Daily Archives: November 18, 2014

Heads Up!

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Year-end income tax “planning” is often the best method for taxpayers to reduce the tax burden to which they are exposed. Our research has uncovered the following tax planning opportunities which I recommend you review for applicability to your situation:

  • Delay income and accelerate expenses if your income tax rate is higher this year than future years.
  • Accelerate income and delay expenses if your income tax rate is lower this year than future years.
  • Sell securities which have losses if your income tax bracket is higher than 15%.
  • “Bunch” your deductions into one year to be able to itemize.
  • Convert IRA’s to Roth IRA’s if your income tax rate is low this year.
  • Maximize charitable contribution deduction.
  • Discuss unusual transactions or events with your tax advisor.

NOTE: the recommendations above are general in nature and cannot be relied upon for individual situations. Income tax rules are tricky. Small deviations in your situations from those discussed above could change the recommendation; and, for that reason you should discuss your situation with your tax advisor before acting.

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: This factor’s grade is 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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Last week the good news on the economy outweighed bad news. The good news:

  • Industrial production fell 0.1% however industrial production remains on a positive trend.
  • Manufacturing also rose 0.2%, led by strong gains in machinery (+1.3%), computer and electronic products
  • Excluding vehicles, manufacturing rose 0.2%.
  • Core industrial production, which excludes energy, high tech, and vehicles, rose 0.2%, as all of its components
  • On a year over year basis, industrial production is up 4.0%, consistent with continued moderate output expansion.
  • The Empire State General Business Conditions Index rebounded 4.0 points to 10.2 in November, indicating manufacturing activity in the region strengthened somewhat. New orders and shipments both advanced, but hiring decelerated and the average workweek shortened.
  • The outlook for the next six months improved to its best level since January 2012. The capital expenditure outlook was the most positive in over two years.
  • Prices were near-flat for the month and are expected to remain steady in the near-term

And the disappointing news on the economy:

  • Mining, which accounts for about 16% of total industrial production, dropped 0.9%, the most in a year, likely driven by the sharp decline in oil prices. Energy output, which includes oil and gas well drilling, fell 0.8%.
  • Utilities output fell 0.7%, its third decline in the past five months.
  • The capacity utilization rate fell 0.3 percentage points to 78.9%, below the consensus of 79.3%, and 1.2 points below its 1972-2013 average. This indicates there is still some production slack in the economy, which puts downward pressure on inflation. Capacity utilization slipped across all three main categories.

The Numbers

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

Returns through 11-14-2014

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

0.0

 5.2

  4.6

  2.7

  4.2

4.7

US Stocks-Standard & Poor’s 500

  .4

 12.3

16.3

20.2

15.7

7.8

Foreign Stocks- MS EAFE Developed Countries

   .9

-2.9

 0.0

11.0

  5.7

5.3

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 author and AARP finance expert, Jane Bryant Quinn: “Saving and spending in retirement.”

Laurie and her guest 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. 

Personal Notes

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I love my new iPhone. The 6 plus is big enough to take the place of my iPad and small enough to fit into my pocket. Its operating system handles voice recognition very well for accurate dictation. The quality of the photo pictures and video is very impressive. Apple has improved the battery life, made it thinner, and reduced its weight. And, it does not bend, contrary to initial, unsubstantiated claims.

Thomas M. Riddle
President, VNFA

The Markets This Week

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Stocks finished the week modestly higher in quiet trading, a notable contrast to the fireworks of previous weeks. Led by telecom, consumer discretionary, and technology stocks, the Standard & Poor’s 500 index eked out a small rise Friday, but one big enough to reach a new record close.

With the third-quarter earnings season effectively over, investors focused on the continuing plunge in oil prices. Crude fell 4% to $75.82 per barrel last week. Already beaten-down energy stocks slipped 2%. They’re down 14% since midyear.

That’s made investors look at falling crude cautiously and as a risk to stocks, says Quincy Krosby, a Prudential Financial markets strategist. After positive retail numbers came out Friday, the market is starting to view collapsing energy prices as a net positive, she adds. U.S. October retail sales rose 0.3% from September, the Commerce Department said, higher than expectations of 0.2%. This suggests that lower gasoline prices are fattening consumers’ wallets, adds Giri Cherukuri, head trader at Oakbrook Investments.

“Lower pump prices mean consumers have money to spend on other stuff,” he says. A boost came from Wal-Mart Stores ’ (ticker: WMT) better-than-expected third-quarter report Thursday. Domestic comparable sales rose 0.5%.

The Dow Jones Industrial Average rose 61 points or 0.35% to 17,634.74 on the week, and the S&P 500 gained 8 to 2,039.82. The Dow finished off a high reached Thursday. The Nasdaq Composite index rose 56 or 1.2% to 4688.54.

Another bit of positive news Friday was that euro-zone gross domestic product grew 0.2% in the third quarter, more than feared.

(Source: Barrons Online)