Highlights of this Month’s Review/Outlook:
- Time is running out for your personal year-end review. Call today to schedule yours.
- Year-end items to consider for 2016.
- Stock markets rally after election-a surprise to many.
- Interest rates spike on anticipation of future growth and inflation.
- Mortgage rates rise.
- Our outlook remains positive into early next year.
READ ON FOR ADDITIONAL DETAILS……………………………………
If you have not yet done so this quarter, now is the time to call and schedule your personal year-end review. Our calendar is filling up fast for the rest of this year, so please call us today for either an in-person or phone review at your earliest convenience!
Year-End Items to Consider:
- If you have retirement accounts outside our management services and are 70 ½ years old or older in 2016, you need to be sure you take the Required Minimum Distribution (RMD) from your accounts before year-end. The tax penalty for failing to do so under current law is 50%! Each year we always make sure all our clients meet this requirement for the accounts we supervise and manage for them.
- Make planned charitable contributions by December 31st to count towards your 2016 tax deductions. Certain limits can apply.
- TEACHERS: Congress made permanent a provision that allows elementary and secondary school teachers to claim a $250.00 “above-the-line” deduction for out-of-pocket classroom expenses such as books and supplies. If you haven’t taken advantage of this yet for 2016, now may be the time to “stock up” on supplies to get the deduction this calendar year. Ask your tax professional for further details.
- Fund HSA (Health Savings) accounts. The 2016 limits for family high-deductible health plans are $6,750.00, with an additional $1,000 “catch up” contribution for those age 55 and older. You have until your file your 2016 tax return or April 15th of 2017 to make your full yearly contribution.
- There are many more items to review for your year-end planning as well. We have a “2016 Last Chance” year-end planning checklist that we can provide to each of you that can assist in providing a comprehensive look at possible issues for consideration. Call or email us today for your copy.
The Markets and the Election:
November was a month we won’t soon forget. The Election Day results that put Donald Trump in the win column caught most professional pundits off guard. The subsequent reaction in the market came as quite a surprise, too, with the major U.S. indices jumping to new 2016 highs. The Dow Jones Industrial Average closed out November at 19,123.58, up 9.75% for the year. The broader based Standard & Poor’s 500 stock index jumped 3.42% for the month of November, and has gained 7.58% after 11 months. (Google Finance)
Wasn’t a Trump win supposed to send shares lower, perhaps much lower? Weren’t we going to get a Brexit-like reaction in stocks? Didn’t investors prefer a win by Clinton because she represented continuity, even if her professed policies weren’t always business friendly? The answer to each question is yes. Stocks briefly plummeted in overnight trading as it became clear that Trump was about to pull off a surprising win over Clinton. (Bloomberg). A gracious victory speech by Trump, which was followed by a conciliatory concession speech by Clinton, seemed to soothe concerns. Missing from Trump’s victory speech were the more controversial policies he advocated during the campaign. All in all, it was a remarkable shift in investor sentiment that had been very wary of a Trump presidency.
Then, rational investors did what rational investors do – they turned their focus back to the fundamentals and liked what they saw. The equity/stock portion of our portfolios has performed very well this year after eleven months relative to risk and respective indices. We are looking for a strong finish for 2016 as we move into December.
The outlook for possible tax cuts and higher spending would likely bring about faster economic growth. But it could also boost the federal deficit. Moreover, we could see an uptick in inflation. All three acted like a perfect storm for the bond market, sending yields sharply higher; as investors bailed out of bonds (bond prices and bond yields move in opposite directions). The yield for the 10 year U.S. Treasury jumped to 2.37% as of November 30th, after touching a low of just 1.36% back on July 5th. That’s a jump of over a full percent. This compares to the 2.27% back at the start of 2016. (CNBC, U.S. Treasury)
Mortgage rates have followed suit. The fixed rate for a 30 year mortgage is now at 4.04% and 3.20% for a 15 year fixed mortgage. (Bankrate.com as of December 2, 2016)
Fortunately we had already moved the fixed income/bond portion of our portfolios to short-term funds in anticipation of higher rates during the summer months this year. The longer term a bond’s maturity, the more the price is negatively affected by rising rates.
Of course, there are always risks to any outlook. We’re hearing plenty of talk of tax reform, higher government spending, and less regulation. While the Republican majority is likely to make headway on lowering the corporate tax rate, plans put forth by Trump and House Republicans that cut individual tax rates differ in various aspects, and compromises will be needed. Tax cuts can have a more immediate impact on the economy, but major infrastructure projects have exceedingly long lead times.
How the market performs over the longer term will likely be tied to the economy, Federal Reserve policy, and the perception of stock valuations. At this time we continue to have a positive outlook for the equity markets and economy into the first quarter of next year. The overall indicators we follow remain affirmative at this point, and if any changes occur, we can make adjustments as warranted. We will eventually enter a recession. That’s inevitable. But the odds of one occurring in the near term are currently low. We will keep you posted.
We hope you and your family had a very blessed Thanksgiving and wish you all a safe Holiday Season and a very Merry Christmas! We appreciate the privilege to be of service and look forward to working together in the years to come.
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.