July 2019
Market Update
(all values as of 02.29.2024)

Stock Indices:

Dow Jones 38,996
S&P 500 5,096
Nasdaq 16,091

Bond Sector Yields:

2 Yr Treasury 4.64%
10 Yr Treasury 4.25%
10 Yr Municipal 2.53%
High Yield 7.63%

YTD Market Returns:

Dow Jones 3.47%
S&P 500 6.84%
Nasdaq 7.20%
MSCI-EAFE 2.23%
MSCI-Europe 1.23%
MSCI-Pacific 3.98%
MSCI-Emg Mkt -0.27%
 
US Agg Bond -1.68%
US Corp Bond -1.67%
US Gov’t Bond -1.59%

Commodity Prices:

Gold 2,051
Silver 22.87
Oil (WTI) 78.25

Currencies:

Dollar / Euro 1.08
Dollar / Pound 1.26
Yen / Dollar 150.63
Canadian /Dollar 0.73
 

Macro Overview

Stocks and bonds rose in June as lower rates drove equities higher and international diplomatic tensions elevated bond prices. Indications by the Fed that there may be a rate cut later in the year helped sustain stock prices near record levels.

The G20 met in Osaka, Japan, at the end of June where trade tensions between the U.S. and China were on the forefront of global concerns. The U.S. and China reached a temporary truce over the trade war as the leaders from both countries agreed to re-start negotiations that had fallen apart earlier on. The de-escalation of trade tensions between the two countries led to heightened optimism surrounding global economic growth. Central banks from around the world will weigh as to how much a trade truce or settlement might impact other economies globally.

The 10-year Treasury bond yield fell to 2.00% at the end of June, with several bond analysts expecting it to fall below the psychological 2.00% level. Yields dropped lower in Europe with Austria issuing 100-year government bonds with a yield of 1.17%. Highly rated, positive yielding government bonds are in enormous demand globally as investors seek income from viable and reliable sources.

Mortgage rates dropped again in June to 3.73% on a 30-year fixed conforming loan, helping to sustain the housing market. The low rate environment has also fostered an inexpensive source of capital for U.S. and international companies, allowing for expansion and hiring as demand reappears.

Commodity prices including oil, gold, and iron ore all elevated in the first half of 2019, with most of the gains occurring in June. Rather than a traditional sign of inflation, falling inventories of oil and iron ore have pushed prices higher as demand has remained constant.

The U.S. Bureau of Economic Analysis found that the current economic expansion is the longest on record since 1945. The economic expansion that began in June 2009, following the depths of the financial crisis, has now lasted 121 months as of the end of June. The second longest economic expansion lasted 120 months, running from March 1992 until March 2001 when the dot-com bubble burst. There have been 12 economic expansion periods since the end of World War II in 1945 lasting 12 months or longer. (Sources: BEA, Freddie Mac, U.S.Treasury, g20.org, Bloomberg, Federal Reserve)

 
Equities, Fixed Income, & Worldwide Debt

Stocks Rebound In June – Equity Overview

Stocks and bonds registered the first half of the year with formidable gains propelled by an expected rate cut by the Fed later in the year. It was the best first half of the year since 1997 for equities, with the Dow Jones Industrial Index, S&P 500 Index, and the Nasdaq nearing new highs.

Equities were also driven higher in June by a relief in trade tensions between the U.S. and China as the expectation that the Fed will eventually cut rates sometime this year. Historically, a low-rate environment is favorable for equities in the form of inexpensive capital for expansion and loans.

The rebound in stock prices in the first half of 2019 from the turmoil that hindered markets in December 2018 has been one of the strongest rebounds in decades.

The Federal Reserve gave large U.S. banks the approval to repurchase their own shares and lift dividends, part of the Comprehensive Capital Analysis and Review process set in place by the Fed. Large money center banks as well as smaller regional banks were restricted from buying back their own shares as well as increasing dividends in order to fortify bank balance sheets following the financial crisis. (Sources: Federal Reserve, Dow Jones, S&P, Bloomberg, Reuters)

Yields Drop Further In June – Fixed Income Update

The 10-year Treasury bond yield dropped below 2% for the first time since November 2016. The 10-year Treasury continues to trade at a lower yield than the 3-month Treasury bill, signaling an inversion, which is when shorter term maturity bonds yield more than longer term bonds.

Rates also concurrently dropped in Europe, India and Australia as central banks maintained stimulus efforts with a continued low interest rate environment.

The Federal Reserve communicated its confidence with the labor market and rising wages for lower paid workers as positive for the U.S. economy, but noted that inflation is still mundane and below expectations. Its concern is slowing global growth with anemic economic expansion in other parts of the world. Such concerns may lead to dismal expansion with the need to eventually reduce rates to help prop up economic growth. (Sources: U.S. Treasury, Federal Reserve)

Worldwide Debt On The Rise – International Finance

Corporate debt worldwide has become a growing concern among central bankers and international finance managers. The extended period of ultra low interest rates following the monetary stimulus programs of central banks worldwide allowed companies from all over the globe to issue debt very inexpensively. Now with monetary policy on reversal from a decade of stimulus, the cost of debt will begin to increase.

Of the more than $164 trillion of debt worldwide, nearly three quarters of it is held by advanced economies such as the U.S., Britain, and Germany. A smaller proportion is maintained by emerging market economies, yet are seeing rapid growth in debt accumulation. The Bank for International Settlements identified three economies with the highest risk of a bank crisis, China, Canada, and Hong Kong, primarily due to excessive outstanding debt. Additionally, expansion of debt in the U.S. has slowed while it continues to expand in China. (Sources: https://www.bis.org/statistics/secstats.htm;summary of debt securities outstanding)

 
Retirement Planning - Social Security

Social Security Falls Short On Projections – Retirement Planning

A U.S. Government report compiled and released by the Government Accountability Office (GAO) found that 48 percent of individuals 55 and older had no retirement savings whatsoever. Statistics like this are where the concept of Social Security originated from.

The establishment of Social Security occurred on August 14, 1935, when President Roosevelt signed the Social Security Act into law. Since then, Social Security has provided millions of Americans with benefit payments. Over the decades, Americans have become increasingly more dependent on Social Security payments; however, for some Americans it may not be enough to rely on Social Security alone.

As of April 2019, over 63 million Americans received Social Security benefit payments, with over 40 million age 65 or older. The Social Security Administration estimates that Americans received over $989 billion in Social Security benefit payments in 2018.

Unfortunately, Social Security is a major source of income for many of the elderly, where nine out of ten retirees 65 years of age and older receive benefit payments representing an average of 41% of their income.

In 1940, the life expectancy of a 65-year old was 14 years, today it’s about 20 years. By 2036 there will be almost twice as many older Americans eligible for benefits as today, from 41.9 million to 78.1 million.

Social Security costs will exceed its income in 2020 for the first time since 1982, forcing the program to dip into it’s trust fund, which is currently just under $3 trillion. Social Security is funded by two trust funds, one for retiree benefits and another for disability benefits. Disability applications have actually been declining since 2010, with a decreasing number of workers receiving disability benefits since 2014.

The latest annual report issued by the trustees of Social Security and Medicare revealed that by 2034, the program’s trust fund will be depleted. Depletion means that Social Security recipients will no longer be receiving full scheduled benefits. Recipients would receive about three-quarters of their scheduled benefits after 2034. Congress can eventually act to fortify the program’s finances, but it may be years before it actually takes effect and funds.

Social Security’s largest costs are attributable to Medicare, which represents over 76% of Social Security benefits. The report also mentioned that Medicare’s hospital insurance fund would be depleted in 2026. The trustees noted that the aging population of the country has placed additional pressure on both the Social Security and Medicare programs. A decade ago, roughly 12% of Americans were age 65 or older, today 16% of Americans have already surpassed 65, the eligibility age for Medicare.

The Social Security Administration considers various factors in projecting its estimates, including fertility, immigration, wages, health, and economic growth. A recent drop in U.S. birthrates along with stagnant wages has placed additional burden on the viability of future benefit payments.

Sources: https://www.ssa.gov/oact/TR/2019/index.html

 
IRS Scams - Consumer Awareness

IRS Scams – Consumer Awareness

Identity theft and stolen funds are becoming a growing risk as thieves have devised clever methods of masking IRS communications. Various government entities have identified some of the most prevalent scams.

Refund Scam: Fraudulent emails, appearing to come from the IRS, notify you that you are eligible for a tax refund, but need to provide sensitive bank details in order to receive the funds.

Fund Scam: Inherited Funds, Lottery Winnings, & Cash Consignment Scams. 

Email Scam: Emails claiming to come from the U.S. Department of Treasury, notify you that you will receive millions of dollars if you follow the instructions in the email. 

SS Scam: An identity thief could use your social security number to fraudulently file a tax return and claim a refund.  You could be completely unaware that your identity has been stolen until your return is rejected for e-filing or you get a notice or letter from the IRS.

Rejected e-File: An electronically filed return is rejected because the social security number belonging to you, your spouse, or a dependent has already been used on a tax return.

Suspicious IRS Items: You receive a fraudulent notice from the IRS stating that more than one return was filed in your name for the year.

You have a balance due, refund offset, or initiation of collection action for a year when you did not file. 

IRS records indicate that you received wages from an employer you didn’t work for.

You should respond immediately to the name and phone number printed on the IRS notice or letter.  You should also complete Form 14039, Identity Theft Affidavit. (Source: IRS.gov, consumer.ftc.gov, treasury.gov)