My income tax return
preparation business is 37 years old (since 1977). I recall the chatter surrounding the 1986 Tax
Reform Act which overhauled and simplified the tax code. Experts predicted more people would prepare
their own taxes and there would be a significant drop in the need for tax
professionals. Well, that never
occurred. Instead, Congress and state lawmakers
added more twists and turns to the tax code to either clarify existing law or
to create more law – mostly to satisfy special interest groups. Each new president promises tax
simplification. Proposals fly for a flat tax, a consumption tax, a fair tax—and
they’ve all died sad little deaths in Congress.
And, to top it off the states have joined in to create a second layer of
complexity involving multi-state returns.
In Pennsylvania, the local returns sometimes cause even more
complications. Oh, don’t forget about
the complexity of the Affordable Care Act (aka ObamaCare). Talk about job security!
Author Archives: The Weekly Commentary
The Markets This Week
“Mo” stumbled again. The once-popular momentum stocks continued their reversal last week, pressuring the broad market, which fell more than 2% in volatile trading.
As they have since late February, investors shed highly valued shares of mostly small and mid-sized biotech and social media companies, market leaders in 2013. Last week weakness spread to big “old” technology stocks considered safe havens such as Microsoft (ticker: MSFT), which fell 1.7%, to $39.21.
While first-quarter earnings released Friday from banking bellwether JPMorgan (JPM) were weaker than expected, and its stock fell 7.5%, there appears to be no discernible reason for the downdraft other than high valuations of stocks leading the retreat.
“There’s been a core of momentum stocks like Tesla Motors (TSLA) and others that nobody could find [satisfactory] valuation methods for,” says Scott Colyer, CEO of Advisors Asset Management. Without traditional value measures for these stocks, some investors began to balk, then it snowballed.
The Dow Jones Industrial Average fell 386 points, or 2.3%, to 16,026.75, and the Standard & Poor’s 500 index lost almost 50 points to 1815.69. The technology-heavy Nasdaq Composite index, plunged 3.1%, 128 points, to 3999.73. The small-cap Russell 2000 fell the most, down 3.6% to 1111.45.
It’s been 18 months since investors have experienced this kind of volatility, and many view the pain as a healthy corrective after a huge run-up. “I hope it gets ugly, but not too ugly,” adds Colyer, who thinks the market might test its 200-day moving average, down to about 1760 on the S&P 500.
Speaking of technical moves, one divergence that bears watching is the weekly number of individual stocks making new highs, which peaked at 925 on May 10, 2013, according to Ned Davis Research. Adds Frank Gretz, a technical analyst for Wellington Shields, that number dropped to 700 late last year and more recently close to 500, even as the broad stock market indexes continued to make new highs.
“It’s a bad sign,” Gretz notes, considering that in bull market history, the peak in the number of stocks making new highs comes roughly a year before the bull itself peaks. But there’s a divergence from the divergence: The stocks leading the bull market are usually the last ones to hang on. (Barrons Online).
Weekly Barometer
Jobs numbers continue to improve and as long as this trend continues it should translate into increased consumer confidence and real economic growth.
United States Initial Jobless Claims
Initial Jobless Claims in the United States increased to 304 Thousand in the week ending April 12th, 2014 from 302 Thousand in the week ending April 5th, 2014. Initial Jobless Claims in the United States is reported by the U.S. Department of Labor.
|
United States Continuing Jobless Claims Continuing Jobless Claims in the United States decreased to 2739 Thousand in the week ending April 5th, 2014 from 2750 Thousand in the previous week. Continuing Jobless Claims in the United States is reported by the U.S. Department of Labor. |
Heads Up!
Since 1990, the month of April
has been the 2nd best performing month during the year. Its average rate of return equals 1.8%. (The
best performing month – December; the worst performing month – August).
NOTE: The data above is based upon the S&P 500
Index which is a group of 500 U.S. stocks weighted as to each stocks’ market
capitalization proportionate to the other stocks within the group. Investors cannot invest in the S&P 500
Index.
The “Heat Map”
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: I grade this factor a C- (below average)
THE
FED AND ITS POLICIES: I 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: I have
downgraded this factor to a B- (above average). We
have reached the end of the first quarter and it showed little sign of the
acceleration many are expecting. We can
expect more stock market volatility from lower-than-expected first quarter
earnings reports, out in April and May. One well known analyst issued a consensus
first-quarter earnings-per-share growth projections for S&P 500 companies declining
to 1% to 2% from 6% to 7% as the year began. The severe winter weather that
gripped much of the U.S. in January and February may yet be seen again in many
first-quarter reports. The question
remains whether the warming weather will bring the economic acceleration stock
market analysts expected to occur starting in January.
The Economy
In a light reporting week, economic data
last week indicated an improving jobs market, an upwardly revised Gross
Domestic Product, personal spending bouncing back, and personal incomes rising
along with durable goods orders.
The upcoming week is very busy with the
all-important jobs report being issued on Friday.
The Numbers
Last week, Foreign Stocks and Bonds
increased but U.S. Stocks declined. During
the last 12 months, STOCKS outperformed BONDS.
|
Returns through 3-28-2014 |
1-week |
Y-T-D |
1-Year |
3-Years |
5-Years |
10-Years |
|
Bonds- BarCap Aggregate Index |
.3 |
1.9 |
-.1 |
4.0 |
4.9 |
4.5 |
|
US Stocks-Standard & Poor’s 500 |
-.4 |
1.0 |
20.9 |
14.8 |
20.4 |
7.5 |
|
Foreign Stocks- MS EAFE Developed Countries |
1.9 |
-.6 |
13.7 |
4.0 |
11.9 |
3.8 |
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”
“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 and her guest, Eileen Budd from Budd Insurance Agency, will discuss: “Tips on insurance coverage.”
Laurie and Eileen will take your calls on these topics and other inquiries this week. 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.
Money Quote of the Week
“The
quickest way to double your money is to fold it and put it back into
your pocket. “
– Will Rogers
Personal Notes
Finally, winter is
over! How do I know for sure? Baseball starts this week.
I am a big fan of
the Pittsburgh Pirates. Last year the
Pirates had their first winning season in 21 years, made the play-offs, and
came very close to defeating the St Louis Cardinals in the divisional match-up.
I have high hopes of another winning season although my hopes have been
tempered because Pittsburgh lost 3 veteran players and one pitching ace to the
free agency market. I suspect the
Pirates have a very good starting pitching rotation and one of the best bull
pens in the Major League. Pitching could
make the difference!