What would make investors shake the negative investment sentiment which seems to be in control of the stock and bond market? A douse of “reality”. Actual corporate earnings reports are the “reality” the stock market needs to fend off fears of what might happen or not. Over 50% of the S&P 500 will announce quarterly earnings during the next 10 days. That’s a lot of reality. I suspect we will be surprised how many companies beat their earnings estimates because of lower operating costs resulting from a plunge in energy costs.

Despite sinking 2.2% last week, the Standard & Poor’s 500 has yet to drop the necessary 20% for designation of a “Bear Market”. Still, the popular benchmark is more than halfway there, and as much as we hate to admit it, we should at least consider the possibility that this is the start of something more than your run-of-the-mill correction (a “correction is defined as a drop of more than 10% – but less than 20% from recent highs). But it is important to understand Bear Markets that occur during times of NO RECESSION tend to be shallower and recover more quickly. And, it is extremely important to understand that unlike 2008, the U.S. economy has a very good chance of AVOIDING a recession in 2016. For more information about Bear Markets, click here.

RECOMMENDED ACTION: make sure any portfolio withdrawals anticipated during the upcoming 18 months (from your portfolio) are in more stable short term bonds or money funds. If you are aware (and we are not) of an upcoming withdrawal for a new car, home renovations, second home purchase, etc., please notify us ASAP to make sure the anticipated withdrawal is not invested in stocks or stock mutual funds.

Fear and high frequency traders were in full force during the first week of 2016. The result was a turbulent week in the worldwide stock markets. Fears about China’s economic slowdown and crashing oil prices shook investors’ resolve. At times like this, investors should be reminded of behavioral tendencies which lead to knee jerk reactions and mistakes. For more information about common mistakes investors make, click here.

We believe the job of economic forecasting is very difficult. In an effort to create a base line (which we will update throughout 2016), let’s take a look at what a widely read magazine, “The Economist” has to say on the topic of the 2016 Global Wealth Forecast:

“EMERGING markets have given the global economy most of its muscle since the recession ended in 2009. But in 2016 rich countries will account for their largest share of global growth this decade. The BRICs are in a sorry state. Brazil’s government has been both incompetent and corrupt. Russia’s has been no better, with a dose of military malevolence thrown in. China will perform reasonably well in 2016—if you believe the government’s numbers. By that reckoning, its GDP will rise by around 6.5%. The reality almost certainly will be lower. China is mired in debt and has mismanaged its currency and stock markets, sending shocks through the global economy. India looks perkier: it will grow by more than 7%. But that is worse than its average of 8.5% growth between 2005 and 2010. All said, the BRICs will make up only 16% of worldwide growth in 2016.

Against all this, the rich world will look solid, if unspectacular. America’s economy will expand by around 2.5%, and the American jobs machine will crank out at least 2m new positions for a sixth straight year—the first time that has happened since the 1990s. Europe will no longer be threatened by recession or deflation, and the euro zone’s most obvious time-bomb, Greece, has been defused for now.

The world economy as a whole is forecast to grow by 2.7% in 2016, and it hasn’t managed an increase of more than 3% since 2011. Save for America, 2016 will be another year of repair, recovery, reform and risk for most countries.”

Here is some important information for those with disabilities or those who care for someone with disabilities:

The ABLE Act was passed into law one year ago. But, the ABLE Act included a “residency requirement” meaning that a qualified individual could only open an ABLE account in the state where he or she resides and could not “shop around” to other state ABLE programs. This turned out to be an unjust penalty for Pennsylvania and New Jersey residents whose state governments failed to pass the state version of the ABLE Act (33 states passed it but PA and NJ failed to do so).

This “residency requirement” restriction was stricken from the ABLE law when President Obama signed the Tax Extenders bill. Now PA and NJ residents can move forward to set up an ABLE Act account through another state.

The ABLE Act amends Section 529 of the Internal Revenue Service Code of 1986 to create tax-free savings accounts for individuals with disabilities. The bill aims to ease financial strains faced by individuals with disabilities by making tax-free savings accounts available to cover qualified expenses such as education, housing and transportation. The bill supplements, but does not supplant, benefits provided through private insurances, the Medicaid program, the supplemental security income program, the beneficiary’s employment and other sources. Click here to see more info.

Many financial planning professionals feel the ABLE Act has the potential to be a significant financial planning tool for those with disabilities. Feel free to contact us if you have any further questions.

Over the weekend significant income tax legislation was signed into law by President Obama. Over 100 different income tax provisions will deliver over $600 Billion of income tax breaks – enough to make tax and financial planners busy as they apply the tax breaks to real-life situations. We intend to report those to you in future issues of The Weekly Commentary. The main areas of tax breaks are:

• State Sales Tax deduction
• Child Care Credit
• Teacher Classroom Expense deduction
• Charitable Distributions from IRA’s (for those over 70 1/2 )
• Conservation Contributions
• Tuition related expense deduction
• A huge jump in Section 179 expensing for business which buy equipment
• Bonus depreciation
• Research Tax credit
• Solar Energy incentives
• Residential Energy credit

Click here for additional information on these tax breaks.

Nine out of 10 FED-watching experts believe the FED will raise rates Wednesday. This event has been heavily anticipated for quite some time. Experience tells us, when an important event (like the FED initiating a program of interest increases) can be foreseen for a long period before it occurs, the markets will have already factored the event into their models and portfolios by the time the event occurs. The preamble to the event is frequently more volatile than the actual event itself. At times like this, it is important to keep a long-term view of your portfolio and keep an eye on the indicators listed below in the “Heat Map”.

21 of the last 25 Decembers have produced a positive total return for the S&P 500. The average December performance during this 25 year period is a gain of +2.0%, the best of any month.

What is the impact of the terrorist attacks in Paris?  I do not know for sure.  So many variables exist, the outcome is unknowable at this time.

But, we believe the implications will be vast, far reaching, and BIG.

FOR EXAMPLE, we recall attending an investment conference last decade during which a futurist (one who forecasts what the future holds based upon his or her insights) predicted a number of developments – one of which was the demise of the European Union as a result of immigration and racial tensions.  I think we can see more clearly how that is a possibility.

Here in the United States the issue of States’ Rights (one of the causes of the Civil War) will come front and center in the debate over the Syrian refugees’ settlement within America. The topic of Syrian refugees will enter into the Presidential debates in the coming months.

And, France may invoke Article 5 of NATO (North Atlantic Treaty Organization) which, in effect, is a declaration of war by NATO on ISIL. Is it possible? YES. It was invoked after America was attacked on 9-11. Click here for a comprehensive description of the issues surrounding Article 5.

President Obama expected to sign into law a Federal Budget which will close Social Security Loopholes.

Recent budget legislation that came through in the midnight hours at the end of last week impacts Social Security planning for many retirees by closing what is deemed to be loopholes for those reaching Full Retirement Age (FRA) such as: 1) certain benefits for filing and suspending an application for one’s own benefit while opening the window for family members to file on that same record and 2) filing a restricted application for benefits on a spouse’s record. These strategies available to those who are FRA and do not need the benefits for cash flow needs allow delayed credits which amounts to an increase of benefits of 8% per year.

It all started back in 2000 when Congress passed the Senior Citizens Freedom to Work Act which allowed voluntary suspension of Social Security benefits. This may have been applicable if a worker changed their mind and decided to go back to work. When a worker suspended their own benefit at FRA, they were still eligible to file for a spousal benefit while building up their own benefit.

As of this writing the President has not yet signed the legislation but the following is a summary as we understand it at this time.

• Anyone who is already collecting Social Security on their own record or on a spouse’s record, will not be affected.
• Six months from the legislation being enforced, recipients will no longer be able to file restricted applications for just spousal benefits. Exception: The new limits to restricted applications will not apply to anyone who is already age 62 or older in 2015; they can still file a restricted application for spousal benefits when they turn Full Retirement age over the next four years.
• Suspending your own benefit will also suspend benefits to others, such as spouses or dependent children, eligible for benefits on the same earnings record. Exception: Anyone currently utilizing file and suspend will be grandfathered. Beyond the six months of enactment, filing and suspending will have limited purposes such as when someone begins to file and then changes their mind.
• 180 days after enactment, benefits earned during suspension will no longer be eligible for a lump sum payout should the recipient “unsuspend.”
• Survivor benefits have not changed. They are still allowed to file a restricted application for survivor benefits while delaying their own.

For more information, contact Valley National’s Senior Vice President Laurie Siebert CPA, CFP®, AEP®.