Joseph SchwSDWIA Bridgearz, CFA 612.355.4365

Stephen Dygos, CFP® 612.355.4364

Benjamin Wheeler, CFP® 612.355.4363

Paul Wilson 612.355.4366

www.sdwia.com

Market Update
(all values as of 05.31.2024)

Stock Indices:

Dow Jones 38,686
S&P 500 5,277
Nasdaq 16,735

Bond Sector Yields:

2 Yr Treasury 4.89%
10 Yr Treasury 4.51%
10 Yr Municipal 3.11%
High Yield 7.84%

YTD Market Returns:

Dow Jones 2.64%
S&P 500 10.64%
Nasdaq 11.48%
MSCI-EAFE 5.34%
MSCI-Europe 6.25%
MSCI-Pacific 3.57%
MSCI-Emg Mkt 2.46%
 
US Agg Bond -1.64%
US Corp Bond -1.12%
US Gov’t Bond -1.53%

Commodity Prices:

Gold 2,347
Silver 30.55
Oil (WTI) 77.16

Currencies:

Dollar / Euro 1.08
Dollar / Pound 1.27
Yen / Dollar 156.92
Canadian /Dollar 0.72

Macro Overview – October 2019

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

Equity Markets Advance In The 3rd Quarter – Domestic Equity Update

Despite ongoing trade tensions and concerns about a slowing economy, U.S. equities excelled in the third quarter, with technology, consumer staples, and utilities as the leading sectors for the S&P 500 Index. The energy and health care sectors were the under performers relative to the other 9 sectors.

Equity markets are reacting more sensitively to economic indicators, such as unemployment, manufacturing, and Gross Domestic Production (GDP) data. Earnings growth for U.S. companies is starting to slow for certain sectors, as economic expansion decelerates.

The third quarter revealed that the industrials, materials, and energy sectors lacked relative to consumer staples, utilities, and financials. Economists and analysts examine which sectors are performing relative to others in order to better determine which direction the market might be headed.

Sources: BLS, Bloomberg, Reuters

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

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. The House has named the legislation the Secure Act, which stands for the Setting Every Community Up For Retirement Enhancement Act. Both versions essentially accelerate the distribution and taxation of Inherited IRA funds going to non spouses.

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 rules, affecting non spousal beneficiaries such as children and grandchildren, the most common types of inherited IRA beneficiaries.

For years, legislation has allowed inherited IRA beneficiaries to distribute funds over the course of decades based on 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. Both versions do allow distribution exceptions for minor children, disabled beneficiaries, and beneficiaries not more than 10 years younger than the deceased IRA owner.

A challenge for inherited IRA beneficiaries is the tax implication of accelerated distributions over a much shorter time period. Some beneficiaries may also run the risk of falling into a higher tax bracket especially if they are working.

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 would apply to inherited IRAs with the original owner’s death occurring after December 31, 2019.

Sources: https://waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section