The probability is growing for a “needs test” taking away part of well-to-do retirees Social Security benefits. In one possible scenario, a formula will be devised to take back part of Social Security benefits for those above certain thresholds of income or net worth.
New studies from two Ivy League schools Harvard and Dartmouth researchers concluded Social Security really is in worse shape than most originally thought. In looking at the Social Security Administration’s actuarial forecasts the Ivy League researchers found that these have been consistently overstating the financial health of the program’s trust funds since 2000.
If you are thinking a “needs test” is far-fetched, consider this. When I prepared my first income tax return in 1977, retirees’ Social Security were NOT taxed. However, in 1984 the US Government levied its first “needs test” by taxing 50% of retirees’ Social Security-thus taking away part of well-to-do taxpayers benefits through the income tax system. In 1993, the US Government increased the level to 85% on higher income retirees. In effect, two “needs tests” have been levied in an effort to remedy the distressed Social Security system. The probability is rising on a third.
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: This grade is a B (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 C (average).
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 2, the same as last week. These risks deserve our ongoing attention.
Last week,U.S. Stocks and Foreign Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.
Returns through 5-15-2015
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds- BarCap Aggregate Index
.1
.9
3.2
2.3
3.9
4.7
US Stocks-Standard & Poor’s 500
.4
3.9
15.8
19.4
15.8
8.5
Foreign Stocks- MS EAFE Developed Countries
1.4
11.3
3.2
14.7
9.7
5.9
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.
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 and her guest, Dan Banks of Silver Crest Insurance will discuss: “Medicare Insurance Plans and Planning.”
Laurie and Dan will take your calls on these topics and other inquiries this week. This show will be broadcast at the regular time. Questions may be submitted early through www.yourfinancialchoices.com by clicking Contact Laurie. 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.
Undeterred by another round of soft economic data released last week, investors sent the Standard & Poor’s 500 index to an all-time high. This year’s new highs, however, have been modestly above previous records, unlike last year’s sharp moves. Chalk that up to perverse circumstance. In normal times, investors want a growing economy and rising corporate earnings. Today, however, that otherwise rosy scenario almost certainly would mean higher interest rates. Good news would be bad news.
Rates eventually will rise, but the market consensus is that the Federal Open Market Committee, the Fed’s policy-making arm, won’t raise interest rates at its next meeting, scheduled for June 16-17. That helps explain why the market has been scratching its way higher. A September hike remains an open question. While jobless claims last week were decent, the latest figures on U.S. retail sales, consumer sentiment, and industrial production were all weaker than expected.
“There’s nothing out there that’s changing the market narrative,” says Michael Matousek, head trader at U.S. Global Investors. The market range has gotten even tighter in recent weeks, like a spring coiling. “If you get a little trading volume, it could be the start of the next leg higher,” he says.
The Dow Jones Industrial Average gained 82 points, or 0.5%, on the week, to 18,272.56, and the Standard & Poor’s 500 index rose 7 to 2122.73. The Nasdaq added 45, or 0.9%, to 5048.29.
LAST WEEK’S ACTION says “the Fed hike is off the table for June, and perhaps even for September,” says Adam Sarhan, CEO of Sarhan Capital. “The Fed has said its action is data- dependent, and the data [are] weak.”Sarhan says that a catalyst to propel the market out of its range trading could be the growing conviction that a September rate hike won’t happen.
Following a weak first quarter, the economy hasn’t shown much verve, notes Anwiti Bahuguna, a senior portfolio manager at Columbia Threadneedle Investments. There’s no reason for the Fed to tighten, she says.Expectations for earnings growth haven’t improved in the current quarter, and consumers haven’t stepped up their spending, so that doesn’t bode well for second-quarter growth, Bahuguna says, adding, “It might be a rocky period.”
Significant sales gains, and thus profit growth, probably won’t be seen until the fourth quarter. Meanwhile, summer is a traditionally weak season for stocks, with lower trading activity. What’s to get excited about? For the time being, it’s low rates.
