Highlights of this Update:
- S. stock indices dip in October, but remain positive year-to-date.
- Interest rates move slightly higher, mortgage rates remain low.
- Uncertainty increases over the upcoming election.
- Corporate earnings increasing again overall.
- Long Term care costs could be your biggest challenge in retirement.
READ ON FOR FURTHER DETAILS………………………………..
October produced negative returns for the major U.S. stock indices, with the Dow Jones Industrial Average falling .91% but still 4.12% higher for 2016 through October 31st. The Standard & Poor’s 500 Index gave up 1.94% last month, keeping its 2016 gain at 4.02%. (MarketWatch) Uncertainties regarding the upcoming election continue cropping up almost weekly, and this will probably keep the stock markets at bay until after next week’s results. As we have said many times before, the markets do not like uncertainty or surprises, and with just a week left before the election process, there are many questions that remain, both regarding the Presidency as well as the make-up of Congress. Once the election results are known, the markets should once again focus back on corporate earnings and economic data and “life goes on”, although some additional volatility could be expected over the next few weeks.
Interest rates crept higher last month with the yield for the 10 year U.S. Treasury ending at 1.84%, up .24% in October, but still lower than the 2.27% at the start of this year. (U.S. Treasury) Mortgage rates have managed to remain low. The current national average for a 30 year fixed mortgage now stands at 3.51% and 2.8% for the 15 year fixed rate. (Bankrate.com)
Our overall indicators remain generally positive for the markets at this time, even with the recent dip in stock prices. We continue to monitor this on a regular basis, and can make adjustments when warranted. At this time, we would expect to see a positive finish for 2016 in the fourth quarter once the election is behind us and economic data will again become the focus for investors.
Election Uncertainty Increases:
It’s quite obvious that this has been a particularly vicious election, and a surprise announcement by the FBI that it is probing new emails related to Hillary Clinton last Friday is the latest twist.
While there are a wide variety of opinions about the major candidates, an ABC/Washington Post Poll released on October 31st sums up the dissatisfaction among voters. According to the survey 59% of voters view Hillary Clinton unfavorably, her highest negative rating so far. Her Republican opponent Donald Trump is seen unfavorably by an identical percentage. It’s hard to recall a time when such a large portion of the electorate was so unhappy with both candidates for the two major parties.
Next week there will be some who will enthusiastically cast their vote on Election Day for their candidate of choice, and some will undoubtedly be disappointed with the results. Some may even opt to forego their right to vote because of their inability to support any one candidate this year. Barring a 2000-style fiasco or the unlikely situation where a third-party candidate siphons away a few electoral votes and no one reaches the magic 270 level, we’ll soon know who the next president-elect is.
The other uncertainty at present is just what the make-up of Congress will be after November 8th. Historically, a balance between the White House and Congress has been preferable to many in order to maintain a more moderate and balanced stance overall at the Federal level.
As has been the case for nearly every cycle going back decades, investors take their longer-term cues from the fundamentals. Of course, elections matter, but as with every election in the past, once we know the results, “life goes on”.
That said, the economy and Federal Reserve policy are the most important factors in dictating longer-term trends. The Federal Reserve is currently holding its November meeting the 1st and 2nd, rather early in the month. This has also added some additional uncertainty for the markets over the past week or so. It is expected that the Fed may increase interest rates once more this year, but most likely not until after the election at its December meeting.
It’s been fairly obvious that the economy isn’t speeding along. Clearly, growth has been subpar. While it’s encouraging to see that preliminary data showed the economy advanced at an annual pace of 2.9% in the third quarter, a quick review of U.S. Bureau of Economic Analysis data confirms a lackluster trajectory in recent years.
However, modest-at-best growth appears to have put an end to the four-quarter recession in corporate earnings (Thomson Reuters). “Appears” is the appropriate word at this point because one-third of S&P 500 firms must still report (as 10.31.16). Thus far, profits are coming in well ahead of expectations.
That’s important because corporate earnings and expectations for corporate earnings play a big role in supporting stock prices. We also can’t discount the fact that rock bottom interest rates help, too. Low interest rates aren’t as much competition for stocks. So when profits are rising and rates remain low, stocks become an attractive longer-term investment option.
Long Term Care Costs:
A major aspect of your long term planning that cannot be ignored today is the possibility of long term healthcare costs. According to a recent study by Genworth Financial, the current national average cost for a semi-private room in a nursing home is now $6,844.00 per month, and $7,698.00 for a private room. The monthly cost for an assisted living facility is $3,628.00 on average. Actual costs vary by specific city and state location.
There are really four basic options to cover this potential financial drain on personal assets:
- Self-Insure: Using personal assets and income to cover costs as they arise.
- Long Term Care Insurance: Purchase an insurance policy to cover potential future costs. New types of policies known as “asset-based” coverage are now available and can be a very cost-effective way to provide for the potential expenses in the future without the risk of possible rate increases or total loss of premiums paid. Benefits can also be paid for “in-home” care with most policies.
- A combination of both above options; to partially self-insure and also purchase coverage for at least a portion of possible expenses that could be incurred in the future.
- Rely on Medicaid and spend down all your assets until you would qualify for this Government assistance program. Medicare covers only a small portion for a very limited time of long term care costs with specific requirements to be met or there is no coverage at all. This would be the least desirable option for the majority of individuals.
This is an area that should be addressed within a long term plan and for many, could be the biggest financial risk in their retirement years. We can help evaluate your own personal needs and possible risk and also review your current plan to see what action, if any, should be implemented to help prepare and account for this financial risk. Call us today so we can update your long term planning and address this and any other issues or concerns you may have at this time.
We encourage all of you to get out and exercise your right to vote next week for the candidates of your choice. Even with all the division and turmoil in politics this year, if you can pick THE most important single issue to you personally at this time and then evaluate which of the candidates best represent your number one concern, it may be a good way to decide how you will cast your vote.
Your TEAM at F.I.G. Financial Advisory Services, Inc.
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1 The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
3 The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.