Introducing VNFA VIDEO!
Our CEO offers our first video message to you from our new Bethlehem studio. We are devoted to providing the communication and direction you want from the team that you trust in as many convenient formats as possible. Follow us on social media or visit our website at valleynationalgroup.com/video to follow our video features moving forward. Of course, we will also send you messages directly as part of the The Weekly Commentary e-mail newsletter.
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 US economy added 213,000 new jobs in June, and the labor force participation rate is now on the rise. Jobs are available for those who want them. |
|
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.
by Jessica Goedtel, Senior Associate
If you are on a high deductible health plan, you may have access to a Health Savings Account (HSA). Recently these have become very popular due to their “triple tax exempt” nature. First, if you contribute to your account via payroll, contributions will come out pre-tax. Alternatively, you can make after-tax contributions but receive a deduction on your tax return.
Second, you are not taxed on any investment growth in the account. Some plans offer a variety of investment options, others may work as a simple savings account. Check with your plan administrator to see what options are available to you.
Third, any distribution for qualified medical expenses is not taxable. And, unlike a Flex Savings Account (FSA), the balance can be carried over each year. If you are nearing retirement this could be an excellent strategy to save for medical expenses.
The contribution limits for HSAs for 2018 are $3,450 for a single person plan, and $6,900 for a family plan. If you are over the age of 55, you can increase your contribution by $1,000. One important item to consider is that once you become eligible for Medicare at age 65, you can no longer make contributions.
If used correctly, an HSA can be a very powerful tool in your financial plan.
“A good teacher is like a candle – it consumes itself to light the way for others.”
– Mustafa Kemal Ataturk
by Connor Darrell, Head of Investments
Markets managed to climb higher during the abbreviated holiday week, bolstered by the June jobs report, which provided evidence of further strengthening of the U.S. labor market, but not quite enough to suggest the Federal Reserve would need to accelerate its policy tightening. Although the official unemployment rate pushed back up to 4%, the U.S. economy added another 213,000 jobs in June and the increase was due primarily to higher labor force participation (a higher percentage of the population is looking for employment). Wages, which are being watched closely by economists due to their logical connection to inflation, rose 2.7% from a year earlier.
Monetary Policy Update
While they pose challenges over the short term for both stock and bond investors, rising interest rates aren’t all bad. As a result of the Federal Reserve’s policy tightening, the yield on a one-year treasury bill is now roughly even with the core rate of inflation (core inflation removes more volatile energy and food prices from the measurement) for the first time since before the financial crisis. This is good news for savers, as it means that those invested in short-term treasuries are no longer “losing” out in real terms. This will be an interesting area of focus over the next 12-24 months, since inflation expectations are also heating up due to the low rate of unemployment and overall health of the US economy.
As rates rise, the opportunity to earn a higher yield on short-term bonds without increasing credit or interest rate risk will be a welcome change from recent years.