May 2016

Macro Overview

The prospect of a delayed tightening by the Fed, a weaker dollar, and a rebound in commodities helped stabilize equities in April. A falling U.S. dollar along with central banks in Europe and Asia trying to stem the rise of the euro and yen, is indicative of a currency war looming in the shadows. A weaker dollar makes U.S. products cheaper and the U.S. more competitive internationally, a concern to both European and Asian exporters.

Commodity related currencies from countries as Australia, Russia, Canada, and Brazil saw rebounds against the dollar in April, elevating assurances that a demand for commodities is still intact. Economists view this as a measure of a global economic revival.

Following years of debate and assistance, the IMF is considering letting its support for Greece go and cease participating in any further Greek bailouts. Such a possible move would force countries with dire fiscal constraints to reassess their financial policies.

The Labor Department reported that jobless claims for unemployment benefits fell to their lowest level since 1973, historically representative of a strong labor market. Employment data also revealed that there is a growing number of part-time workers rather than full-time workers encompassing the labor force. Various research reports have suggested that the implementation of the Affordable Care Act, whose major provisions were phased in by January 2014, encouraged employers to shift workers to more part-time positions in order to avoid having to cover them under the newly mandated health insurance requirements.

Records maintained and released by the IRS have identified a sharp rise in 1099 income filings as of 2014. 1099s are issued for any income generated over $600 during the tax year. Many economists believe that such dynamics is a validation of full-time employee positions being replaced by part-time independent contractors.
Yen-1000
A strengthening Japanese yen over the past few weeks has led some analysts to believe that risk aversion may be a cause. A stronger yen and a weaker dollar has historically signaled less confidence in U.S. growth and a heightened attentiveness to global dynamics.

Sources: Labor Dept., IMF, IRS

 

State Income Tax Rates – Tax Planning

Individual state income taxes are a major source of revenue for states, accounting for nearly 35% of state tax collections nationwide. Forty-three states currently impose a state income tax, in addition to a Federal income tax, with only seven states imposing no state tax at all.

As state and municipal finances have experienced unforeseen fiscal duress, many states have levied and plan to levy higher tax rates on their residents. The non-partisan, non-profit Tax Foundation founded in 1937 provides unbiased research and data on taxes imposed throughout the United States.
State Tax Rates
Individual state income tax rates not only affect individuals but also affect companies. As companies grow and hire staff for new locations, state tax rates can deter some companies from hiring in higher rate states. Some companies can pay less since an employee’s take-home pay might be higher should there be no state income tax.

Retirees also consider state tax rates when planning for retirement and reducing expenses. It’s no surprise that the seven states that have no state income tax are also popular living destinations for retirees.

Source: Tax Foundation

 

Equity Update

Major domestic stock indices were essentially flat for the month of April after U.S. equities reached record levels not hit since July 2015, sending the Dow Jones Industrial Average to the 18,000 level.

Defensive stocks pulled back in April, a signal that buyers are less risk averse and leaning towards more aggressive growth company stocks. Other optimistic sector trends evolved in April as small caps, cyclicals, and multi-nationals outperformed more conservative large cap and defensive equities.

Some investors celebrated the seventh year of the bull market that began in March 2009. Even with the volatility and pullbacks over the 7-year period, it is still considered the second longest bull market in the market’s history.

Sources: Dow Jones, S&P, Bloomberg

Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.