Weekly Update – January 7th, 2019
U.S. markets experienced more wild sessions last week before ending in positive territory as the recent turbulence continued. In fact, we are currently in the middle of some of the most volatile market activity in more than eight years.[i] For the week, the S&P 500 gained 1.86%, the Dow added 1.61%, and the NASDAQ increased by 2.34%.[ii] MSCI EAFE (International) stocks also increased, posting a 1.42% weekly gain.[iii]
While the results may not seem especially dramatic, the path to get there certainly was. On Thursday, January 3, domestic stocks plunged, as factory data and a tech warning spooked investors.[iv] Then, the next day, the S&P 500, Dow, and NASDAQ each gained at least 3.3%.[v] Friday’s performance marked one of the largest rallies since 2009.[vi]
What drove the market rally?
Two key events contributed to the huge jumps on Friday: 1) the latest labor report and 2) comments from the Federal Reserve Chairman.[vii]
1: December’s labor report exceeded projections.
Many people expected that the economy would add around 176,000 jobs last month. Instead, the latest data revealed that the increase was actually 312,000 new jobs in December—drastically beating expectations.[viii] Not only did last month’s labor report show more jobs added than anticipated, but wage growth and labor market participation also increased.[ix]
Why does this data matter?
Investors have been very concerned that economic growth is slowing. This result helped quell worries that a recession is ahead.[x]
2: The Fed shared new policy perspectives.
Fed Chair Jerome Powell told the American Economic Association that the Federal Reserve understands the market’s worries and hasn’t predetermined its future interest rate hikes.[xi]
Why does this update matter?
Some of the uneasiness the markets have shown recently is a result of concerns that the Fed is tightening monetary policy too quickly. Powell’s comments indicate the Fed is sensitive to economic conditions, an update that many investors wanted to hear.[xii]
What is on the horizon?
A number of unresolved situations remain for the markets and economy. The government shutdown continues, and a solution doesn’t appear imminent at the moment. Trade dynamics are also still an important consideration, especially since corporations are now issuing warnings that trade is affecting their profits. Meanwhile, U.S. officials will be meeting with China this week to talk once again.[xiii]
For now, the volatility we are experiencing may continue.[xiv]
If you have questions about how to weather these ups and downs, send me a message!
Monday: Factory Orders, ISM Non-Mfg Index
Wednesday: FOMC Minutes
Thursday: Jobless Claims
Notes: All index returns (except S&P 500) exclude reinvested dividends, and the 5-year and 10-year returns are annualized. The total returns for the S&P 500 assume reinvestment of dividends on the last day of the month. This may account for differences between the index returns published on Morningstar.com and the index returns published elsewhere. International performance is represented by the MSCI EAFE Index. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
“Be always at war with your vices, at peace with your neighbors, and let each new year find you a better man.”
— Benjamin Franklin
Own a Restaurant? Tax Tips on Tips
If you own a restaurant, then your employees probably receive tips for their great service. However, there are a few “tax tips on tips” you should know about. In general, tips are subject to withholding, and employees are required to claim all tip income, including tips via credit card transactions.
If you operate a large food and/or beverage establishment, you must file Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, to report your employee’s tip income. Criteria that define “a large food or beverage establishment” include:
- Food or beverage is provided for consumption on the premises
- Tipping is a customary practice
- More than 10 employees, who work more than 80 hours, were normally employed on a typical business day during the preceding calendar year.
A worksheet for determining whether a business meets the criteria listed above is included in the instructions for Form 8027.
*This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Tip adapted from IRS.gov[xv]
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If you have any questions or would like to learn more about developing strategies to pursue a prosperous and safe future, contact me today at Derek.Merkler@Parsonex.com! You can also visit my website to learn about how I help our service members and veterans plan for and achieve financial independence.
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