What impact will Egypt have on the Markets? Ken Mahoney
U.S. stocks’ winning streak ended Friday amid news of political strife in Egypt. The Dow closed down 1.39%, the S&P 500 declined 1.79%, and the Nasdaq fell 2.48% -- the biggest single day losses in nearly six months. This pullback left many investors asking what political strife in Egypt has to do with the U.S. stock market. You may be wondering the same thing. So what is the answer?
While many factors are involved, the primary issue is that the stock market hates uncertainty. It’s an old adage, but one that is often true. On a fundamental level, the stock market is based on people’s speculation about what is going to happen in the future. Uncertainty about the future leads many to sell and/or sit on the sideline because they aren’t comfortable investing their money until they feel like they know what is ahead. For the time being, the situation in Egypt is anything but certain.
Uncertainty, combined with Egypt’s position along one of the busiest trade routes in the world, had a combined affect on the markets last week. The price of oil rose with fears about the stability of maritime operations on the Suez Canal. As a major trade route, any interruption or closure has the potential to create a spike in oil and energy prices. As a result, analysts predict a measure of volatility until calm is restored. As we saw on Friday, when volatility increases, a flight to safety often drives uneasy investors into so-called “safe havens”.
The affect of Egyptian politics on U.S. stock markets serves as a reminder that we are part of an intricate international economy. The ups and downs of the markets are rarely predictable, and a measure of risk is to be expected. Historically, stocks have outperformed all other investments, but in the short-term, fluctuations are inevitable. At times like this, rest assured that we will continue to monitor the situation abroad and bring you relevant information as soon as it becomes available.
ECONOMIC CALENDAR:
Monday – Personal Income and Outlays, Chicago PMI Tuesday – Motor Vehicle Sales, Redbook, ISM Mfg Index, Construction Spending
Wednesday – ADP Employment Report, EIA Petroleum Status Report
Thursday – ECB Announcement, Jobless Claims, Productivity and Costs, Factory Orders, ISM Non-Mfg Index Friday – Employment Situation
HEADLINES:
The United Nations reported that international food prices rose by an all-time high of 25% in December. The rising costs for staples like rice, wheat, and maize have been affected by bad weather in Australia and Russia, rising incomes in China and India, and a push for biofuels. The sharp inflation in food costs has sparked political unrest throughout the Middle East, including Egypt and Tunisia.
The GDP figures for the last quarter showed that consumer spending was up a strong 4.4% on an annualized basis, and final sales surged 7.1%, its largest jump in nearly 30 years. Trade was a big contributor to the economic gains, with exports surging 8.5% and imports declining 13.6%. Inventories grew by $121 billion in the third quarter, but only rose by $7 billion in the final three months of the year.
Comcast Corp., took control of NBC Universal shortly before midnight on Friday. The deal comes after the government shackled Comcast’s behavior in the coming years to protect online video services such as Netflix and Hulu. The takeover gave Comcast 51% control of NBC Universal, which owns the nation's fourth-ranked broadcaster, NBC, the Universal Pictures movie studio and related theme parks, and a bevy of cable channels including Bravo, E! and USA.
Chinese authorities have blocked the word "Egypt" from searches on Twitter-like microblogging sites in an indication of concern among Communist Party leaders that the unrest there could encourage similar calls for political reform in China.
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative or named Broker dealer, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Stock prices and gas prices both are rising, what happens next? By Ken Mahoney
While the recovery continues to burn brighter, it’s no thanks to the rising cost of gasoline. Most consumers are cringing over prices at the pump and, as a nationwide economic marker, it affects nearly everyone.
Gas prices hit almost $3.12/gallon on Friday, less than a dollar below the all-time high of about $4.11/gallon in July 2008. Current prices have risen 12 cents a gallon (4%) in the last month alone and 39 cents (14%) over the last year. Crude oil has risen on a similar track and is currently trading at just under $90 a barrel.
Though American consumers are paying the price, international oil demand and lack of supply are primarily responsible for the rising cost. Last year, worldwide demand hit a record of more than 87 million barrels a day, largely driven by strong growth in India, China, and the Middle East. Simultaneously, supply was constricted by the drilling moratorium in the Gulf of Mexico following the BP disaster, slow production growth in non-OPEC countries, and OPEC production controls.
Gas prices are proving to be a critical, but unpredictable element in the economic recovery. Analysts are predicting prices to range from $3.20 to $3.75/gallon by spring, just when Americans typically hit the road. Just as positive consumer sentiment can be tempered by the daily reminders of rising prices, there is also an unknown tipping point for when those prices take a toll on spending.
While all this talk about rising gas prices may have you feeling less than enthusiastic, the overall economic outlook is still positive and the stock market is performing well. While some indexes fell slightly for the week, the Dow climbed 0.72%, continuing its longest winning streak since April of last year. At least for now, rising gas prices aren’t creating a significant drag on the economic recovery.
ECONOMIC CALENDAR:
Tuesday – Redbook, S&P Case Shiller HPI, Consumer Confidence
Wednesday – New Home Sales, EIA Petroleum Status Report
Thursday – Durable Goods Orders, Jobless Claims, Pending Home Sales Friday – GDP, Employment Cost Index, Consumer Sentiment
Data as of 01/21/2011 1-Week YTD 1-Year 5-Year 10-Year
Standard & Poor's 500 -0.76 2.04 14.9 0.35 -0.44
Dow 0.72 2.54 14.3 2.26 1.21
NASDAQ -2.39 1.38 18.7 3.93 -0.29
MSCI EAFE -0.35 1.83 7.12 -0.43 1.32
10-year Treasury Note (Yield Only) 3.33 N/A 3.61 4.36 5.17
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
HEADLINES:
Facebook raised $1.5 billion from Goldman Sachs and Digital Sky Technologies, giving the company an estimated value of $50 billion. Facebook confirmed that it will begin filing public financial reports by April 2012, a move likely indicative of an IPO.
A 1963 Pontiac ambulance that supposedly carried the body of President John F. Kennedy after his assassination was sold at a Scottsdale, Ariz., auction Saturday night for $132,000.
Existing home sales jumped 12% in December, the fifth month of gains in the past six months. While the rates are higher than expected, the median price of homes has fallen by 1% and is still down 2.9% from a year ago.
Thirty-second advertising spots for 2011’s Super Bowl XLV will cost about $3 million each. This year’s ads contain a record number from the auto industry, while the largest advertisers include Anheuser-Busch and Dot-com firms. Many will include online features with contest components.
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Insert your broker/dealer disclosures here. i.e. Securities offered through “Your B/D Name Here,” Member FINRA/SIPC.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative or named Broker dealer, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
How long can the bull market ‘winning streak’ continue? By Ken Mahoney
The bluebird of happiness has landed in the headlines again. In the longest winning streak since April 2010, the Dow posted its seventh straight week of gains as investors fly in the face of lackluster economic data. Driven by a rally in the financial sector, U.S. stocks reached their best closing levels in two and a half years.
Despite higher than expected unemployment numbers, more Americans are dining out, traveling, and paying down their debt – all signs that people are feeling more confident in their spending ability. The National Retail Federation reported that holiday retail sales showed the biggest percentage gain in six years, rising 5.7%.
While the recent increase in optimism is a relief, it is prudent to remember that too much optimism can be dangerous. It is especially during times when euphoria is spreading that we need to be realistic and balanced in our expectations. In the words of noted stock investor, businessman and philanthropist Sir John Templeton, “Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.” Despite recent positive developments, many investors remember these timely words. There are still a number of challenges worth keeping an eye on, such as sovereign debt concerns in Europe, and the rising cost of basic goods. Keeping such issues in mind helps maintain a balanced approach toward investing.
While we are not recommending that any specific action be taken, we are highlighting the importance of avoiding the type of irrational exuberance that leads to poor, emotional decision making. If you have questions, please remember that we are always here to help you balance the risks and the rewards associated with investing.
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HEADLINES:
The U.S. federal government will bill states $1.3 billion in interest on jobless-pay loans. Thirty states owe money to the federal government for their unemployment programs. The first interest payment on the borrowed $41 billion is due in September.
Wall Street is facing its first blitz of fourth-quarter earnings, with Bank of America Corp., General Electric Co. and Apple Inc. among the industry titans slated to report in coming days. With the U.S. financial markets closed Monday for Martin Luther King Jr. Day, Wall Street faces a holiday-shortened week.
BP and Russia's state-controlled Rosneft agreed to a share swap under which they would jointly explore for offshore oil and gas, in a deal that immediately raised concerns in the United States about Russia's global oil ambitions. The deal gives BP access to highly sought after reserves of oil and natural gas in Russia's remote Arctic region. BP will trade 5% of its shares, for 9.5% of Rosneft.
The People's Bank of China raised the level of reserves that banks are required to hold by one half of a percentage point. Major Chinese banks will have to set aside 19% of their reserves and small and medium banks will have to keep 15.5% of their deposits as reserves, a record high for the country's deposit-taking institutions. This is the seventh time in the last year that the bank has used higher reserve standards to try to pull money out of the economy and tame rising prices.
Share the Wealth of Knowledge!
Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced!
Insert your broker/dealer disclosures here. i.e. Securities offered through “Your B/D Name Here,” Member FINRA/SIPC.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
Consult your financial professional before making any investment decision.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative or named Broker dealer, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
What does the 2010 Tax Relief mean to you? By Ken Mahoney
After waiting until almost the last minute, Congress averted tax increases that would have affected taxpayers at all income levels and added some 15 million lower-income workers to the tax rolls.1
Had Congress not passed the 2010 Tax Relief Act (H.R. 4853), tax rates for income, capital gains, dividends, and estates would have reverted to higher pre-2001 levels in 2011. Rates for these taxes were reduced in 2001 and 2003 but were subject to a December 31, 2010, expiration date because of the political climate at the time. The new law pushes their expiration dates to December 31, 2012.
Despite the uncertainty created by yet another temporary tax law, there are many encouraging provisions that result in some of the most favorable tax conditions Americans have seen in a generation.
What’s New and What’s Not?
One-year payroll tax cut. Employees may notice slightly more take-home pay in 2011 because their share of the payroll tax, which is used to fund Social Security, has been temporarily reduced to 4.2% of income (on up to $106,800 in taxable wages). For the self-employed, the payroll tax has been reduced to 10.2%. The employer’s share of the payroll tax, equal to 6.2% of an employee’s pay, did not change.
Estate tax revival. Although the federal estate tax is back after being repealed in 2010 (for one year only), the new parameters are more generous than those that had been scheduled for 2011 (a $1 million exemption and a 55% top tax rate).
For individuals who leave behind an estate before December 31, 2012, assets in excess of a $5 million applicable exemption will be subject to a top rate of 35%. Married couples who take the appropriate steps may be able to pass up to $10 million tax-free to their heirs.
The new law also brings back the stepped-up basis rules, which allow heirs to calculate their basis in an asset according to its value on the date of inheritance. Heirs who inherited assets in 2010 can elect to use the modified carryover basis rules that were in place for that year (meaning they must calculate capital gains using the decedent’s basis) or they can apply the new $5 million exemption and 35% top rate and use the stepped-up basis rules.
Gift tax reunified with the estate tax. Gifts in excess of the donor’s $5 million lifetime exemption are subject to a maximum 35% rate.
Itemized deductions for high incomes. The repeal of the so-called Pease limitation, which reduces the use of certain deductions for taxpayers with incomes in excess of certain levels, has been extended through 2012.
No phaseout of the personal exemption. High-income taxpayers will be allowed to claim the full personal exemption through 2012. Prior to 2010, the exemption was phased out for taxpayers with incomes in excess of certain thresholds.
Two more years of AMT relief. Middle-income taxpayers may be able to avoid the alternative minimum tax for at least two more years. The AMT was crafted in 1970 to keep wealthy taxpayers from using exemptions and deductions to avoid income taxes, but it has started to affect less affluent taxpayers because the limits aren’t indexed to inflation. The new exemption amounts for 2010 and 2011 are $47,450 and $48,450, respectively, for single filers ($72,450 and $74,450, respectively, for married taxpayers filing jointly).
Capital gains and dividends. Long-term capital gains and qualifying dividends will continue to be taxed at a 0% rate for individuals in the 10% and 15% income tax brackets and at a maximum 15% rate for other taxpayers. After 2012, long-term capital gains will be taxed at a maximum 20% rate and dividends will be taxed as ordinary income.
Income taxes. The 2010 Tax Relief Act includes a two-year extension of the income tax rates that have been in effect since 2003. These are the 2011 income limits:2
These are just the highlights. Several other provisions have been extended. Before you take any action, consult your tax advisor for information about your situation.
1) The Wall Street Journal, December 17, 2010
2) CCH, 2010 (Income limits are projected. Actual limits may vary.)
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2011 Emerald Connect, Inc.
2010, the year in review, and a look at 2011 prospects by Ken Mahoney
2010 was truly a year for the history books! The Standard & Poor’s 500 began January at 1115, and then crisscrossed that line 165 times to eventually end the ride with its finest December performance in 19 years. The Dow’s second-straight annual increase was equally dramatic, with almost half of its climb (5.2%) occurring in December.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Indexes cannot be invested into. Chart is for illustration purposes only.
More than a few factors influenced the roller coaster ride of last year. Here are a few of the highlights:
January – Stocks start out looking good at 15-month highs.
February – European debt concerns take center stage as investors fear Greece will default and trigger a landslide that continues into Portugal, Italy, Ireland and Spain. Anxiety about these areas tug at the markets all year.
April – In a series of left hooks, the SEC files charges against Goldman-Sachs related to improper sale of securities tied to subprime mortgages, the BP oil spill fiasco begins, and Greece requests a $53 billion bailout.
May - Wall Street experiences the infamous “Flash Crash” that sends the Dow plunging almost 1,000 points in just a matter of minutes.
July – Stocks sink to 2010 lows as June’s jobs report disappoints. President Obama signs the Frank-Dodd Wall Street Reform and Consumer Protection Act into law, enacting the most far-reaching financial reform since the 1930s.
November – Republicans win back the House in mid-term elections - a shift in power that is generally seen as a win for Wall Street. The Fed unveils a $600 billion bond-buying stimulus program called quantitative easing, and the Dow and Nasdaq touch 2-year highs.
December – President Obama signs the $858 billion tax cut deal into law. Stocks end the year on a high note with the S&P up 12%, the Dow up 10%, and the Nasdaq up 17%.
As we ride a wave of optimism into 2011, there are still a number of challenges to face. The Fed’s QE2 policy has many experts increasingly worried about inflation.
Home prices are falling again, leading to questions about a double-dip in the housing market recovery. And the economy continues to suffer from one of the longest job droughts in our nation's history, with the monthly unemployment rate lingering above 9% for 19 straight months.
Investors will also be paying attention to politics and global economics as the year begins. Congress will return this week with Republicans in control of the House, and while investors are hoping the new political landscape will deliver business-friendly policies, there's also the chance of political gridlock. In addition, Euro zone debt and China’s attempts to rein in inflation without derailing progress pose potential hurdles to overcome.
All things considered, the future looks bright for 2011. Bullish sentiment toward the stock market is spreading and investors are beginning to put more money into it than they are pulling out. There has been a recent decrease in unemployment claims which are currently at their lowest level since July 2008. And corporate earnings are strong, with a 32% growth rate estimated for S&P 500 companies in 2010’s fourth quarter.
The new year is beginning on a more positive note than many investors could have predicted given the challenges of 2010. And while we hope the economy and the stock market maintains its positive momentum, history teaches us that ups and downs are part of life. Whatever we face in the year ahead, rest assured that we will maintain a watchful eye on any factors that have the potential to affect you. May a bright and prosperous 2011 be yours!
ECONOMIC CALENDAR:
Tuesday – Motor Vehicle Sales, Redbook, Factory Orders
Wednesday – ISM Non-Mfg Index, EIA Petroleum Status
Thursday – Jobless Claims, Fed Balance Sheet, Money Supply
Friday – Employment Situation, Consumer Credit
Data as of 12/29/2010 1-Week 1-Year 5-Year 10-Year
Standard & Poor's 500 0.07 12.78 0.15 -0.47
Dow 0.03 11.02 1.60 0.73
NASDAQ -0.48 16.91 4.06 0.74
MSCI EAFE 0.68 4.90 -0.26 1.06
10-year Treasury Note (Yield Only) 3.35 3.81 4.38 5.11
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
QUOTE OF THE WEEK:
“For last year's words belong to last year's language, and next year's words await another voice, and to make an end is to make a beginning.” – T.S. Eliot