Daily Archives: February 26, 2019

The Numbers & “Heat Map”

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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

We have downgraded our consumer spending grade to A from A+ following weaker than expected December retail sales data and some declines in consumer confidence surveys. However, monthly data can be volatile and we still believe that the US consumer is in a healthy position.

FED POLICIES

C-

The Federal Reserve implemented four interest rate hikes during 2018, and while the rate hike cycle appears to be on pause for now, rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.

BUSINESS PROFITABILITY

B+

Corporate earnings remain strong, but we anticipate earnings growth will taper off in 2019. We are also beginning to see a higher number of companies reducing forward earnings guidance, a sign that earnings growth may have reached its peak in 2018.

EMPLOYMENT

A+

The US economy added 304,000 new jobs in January, soundly beating estimates for the second straight month. The labor market is one of the strongest components of the economic backdrop at this time.

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.

Did You Know..? TAX TIPS

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Are you charitably inclined, not able to itemize but close to age 70 ½? 
A couple options: 1. Consider postponing charitable giving until you reach age 70 ½ and can make charitable donations directly from your IRA; 2. Calculate the amount of your annual charitable giving times the number of years until age 70 ½ and see if it makes sense to “bunch” your charitable giving into one tax year using a donor advised fund.

Do you hate making estimated tax payments on that unearned income? 
If you really don’t like having to remember to make quarterly estimated tax payments and have income available for federal income tax withholdings such as wages, pensions or IRAs, consider adjusting your withholding to cover any balances due. You can request additional amounts to be withheld from wages or up the percentage withheld on other sources such as IRAs or Social Security.

IRMAA – Income related monthly adjustment amount on your Medicare premiums. 
Do a little tax planning to help manage the premium adjustments on your Medicare because of high income thresholds. If you have had a substantial change or life event in your income circumstances, you may qualify for an adjustment. Click here for the Medicare Income-Related Monthly Adjustment Amount – Life Changing Event Form SSA-44.

For more tax tips and related resources, visit our website at valleynationalgroup.com/tax

The Markets This Week

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by Connor Darrell CFA, Assistant Vice President – Head of Investments
U.S. equities moved modestly higher last week, helped along by the release of the minutes from the most recent Federal Reserve policy meeting, which seemed to provide further evidence that policy tightening may be put on pause. Market sentiment has changed dramatically since the end of 2018, and the Dow Jones Industrial Average has now achieved its longest streak of weekly gains in nearly 25 years. However, economic data released last week was mixed, and many of the risks that concerned markets during 2018 still lurk.

International stocks outperformed their U..S counterparts despite rising uncertainty surrounding the potential fallout from a “no-deal” Brexit and some disappointing European manufacturing data.

Q4 2018 Earnings Update
Roughly 90% of companies in the S&P 500 have now reported Q4 2018 earnings. According to Factset, the blended earnings growth rate for those companies that have reported is 13.1%, a full percentage point higher than the estimates that were in place at the end of 2018. However, the data hasn’t been all rosy. During earnings calls, 68 S&P 500 companies have issued negative EPS guidance and only 25 have issued positive EPS guidance. Additionally, profit margins for U.S. companies are expected to show a year-over-year decline for the first time since 2016. 

As the economic cycle continues to mature, it is reasonable to expect a moderation in corporate earnings and profitability, especially when considering the uncertain macroeconomic environment (concerns over escalating trade tensions, Brexit, etc.) that global businesses have faced over the past several quarters. All in all, the first earnings reporting season of 2019 has brought no major surprises, and the double-digit earnings growth rate posted during Q4 is still a healthy one.

“Your Financial Choices”

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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 discuss: “Tax Information – a collection of important topics and reminders.”

Laurie will take your calls on this or other topics at 610-758-8810 during the live show, or via yourfinancialchoices.com. Recordings of past shows are available to listen or download  at both yourfinancialchoices.com and wdiy.org.