Heads Up!

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If you are eligible to contribute to a Roth, I strongly recommend you do so. If you are not eligible, consider gifting to your child or grandchild if they are eligible. Roth IRA’s are one of the best long term investment opportunities available.

A Roth IRA is a retirement savings account that allows your money to grow tax-free. You fund a Roth with after-tax dollars, meaning you’ve already paid taxes on the money you put into it. In return for no up-front tax break, your money grows and grows tax free, and when you withdraw at retirement, you pay no taxes.

In order to contribute to a Roth IRA, you must have employment compensation, and then there are income limits.

The deadline for making a contribution for 2014 is April 15, 2015. There is still time: e-mail or call me for more details.

The Economy

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Last week one significant negative economic report was a very disappointing jobs report. Financial experts are in disagreement as to its implications. Here is one expert’s opinion that seems to make sense:

Known for his bullish outlook on the U.S. stock market, Fundstrat Global Advisors founder Tom Lee is not overly worried about Friday’s disappointing jobs report. He said, however, that it would be cause for concern if the sluggish pace of economic growth in the first quarter continues in the second quarter.

Government data showed on Friday the United States added just 126,000 jobs in March, well below consensus estimates for 245,000 new positions and the weakest report since December 2013. Lee noted that U.S. gross domestic product growth is currently tracking below the Federal Reserve’s expectation of at least 2 percent.

“I think if Q2 is tracking at the same level we’d have to worry, but I think that a lot of these are temporary factors,” he told CNBC’s “Squawk Box.” “The dollar (Exchange: .DXY) is reversing, construction was a drag in the first quarter, government was a drag. We don’t expect to see these the rest of the year.”

The question investors need to keep in mind, Lee said, is whether there is pent-up demand in the United States and whether the economy is capable of generating organic growth.

While capital spending was also weak in the first quarter, Lee expects U.S. producers to utilize more of their capacity, which is often a precursor to capital spending.

The “Heat Map”

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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 reduced to a B (favorable) due to a slowdown in spending. It may be weather related. We will find out in the next 3 months.

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). Many forecasters are starting to think earnings will be flat in 2015 thanks to the dollar’s potentially painful influence. Negative first quarter earnings warnings will begin soon and the March quarter at least will be terrible for energy companies, poor for most big companies, and weak in general.

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.

The Numbers

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Last week, Foreign Stocks and U.S. Stocks and Bonds all increased. During the last 12 months, STOCKS outperformed BONDS.

Returns through 4-3-2015

1-week

Y-T-D

1-Year

3-Years

5-Years

10-Years

Bonds- BarCap Aggregate Index

.6

1.7

 6.2

 3.1

 4.6

4.9

US Stocks-Standard & Poor’s 500

.6

.9

11.6

15.8

14.3

8.1

Foreign Stocks- MS EAFE Developed Countries

.2

6.3

-.1

9.4

6.2

5.1

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”

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“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 will discuss: “TAX season wrap-up and what did we learn?”

Laurie 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. 

The Markets This Week

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U.S. equities moved slightly higher in a short week of quiet trading. The major indexes inched up but airlines fell 5% and biotechs slipped 4%. The Nasdaq also bucked the trend and fell slightly.

Investors continue to be confounded by hot and cold running U.S. economic data, which has kept the market range-bound since late November. Expect markets to be weak Monday after the latest example, Friday’s payrolls data, released when U.S. stock markets were closed in observance of Good Friday. Bond markets rallied Friday, but the dollar and stock futures fell.

The Labor Department said March nonfarm payrolls rose 126,000, far below expectations of almost double that. Earlier in the week saw a mix of lower jobless claims but a softer-than-expected private payrolls number, as well as a weak factory activity report that conflicted with a stronger purchasing managers’ index.

In the game of assessing whether bad news is really bad news, Friday’s data are probably bad news for equities. They indicate slower growth, and investors wonder if the Federal Reserve will move more slowly with anticipated interest-rate increases later this year or keep to the presumed September hike.

The “safe zone” would have been 200,000 to 300,000 payrolls, says James McDonald, chief investment strategist for Northern Trust. Because of conflicting data, investors want to see a better economy before taking on more risk in the form of stocks, he adds.

“Don’t read too much into payrolls, however, as it’s an often-revised number,” adds Jason Pride, director of investment strategy at Glenmede Investment and Wealth Management. Bad weather, a strong dollar, and weak energy prices probably played their part in depressing the numbers, he says. There remain positive economic signs here and in Europe, he adds. Pride points out that the bigger picture for jobs is improving (Source: Barrons Online).

Heads Up!

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The IRS has experienced huge cybersecurity losses during the past several years by hackers stealing taxpayer’s identities and then filing for fraudulent refunds. To stem the losses, the IRS is selectively sending letters to taxpayers to verify identities. Taxpayers receiving an Identity Verification Letter should use IDVerify.irs.gov to verify information for the fastest, easiest way to complete the task.

Only those taxpayers receiving Letter 5071C should access idverify.irs.gov.

The website will ask a series of questions that only the real taxpayer can answer.

Once the identity is verified, the taxpayers can confirm whether or not they filed the return in question. If they did not file the return, the IRS can take steps at that time to assist them. If they did file the return, it will take approximately six weeks to process it and issue a refund.

Letter 5071C is mailed through the U.S. Postal Service to the address on the return. It asks taxpayers to verify their identities in order for the IRS to complete processing of the returns if the taxpayers did file it or reject the returns if the taxpayers did not file it. The IRS does not request such information via email, nor will the IRS call a taxpayer directly to ask this information without you receiving a letter first. The letter number can be found in the upper corner of the page.

The letter gives taxpayers two options to contact the IRS and confirm whether or not they filed the return. Taxpayers may use the idverify.irs.gov site or call a toll-free number on the letter. Because of the high-volume on the toll-free numbers, the IRS-sponsored website, idverify.irs.gov, is the safest, fastest option for taxpayers with web access.

Taxpayers should have available their prior year tax return and their current year tax return, if they filed one, including supporting documents, such as Forms W-2 and 1099 and Schedules A and C.

The Economy

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Last week the negative economic reports exceeded the positive. Following is a quick summary of the events:

Positives:

  1. Building permits rose 3% vs an expected rise of 0.5%.
  2. The Fed removed “patient” and US stocks rose 1.2%

Negatives:

  1. Housing starts fell 17% to an annualized pace of 987k vs expectations for a 2.4% fall and 1.04mm homes.
  2. Empire State factory index came in at 6.9, vs expectations of 8 and down from 7.8 previously.
  3. The Philly Fed index came in at 5.0 vs expectations of 7.
  4. The ten-year yield is back below 2%
  5. Mortgage applications fell 2% week over week.
  6. Mortgage Refinancing applications fell 5%.
  7. Industrial production rose 0.1% month over month vs expectations of a 0.3% rise.

The “Heat Map”

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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 an A (very favorable) due to the favorable effect of lower gasoline and heating oil prices.

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. Now it seems investors are back to thinking the first hike will be in September and that there will be fewer this year. Indeed, the Fed’s own median Fed Funds rate projection for 2015’s end, released Wednesday, is about 0.625%, down from 1.12% in December. That brought the central bank closer to the more gradual trajectory that Fed Fund futures market has been predicting all along.

BUSINESS PROFITABILITY: This factor’s grade is a C (average). Many forecasters are starting to think earnings will be flat in 2015 thanks to the dollar’s potentially painful influence. Negative first quarter earnings warnings will begin soon and the March quarter at least will be terrible for energy companies, poor for most big companies, and weak in general.

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.