Weekly Update — January 22nd, 2019
U.S. markets were up again last week, as major domestic indexes posted their 4thweekly gains in a row.[i] In fact, the S&P 500 was no longer in correction territory at Friday’s close—and was in the middle of its best yearly start since 1987.[ii] For the week, the S&P 500 gained 2.87%, the Dow added 2.96%, and the NASDAQ increased by 2.66%. So far, all three indexes are up more than 5% in 2019.[iii] Internationally, the MSCI EAFE also ended the week in positive territory, posting a 1.06% gain.[iv]
What is driving the rally?
Once again, developments in our ongoing trade negotiations with China contributed to the performance. On Thursday, a report emerged that the U.S. was weighing whether to lift tariffs on Chinese imports. However, the Treasury Department said Secretary Steve Mnuchin had not recommended this action.[v] Then, on Friday, Bloomberg released news that China may raise its imports to a level that would close the trade deficit by 2024.[vi] This potential sign of progress contributed to the day’s market gains.[vii]
While these trade updates significantly affected stock performance last week, the following details are also worth noting:
- Corporate earnings season started.
So far, 11% of S&P 500 companies have released their earnings reports for the 4thquarter of 2018. As expected, growth is not as fast as in the last year’s previous quarters, but total earnings are still up 16.9% over the same period in 2017. We are very early in earnings season but anticipate data from another 56 companies coming out this week.[viii]
- Consumer sentiment missed expectations.
The latest consumer sentiment reading fell to its lowest level since 2016, yet it still remains relatively high. This decline could signal that the current impasse over border-wall funding and the volatile markets are negatively affecting the economy.[ix]
- Manufacturing beat projections.
The latest data showed that U.S. manufacturing output increased by 1.1% in December. This rate exceeded expectations and may help calm concerns that factory production is slowing.[x]
- The government shutdown continued.
Since December 22, parts of the Federal government have been closed, marking the longest shutdown in U.S. history. Economists estimate that each week the shutdown continues could reduce our quarterly growth of Gross Domestic Product by up to 0.2%.[xi]
Looking ahead, we will not only have earnings data to consider in this shortened trading week but also information on home sales and durable goods orders. We’ll continue to monitor economic reports—and geopolitical developments—as we support each client’s long-term goals. As always, if you have questions or concerns, we’re here for you.
Monday: Markets Closed for Martin Luther King Jr. Day
Tuesday: Existing Home Sales
Thursday: Jobless Claims
Friday: Durable Goods Orders, New Home Sales
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.
“Try to be a rainbow in someone’s cloud.”
– Maya Angelou
Tax Tips for Those in the Military
The IRS and the U.S. Department of Veterans Affairs have partnered to provide free tax preparation services, financial planning advice, and helpful information to veterans and their families. Here are just a few, helpful tips for veterans:
Earned Income Tax Credit
Many veterans are eligible for the Earned Income Tax Credit. It’s a refundable, federal income tax credit that roughly two million veterans and military households receive. The EITC is the refundable component of the Child Tax Credit. The credits provide a tax break for eligible service members.
Free Financial Coaching
This financial coaching initiative is help for veterans to achieve their financial goals. Certified financial coaches in organizations around the country can provide free financial support services. The program is available in various locations and managed through the Armed Forces Services Corporation, is available until the end of March 2019, and is provided by The Bureau of Consumer Financial Protection, Office of Servicemember Affairs. Contact 1-844-90-GOALS (1-844-904-6257) for information.
Free Tax Prep Services
IRS-certified volunteers help many veterans through The Volunteer Income Tax Assistance and Tax Counseling for the Elderly programs. These IRS-certified volunteers provide basic tax assistance and preparation of electronic filings for qualified veterans and their families. For more information, call 800-906-9887.
* 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.
Tips adapted from IRS.gov[vii]
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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.
My blog discusses a myriad of financial topics and challenges, book reviews, and commentary on current events in the financial world to benefit our military and veteran community. I attempt to be as thorough as possible when examining each subject but can never account for every possible scenario. Please remember to consult with your advisers for advice on your particular situation. Thank you for reading!
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