Richard M. Pankratz, CFP®

BroadStreet Financial Advisers, LLC

310 Wilmette Avenue, Suite 2

Ormond Beach, FL 32174

386.615.6096 (voice)

386.615.6098 (fax)

386.299.4160 (mobile)

Market Update
(all values as of 08.31.2020)

Stock Indices:

Dow Jones 28,430
S&P 500 3,500
Nasdaq 11,775

Bond Sector Yields:

2 Yr Treasury 0.14%
10 Yr Treasury 0.72%
10 Yr Municipal 0.81%
High Yield 5.38%

YTD Market Returns:

Dow Jones -0.38%
S&P 500 8.34%
Nasdaq 31.24%
MSCI-EAFE -6.23%
MSCI-Europe -7.39%
MSCI-Pacific -4.42%
MSCI-Emg Mkt -1.18%
 
US Agg Bond 6.85%
US Corp Bond 6.94%
US Gov’t Bond 8.09%

Commodity Prices:

Gold 1,973
Silver 28.43
Oil (WTI) 42.82

Currencies:

Dollar / Euro 1.19
Dollar / Pound 1.33
Yen / Dollar 105.37
Dollar / Canadian 0.76
 

Macro Overview

The rally in stocks that began following the election in 2016 propelled through 2017 as optimism and expectations that growth oriented policies and tax cuts would materialize. Political turmoil was not a deterrent for the markets, as major U.S. equity indices finished the year at near record levels.

The Tax Cut & Jobs Act was signed into law by the President on December 22nd, setting the stage for new tax codes and rules effective January 1, 2018. Following the passage of the new tax law legislation, small businesses and larger corporations prepare for optimal methods of spending capital and expanding in 2018.

Congress passed a short-term funding plan to avert a government shutdown between December 22nd to January 19th. Since federal funding gaps are common, Congress institutes a continuing resolution or CR to provide interim funds in order to maintain government operations.

Strengthening economic conditions throughout the international markets helped buoy global stocks and mildly boost inflationary pressures, which can be beneficial for certain equities. Economic stimulus efforts by central banks were reigned in during 2017, as developed and emerging market economies exceeded growth expectations.

The Federal Reserve raised rates as expected with the objective of curtailing inflationary pressures. The December rate hike was the third of the year, pushing shorter-term rates higher, which are more sensitive to Fed rate increases. Overall, rates remained fairly stable in 2017, as inflation and economic growth were tepid. The 10-year Treasury yield ended 2017 at 2.40%, down from 2.45% at the beginning of the year.

Commodity prices, including precious metals and energy products, are expected to rise in 2018 as the prospect of inflationary pressures increases. A rise in global oil demand along with curtailment of production pushed prices higher in 2017 to levels not reached in over two years.

Confusion surrounding prepayment of property taxes was a nationwide problem the last week of the year as homeowners rushed to prepay 2018 property tax bills without being certain if a deduction could be taken in 2017. In a statement, the IRS did specify that taxpayers could deduct prepaid 2018 state and local property taxes on 2017 returns only if the taxes were assessed before 2018.

Sources: Congress.gov, Federal Reserve, IRS, U.S. Treasury

 

 

 

 

 

 

 

 

Richard M. Pankratz, CFP®

BroadStreet Financial Advisers, LLC

310 Wilmette Avenue, Suite 2

Ormond Beach, FL 32174

386.615.6096 (voice)

386.615.6098 (fax)

386.299.4160 (mobile)

The New Tax Bill – Fiscal Policy Review

Both individual taxpayers and companies will see broad changes for deductions and tax rates. The emphasis of the tax bill, known formally as the Tax Cuts & Jobs Act, is to stimulate economic activity via new and higher paying jobs. This is why many of the changes directly benefit large and small businesses in order to encourage hiring.

Some of the tax provisions enacted by the new tax act will be temporary, while others permanent. The cost of reduced tax revenue brought about by tax cuts may only be viable for a certain period, thus producing more immediate benefits from tax cuts rather than later.

Affecting essentially every taxpayer is the increase in the standard deduction, which is meant to simplify the tax preparation process by replacing itemized deductions with a larger standard deduction.

The IRS estimates that about 95% of the businesses in the United States are pass-through entities, such as sole proprietors, S-Corps, LLCs, and partnerships. These entities are called pass-throughs because the profits generated are passed directly through the business to the owners, which are taxed at the owners’ individual income tax rates. The new tax law allows for a 20% deduction of that income, thus reducing overall taxable income. According to the Tax Foundation, pass-through businesses account for over 55% of all private sector employment, representing over 65.5 million workers nationwide.

Sources: IRS, www.congress.gov/bill/115th-congress/house-bill/1,

Short Term Rates Heading Higher – Bond Market Overview

The Federal Reserve raised a key short-term rate as expected by the markets and made fairly optimistic comments about economic growth projections for 2018. The federal funds rate rose to a target range of 1.25 – 1.50%. The increase is a strategy of tightening and also meant to alleviate inflationary pressures. Concurrently, the Fed is also shrinking its $4.4 trillion balance sheet, a dual monetary policy effect expected to curtail inflation and reduce stimulus.

Members of the Federal Reserve indirectly expressed concern about the labor market, suggesting that improvements in the job market were expected to ease. The Fed committee also maintained a conservative growth estimate for 2018 of 1.8%, hinting that the new tax plan may not yet produce economic benefits in 2018.

The yield curve flattened throughout 2017, with a rise in short term rates and a drop in longer-term rates. The yield on the 2-year Treasury Note had its largest annual increase in over 10 years, ending the year at 1.89%, up from 1.22% at the beginning of January 2017. The benchmark 10-year Treasury bond yield saw almost no change in 2017, falling to 2.40% at year end from 2.45% in the beginning of January.

The current Chair of the Fed, Janet Yellen, is scheduled to chair her last Fed meeting on January 30th & 31st, with Jerome Powell assuming the post in February.

Sources: Federal Reserve, U.S. Treasury, Bloomberg