increased Section 179 deduction.
  8. Several Energy Tax credits.
  9. Other many others

The uncertainty of these will make year-end tax planning more difficult. We will keep you posted on the actions or inactions of Congress on this topic.

The “Heat Map”

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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: We grade this factor to A- (very favorable)

THE FED AND ITS POLICIES: We 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: We have raised this factor grade to a B+ (above average).

OTHER CONCERNS: The “Heat Map” is indicating the U.S. stock market is in good shape ASSUMING no international crisis. We have added the risk of an EBOLA pandemic to the “powder keg” in the Middle East to the situations to be watched. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these collectively as a 2. Risks continue to lurk, and they deserve our ongoing attention.

NOTE: There is no change from the previous Weekly Commentary.

The Economy

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The strength in employment is becoming more apparent.  For the week ending November 1st, United States Initial Jobless Claims was 278,000 which was down 10,000 for the prior week’s level of 288,000.  This is now 8 straight weeks where jobless claims have come in below 300k.  The US unemployment rate dipped to 5.80 percent in October from 5.90 percent in September, which marks a six-year low.  Average hourly earnings increased 0.10 percent in October over the prior month while average weekly hours increased to 34.60 hours from 34.50 hours.  The labor force participation rate increased to 62.80 percent in October from 62.70 percent in September.  As we’ve reported in past commentaries there remains “slack” in the labor market, however as jobless claims remain below 300k and non-farm payrolls stay above 200k the underemployed number will continue to reduce.

According to FactSet, 446 companies from the S&P 500 have reported with the third quarter blended earnings growth rate coming in at 7.6%.  Blended revenue growth stands at 4.0 percent, slightly above the estimate of 3.80 percent.  US ISM Purchasing Managers Index (PMI) increased to 59 percent in October from 56.60 percent.  PMI is a measure of new orders, backlog of orders, new export orders, imports, production, supplier deliveries, inventories, customers inventories, employment and prices compiled from purchasing and supply executives.  In September, US factory orders decreased 0.60 percent and construction spending dropped 0.40 percent.

All in all, US data is quite positive.  The consumer is gaining strength as employment improves and lower energy costs translate to greater discretionary spending and raises their ability to borrow, corporate earnings growth remains a positive factor, and the Federal Reserve continues to keep rates low to drive the economy forward.

The Numbers

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Last week, U.S. Stocks and Bonds increased while Foreign Stocks decreased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 11-7-2014

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

  .1

 5.2

  4.5

  2.6

  4.3

4.7

US Stocks-Standard & Poor’s 500

  .8

 11.9

18.7

19.8

16.1

8.0

Foreign Stocks- MS EAFE Developed Countries

 -1.0

-3.8

 -.4

10.4

  6.0

6.0

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”

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“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 be joined by guests Dr. Vera Cole, Program Officer for the Energy and Sustainability Policy degree program at Penn State and consumers Paul and Marie North to discuss: “The financial and environmental incentive of solar and geothermal energy”

Host, Laurie A. Siebert, CPA, CFP®, AEP® will take calls on these topics and others. 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.

Motivational Quote of the Week

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“I know this goes without saying, but Stonehenge really was the most incredible accomplishment. It took five hundred men just to pull each sarsen, plus a hundred more to dash around positioning the rollers. Just think about it for a minute. Can you imagine trying to talk six hundred people into helping you drag a fifty-ton stone eighteen miles across the countryside and muscle it into an upright position, and then saying, ‘Right, lads! Another twenty like that, plus some lintels and maybe a couple of dozen nice bluestones from Wales, and we can party!’ Whoever was the person behind Stonehenge was one dickens of a motivator, I’ll tell you that.”

– Bill Bryson, Notes from a Small Island

Personal Notes

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I just returned from a four-day investment conference hosted by Charles Schwab in Denver. It was the 4th of these annual Impact Meetings which I and several of Valley National advisors have attended in the last four years. I picked up some enlightening, actionable information which I intend to discuss in upcoming weeks. And I met some famous people. More information on this topic will be forthcoming.

Thomas M. Riddle
President, VNFA

The Markets This Week

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The stock market motored ahead last week by about 1%, again finishing at all-time highs. Investors were cheered by the Republican midterm electoral win, continued strong corporate quarterly profits, and speculation that the European Central Bank would amplify its monetary stimulus.

While one beaten-up group, small-caps, didn’t do as well, other industry sectors that had taken a pounding lately, like energy and commodity-related stocks, rebounded sharply.

On Thursday, European Central Bank President Mario Draghi said the ECB would do what’s necessary to kick-start the faltering euro zone, implying up to a 1 trillion euro ($1.25 trillion) increase in the bank’s balance sheet through simulative bond-buying. Despite having heard that before, investors took it to heart.

Last week, the Dow rose 183 points or 1% to 17,573.93, and the Standard & Poor’s 500 index gained 14 to 2,031.92. Both were new closing highs. The Nasdaq Composite index ended little changed at 4632.53, as did the Russell 2000 small cap index, at 1173.32.

Last Wednesday, all three Dow Jones major averages, the industrials, transports and utilities, closed at a record. Like perfect games in baseball, that doesn’t happen often; the last time was on April 25, 2007. When you throw in the S&P 500, which also made a new high that day, you would have to go back to March 1998 to find the last time all four ended at all-time highs on the same day.

(Source: Barrons Online)