January 2017
Market Update
(all values as of 04.28.2023)

Stock Indices:

Dow Jones 34,098
S&P 500 4,169
Nasdaq 12,226

Bond Sector Yields:

2 Yr Treasury 4.04%
10 Yr Treasury 3.44%
10 Yr Municipal 2.36%
High Yield 8.19%

YTD Market Returns:

Dow Jones 2.87%
S&P 500 8.59%
Nasdaq 16.82%
MSCI-EAFE 10.28%
MSCI-Europe 13.87%
MSCI-Pacific 3.86%
MSCI-Emg Mkt 2.16%
US Agg Bond 3.59%
US Corp Bond 4.29%
US Gov’t Bond 3.82%

Commodity Prices:

Gold 1,999
Silver 25.33
Oil (WTI) 76.63


Dollar / Euro 1.10
Dollar / Pound 1.24
Yen / Dollar 133.79
Canadian /Dollar 0.73

YOUR FINANCIAL FUTURE/Estate Planning-Do It Yourself or the State Will Do It for You

Intestate, a word that should send shivers up your spine. I’m sure it did for the family members of these famous entertainers: Michael Jackson, Amy Winehouse, Prince, Kurt Cobain, Bob Marley and Jimi Hendrix. It surprised me that these other famous people also died intestate, meaning they did not have a legal will: Howard Hughes, Martin Luther King, Jr. and Abraham Lincoln.

What all these folks have in common is that they did not prepare a plan for their affairs after they died. Their estates took years and thousands of dollars in attorney’s fees to settle. And it is likely in many cases that their assets may not have been distributed as they desired. Of course you have heard “you can’t take anything with you”, but I strongly believe that it is best if you choose who gets it!

Over the next several articles I am going to delve into estate planning. I am not an attorney and am not holding myself out to practice law, but as part of my financial planning practice I do ask if my clients have prepared for the disposition of their assets and whether they have a health care proxy, a durable power of attorney, a trust, guardianship for their children etc. Today we are going to concentrate on perhaps the simplest but essential estate planning tool, a will. Shockingly, two-thirds of Americans die without one. Yet everyone needs a will, not just married individuals or those with children. Single folks have assets too! Without a will you are telling your loved ones the following:

you prefer to have the courts make the decisions regarding the disposition of your assets rather than yourself;

it is OK that people that you may not have even known could end up as heirs to your estate;

while you could have planned to minimize legal costs and estate taxes, you would prefer to enrich your lawyers, your state and the federal treasury departments;

while you could have specified guardians for your children, your family may make those decisions easily or they may argue about it; and finally ……. it is fine if your private and financial affairs are made public.

Dying intestate is a horrific mistake for your family. I know most folks would rather think positively about their future and not about their eventual demise. Death is one event we will not escape so it makes sense to spend the time to plan for your loved ones, your friends and/or those organizations that you would leave a bequest. Would you rather have the government make those choices for you? Worse yet, without a will, fraudsters can lay claim to your assets. And it can take years to settle your estate while your private life is made public. Procrastination, laziness, a feeling of invincibility…all these can be used as excuses not to prepare a will. Don’t let that happen to your family! Meet with an estate planning attorney who can guide you through the process and prepare the documents particular to your state law and your circumstances. A living trust can be beneficial and I’ll write about that next time. Once completed, your will and any accompanying documents should provide you and your family members with a sense of peace. I know that it worked for me!


Mortgage Rates Are Still At Historical Lows

Equity Markets – Global Stock Market Overview

Despite starting 2016 off to a rough start, equity markets propelled towards the end of the year. The Dow Jones Industrial Average was up 13.42%, the S&P 500 Index increased 9.54%, and the technology heavy Nasdaq Index gained 7.5% for the year.

Because fiscal and regulatory changes expect to engulf the markets in 2017, the environment has evolved into a stock pickers market. The search for specific companies in specific sectors that may benefit from fiscal and regulatory changes is considered superior to just buying a passive index of broad stocks.

The potential for economic growth due to a combination of personal and corporate tax cuts, government spending, and less regulation could eventually boost earnings for stocks.

With U.S. companies having reduced expenses and minimized debt exposure over the past few years, any increase in profitability margins have become difficult. This is why revenue growth will be essential for many U.S. companies in 2017 while contemplating a higher dollar, lower tax rates, and fewer regulations.

A validation that we are heading into a stock pickers market is the decrease in correlation that has occurred among stocks. When stocks are highly correlated, it’s a sign that investors are all buying or selling the markets; but when correlation is low, it’s a sign that investors are buying or selling specific stocks for specific reasons. Recent dynamics such as a higher dollar, rising rates, and possible import tariffs have created obstacles for certain companies. Deregulation, lower corporate tax rates, and infrastructure spending have created new opportunities for a host of other companies. (Sources: S&P, Bloomberg, Reuters, Dow Jones)

Mortgage Rates Starting To Rise – Fixed Income Markets

The Fed raised short-term rates in December as expected by a quarter point to between 0.5% and 0.75%, the first increase since December 2015. The Fed also announced that it expects to raise rates three times in 2017 contingent on economic growth and inflationary pressures.

Optimism about economic growth has led to higher inflationary expectations, which eventually translates into higher interest rates. Over the past two months, the yield on the 10-year U.S. Treasury has increased from a historical low of 1.35% to 2.45% at the end of December. As a gauge for mortgage rates nationally, the increase in the 10-year Treasury has also led to an overall increase in mortgage rates. According to data made available by Freddie Mac, the average rate on a 30-year fixed mortgage loan increased from 3.44% in August to 4.32% at December’s end. The concern economists have is that as mortgage rates continue to increase, home sales and affordability may begin to be hindered. (Source: Bloomberg, U.S. Treasury)



A 24% Rise In Home Prices Is Double That Of Wage Growth At 11% Since 2012

Home Price Growth Rate Double Of Wage Growth Rate – Demographics

The onslaught of continued low interest rates has fueled the housing market to higher levels. In addition, a recent shortage of skilled housing workers has added to the industry’s stress as fewer homes have been built while lessening the supply of homes available for sale. Consequently, a growing demand for homes nationwide has propelled the growth rate in housing prices above the growth rate for wages. The concern is that home prices have been rising faster than wages, thus decreasing affordability for families across the country.

Should wages begin to grow at a faster rate than home prices, homes will become more affordable for buyers. Since the beginning of 2012, the House Price Index tracked by Freddie Mac, rose over 24% as of the third quarter of 2016. For the same period, the Wage Growth Index, compiled by the Bureau of Labor Statistics, grew just over 11%. (Sources: Freddie Mac, BLS)

Current Regulations, Acts & Agencies That May Change – Regulatory Update

Dodd Frank – An act signed into law in 2010 to regulate financial services and banking. Has become a burden to smaller community banks due to heightened rules and regulations. It has consequently made it more difficult for homebuyers to qualify because of strict requirements imposed.

Consumer Financial Protection Bureau (CFPB) – An agency formed in 2011 to protect consumers in the financial sector. Enacted as part of the Dodd Frank Act. The CFPB has been plagued by bureaucratic conflicts and ill experienced, overpaid employees since its inception, providing little benefit to consumers.

Volcker Rule – Enacted as part of the Dodd Frank Act. Restricts banks from trading their own bond portfolio for profit. Has led to less liquidity in the fixed income markets with banks not holding bond inventories.

Affordable Care Act (ACA) – Created as affordable health care for every American. Many believe that it just hasn’t worked.

Trans Pacific Partnership (TPP) – Free trade agreement with Asian and Latin countries promoting non-tariffs and lifting barriers to trade. Concern among many that it may not benefit the U.S.

North American Free Trade Agreement (NAFTA) – Free trade agreement with Canada and Mexico. Many argue that it has benefited Canada and Mexico at the expense of U.S. jobs.


Trump Proposes Reducing The Top Tax Rate From 40% To 33%

Trump Tax Proposals – Fiscal Policy

Trump’s proposals aim to simplify taxes by reducing the number of brackets from the current seven to three. Some argue that this simplification may actually raise taxes for single filers, rather than lower them. The current brackets, which have been in place for sometime, scale up from 10% to 40% over seven brackets, while Trump’s brackets scale up from 12% to 33% over three brackets.

Affecting almost all taxpayers is the standard deduction, which Trump proposes to raise from $12,600 currently for married couples to $30,000. For wage earners that are employees and not self-employed, the standard deduction can be the sole and largest deduction on tax returns.

The tax exemption on municipal bond interest has been broached as a possible elimination and is a fairly contested subject. The loss of the municipal interest exemption could make municipal bonds less desirable, making it more difficult for local counties and state governments to raise capital. Hence, this has become a highly politically charged decision.

In addition to Trump’s tax proposals, the Republicans under the House plan, have proposals of their own. The question is, on which proposals will the Trump and the House plan overlap and disagree.

Both plans propose doing away with AMT and the 3.8% Medicare surcharge on high income earners. The Medicare surcharge was essentially put in place to help subsidize the Affordable Care Act (ACA).

The elimination of itemized deductions are a mutual goal for both the House and Trump tax plans. The House plan would only retain two critical deductions: mortgage interest and charitable contributions. All other deductions would be eliminated, including the deduction for state and local income taxes, property tax, and sales tax. The Trump proposals would retain most of these deductions, but cap them at the $200,000 level.

Small business owners would benefit immensely from proposals presented by the House and Trump. The House plan would limit the tax rate for pass through entities, such as S-Corps to 25%, while the Trump plan proposes a rate of just 15%. The Tax Foundation estimates that about 95% of U.S. businesses in the United States are considered pass throughs such as S-Corps. A Trump proposal for a cut in the corporate tax rate would reduce the rate from 35% to 15%. (Sources: donaldtrump.com, taxpolicycenter.org)