W.P. "Bill" Atkinson, III

Certified Financial Planner TM / Attorney

Access Financial Resources, Inc.

3621 NW 63rd Street, Suite A1

Oklahoma City, OK  73116

(405) 848-9826

www.afradvice.com / bill@apaplans.com

October 2019
Market Update
(all values as of 07.31.2023)

Stock Indices:

Dow Jones 35,559
S&P 500 4,588
Nasdaq 14,346

Bond Sector Yields:

2 Yr Treasury 4.88%
10 Yr Treasury 3.97%
10 Yr Municipal 2.53%
High Yield 8.14%

YTD Market Returns:

Dow Jones 7.28%
S&P 500 19.52%
Nasdaq 37.07%
MSCI-EAFE 13.14%
MSCI-Europe 14.69%
MSCI-Pacific 10.45%
MSCI-Emg Mkt 9.47%
US Agg Bond 1.45%
US Corp Bond 2.87%
US Gov’t Bond 1.58%

Commodity Prices:

Gold 1,999
Silver 24.80
Oil (WTI) 81.57


Dollar / Euro 1.10
Dollar / Pound 1.28
Yen / Dollar 141.12
Canadian /Dollar 0.75

Macro Overview

A proposed tariff increase on goods imported from China was delayed from October 1st to October 15th. Tariffs on a number of Chinese goods are scheduled to increase to 30 percent from 25 percent effective on the 15th.

U.S. equity markets marked their best third quarter since 1997, recapturing gains that were lost in the final quarter of 2018. The market’s resilience has allowed stock and bond prices to elevate higher even with the headwinds of trade tensions and recessionary concerns. Meager bond yields worldwide also fueled a gravitation towards stocks as investors sought more attractive yields in the form of dividends.

Domestic bond yields rose in September, climbing back from ultra low levels reached in August. The Fed’s easing rate trend is part of a larger global movement by other central banks to lower rates internationally.

Currency markets reacted to slightly higher U.S. rates in September, sending the U.S. dollar to its strongest levels in over two years. Various factors such as consistent consumer demand and a stable economic environment, relative to other global economies, helped drive the demand for the dollar.

A key inflation indicator, the Consumer Price Index (CPI), moved higher with its fastest annualized growth since 2008. The CPI index, which measures the price of various goods and services such as food, housing, and medical expenses, rose 2.4% over the past year. Medical insurance and healthcare related expenses saw some of the largest increases. (Sources: Commerce Depart., U.S. Treasury, BLS)

U.S. Recessions – Historical Note

Historians and economists claim that there have been 47 recessions in the United States dating back to the Articles of Confederation, which was ratified in 1781. The duration and intensity of each recession has been unique, with various factors affecting economic conditions contingent on current circumstances.

Ironically, the recession during the early 80s from 1980 through 1982 was driven by inflation and rising interest rates creating an expensive and restrictive environment for consumers and businesses. Conversely, economists currently view any probable recession driven by an ultra-low rate environment and minimal inflation, believed to be a result of excessive stimulus created by the Federal Reserve and dismal economic growth projections.

Modern recessions occurring in the 19th century have resulted from financial crises and market driven events, while recessions that occurred in the 1800s were primarily driven by war and the weather due to the dependence on agriculture. Talk of an upcoming recession in the news has been a focal discussion as low rates and weakening economic indicators create an argument for a recessionary environment. Economists and analysts see recessions as an economic cycle driven by expansions and contractions.

Sources: Federal Reserve; fred.stlouisfed.org/series/JHDUSRGDPBR

Rates Edge Up Slightly In September

Rates Edge Up Slightly In September – Fixed Income Overview

Bond yields edged higher in September, rebounding from the lows reached in August. The 10- year Treasury bond yield rose from 1.47% at the beginning of September to 1.68% at the end of the month. The rise in yields affected loan rates as they had just reached lows in August not seen in years.

Additional rate cuts in Europe by the European Central Bank (ECB) pressured bond yields lower in Europe and Asia. Bond markets are eagerly awaiting indications of any further rate reduction in the U.S. by the Fed, perhaps prompted by economic data.

Low mortgage rates continue to fuel home sales nationally, with the rate on a conventional 30-year fixed mortgage at 3.64% at the end of September, down from 4.51% at the beginning of the year. (Sources: FreddieMac, ECB, U.S. Treasury)


Cost of Raising Kids – Financial Planning

Since 1960, the U.S. Department of Agriculture (USDA) has provided estimates of expenditures related to raising a child from birth to age 17. Related expenses range from food and housing to education and medical care. The USDA closely follows and identifies the various incomes for families, as well as the number of children in families. What it has determined over the past 55 years of collecting data is that families with different incomes spend differently on their children. In addition, single parent families spend less than dual parent families who have the ability to afford greater expenses in raising children. Certain expenses rise as children grow older no matter what income group a family might be part of. These expenses include food, transportation, clothing, and health care expenses. As children grow, they tend to eat more as well as spend more on transportation once they start commuting to more activities at ages 15-17. Childcare and medical expenses were generally higher for children under the age of 6.

The USDA estimates that a child born in 2015 will cost a dual parent family $349,380 from birth until high school graduation in 2032. The $349,380 figure is the average estimate among low-income, mid-income, and high-income dual parent families with two children. Various savings plans designed for children may allow parents to adequately save for planned costs, as well as for unforeseen expenses. Having accounts set up solely for schooling and healthcare expenses not covered by health insurance is a good idea. As an example, some children will require braces in their early teen years, costing an average of $5,000, and in most instances not covered by health or dental benefits. Savings set aside for these purposes tend to smooth out expenses as they occur, as opposed to having to place expenses on credit or borrow at excessive rates.

Projections reveal a federal budget deficit exceeding $1 trillion in 2020

Federal Deficit Projections Top $1 Trillion – Fiscal Policy Review

The Congressional Budget Office (CBO) establishes budget forecasts based on various factors that are constantly changing. Among the factors are fiscal policy, economic projections, as well as trade policy initiatives. Projections are revised on a regular basis by the CBO and may change or be modified contingent on fiscal policy and government outlays such as Social Security and health care expenses.

The most recent projections reveal a federal budget deficit exceeding $1 trillion in 2020, an estimate based on current fiscal circumstances and the economic environment. Projections over the next 10 years show an average annual budget deficit of $1.2 trillion between 2019 and 2029. The estimate represents a deficit of 4.4% to 4.8% of GDP, above the 50-year average. Even though tax revenues are estimated to grow, GDP is expected to expand at a more conservative pace. Current estimates show GDP growing at 2.3% in 2019, yet the CBO projects an average annual GDP growth rate of 1.8% over the next 10 years.

The three largest expense items for the federal government have been and are projected to be Social Security, health care programs, and interest paid on government debt. Rising interest rates may become more of an issue as rates may eventually head higher for government debt, with future debt issuance becoming more expensive for the U.S. as rates slowly rise. (Sources: CBO; Update To The Budget & Economic Outlook 2019-2029)

China No Longer Biggest Trade Partner With U.S. – International Trade

The United States maintains a favorable trading relationship with many countries all over the world, yet only a handful encompass the bulk of all trading activity. For years, Mexico, China and Canada have been the top three trading partners with the United States, sending imports and exports across borders made up of all types of products and materials. Trade treaties with Mexico and Canada have facilitated trade with the U.S. for years, yet recently imposed tariffs on Chinese imports have reduced trade activity with China and increased activity with Canada and Mexico. Since the imposition of new tariffs with China, some manufacturers and suppliers have shifted their operations to Canada and Mexico in hopes of averting additional tariffs.

Trade data released this past month has validated the effects of the newly imposed tariffs, with China no longer the top trading partner with the United States. Mexico and Canada are now the top trading countries with China, third ahead of Japan. Unknown to many, Mexico and Canada have been top trading partners ahead of China before, with Canada the top trading partner through the 2000s up to 2014. Ten years ago in 2009, China represented 14% of total trading activity with the U.S., reaching 16.4% of all trading in 2017. The latest trade data shows China representing 13.2% of total trade activity, with Mexico and Canada each representing roughly 15% of total trade.

Source: U.S. Commerce Dept., Census.gov

Stretch IRA Rules May Change

Stretch IRA Rules May Change – Retirement Planning

Rules surrounding the distribution of funds from an Inherited IRA may change due to new rules being imposed. Those most affected by the new rules are retirees with generous IRA balances intending to leave funds to their children and grandchildren. Known also as Stretch IRAs, which have allowed IRA beneficiaries to stretch distributions and taxes over an extended period of time. Both the House of Representatives and the Senate have drafted their own versions of the new rules. Both versions would apply to inherited IRAs with the original owner’s death occurring after December 31, 2019.

A current rule that will remain the same is allowing a spouse to rollover their deceased spouse’s IRA to a spousal IRA and take Required Minimum Distributions (RMDs) based on their life expectancy. Inherited IRA rules will be modified by the newly imposed legislation, affecting non spousal beneficiaries such as children and grandchildren, which are the most common types of inherited IRA beneficiaries. For years, legislation has allowed inherited IRA beneficiaries to distribute funds over the beneficiary’s life expectancy. Revised legislation will require inherited IRAs to be distributed entirely within 10 years. The distribution could be taken as intervals, at the end of the period, or whenever desired, as long as the entire account is disbursed within 10 years.  The Senate version allows for a stretch on the first $400,000 of IRA assets with the exceeding balance distributed within 5 years. Both versions do allow distribution exceptions for minor children, disabled beneficiaries, and beneficiaries not more than 10 years younger than the deceased IRA owner.  (Sources: https://waysandmeans.house.gov)

Joint Account Basics – Unintended Consequences

Be careful before adding another party – like a son, daughter, parent, or even a new spouse – to a bank or brokerage account, etc. as unintended consequences could result. In Oklahoma, for example, there is a presumption that all joint owners are joint tenants, which means that all account owners are presumed to have full access to the funds in the account. So, by adding a joint owner to your account, you might subject the account funds to the creditors of that joint owner. Adding a new spouse to an account creates a presumptive gift to that spouse, which may put what was previously “separate property” into the realm of “marital property.” From an estate planning perspective, a joint account does not generally become of the probate estate; as a result, the surviving joint tenant becomes the sole owner of the account, which may not have been the decedent’s true wishes – example: Suppose a mother has four children and has a will that is to distribute her estate equally with all of her children. Son #1 is added as a joint tenant on the bank account with a balance of $250,000. Mother passes away the next day: Son #1 becomes the sole owner of the bank account worth $250,000. Yikes! Not what she intended. Thus, while a joint account can be very helpful in many way, it can also have some unintended consequences that need to be navigated.