Happy New Year To You ~ all of our valued clients and friends!
May this new decade bring your hopes and dreams to reality. We appreciate your confidence and, as always, will continue to work with you help you successfully accomplish those same hopes and dreams.
But, before we get started on the financial details of the day, we have an announcement to make. Jay Hovis, the newest member of your Financial Focus Team, celebrates his first anniversary with our firm AND we congratulate Jay on passing the rigorous courses necessary to achieving the Certified Financial Planner practitioner designation in November last year. Only 62% of those who took the test received the grade necessary to being awarded the CFP designation. Great job, Jay! We are very proud of you.
You’ve heard it said, “Never a dull moment.” Well, that was never truer than in 2019. The year began with the government stymied by a shutdown and ended with articles of impeachment levied against the president! In between, both domestic and global economies showed signs of slowing, all while the trade war between the United States and China loomed throughout the year. Despite all the chatter, doom and gloom for an end to the long running bull market and much, much more, investors remained relatively bullish toward stocks, pushing several major indexes to record highs.
While domestic economic growth may have slowed in 2019 compared to 2018, it showed resilience and stamina. Consumer spending — which accounts for about two-thirds of the U.S. economy — surged, buoyed by a strong labor market, near-record unemployment, solid wage growth, and a burgeoning stock market. All told, the domestic economic expansion continued into its 11th straight year, the longest run in U.S. history!
Last year saw trade disputes between the United States and several of its trade partners reach an accord, but the trade war with China roared. The world's two largest economies engaged in a tit-for-tat skirmish, with each country volleying tariffs on their respective imports at the expense of the exporting nation. Coincidentally, a limited deal was announced just before the holiday shopping season, with the U.S. agreeing to forgo new tariffs and China assenting to allow more U.S. agricultural imports. Further negotiations are presumed, but the relationship between the economic giants remains tenuous at best. More to come on that issue.
The new year begins with a strong stock market and solid economic growth – 330.36 points (1.16% Day One.) However, the Treasury budget deficit for fiscal 2019 (October 2018-September 2019) exceeded $98 billion — 26% higher than the 2018 fiscal-year deficit. The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. The new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess.
The Secure Act, passed in late December, will change the retirement planning (and saving) landscape to some extent. Here’s the short version of how: It will be good news for some; not so good news for others. Effective January 1, 2020, the Setting Every Community Up for Retirement Enhancement Act of 2019
(the SECURE Act) was passed by Congress on December 19, 2019 and signed into law on December 20, 2019. It’s been said that one intent of the Act is to strengthen retirement savings. Prior to SECURE, individuals had to begin taking RMDs from tax-qualified retirement savings plans, including annuities, when they reached the age of 70½. The SECURE Act raises
that age to 72 for those born on or after July 1, 1949.
Under the new law, for example, people who turn 70½ in 2020 or later won’t have to take a distribution until they reach age 72. However, those who turned 70½ by the end of 2019 will still need to take RMDs as currently required. Their first distribution must be taken by April 1, 2020.
But buried in the SECURE Act is some very bad news for many retirement account owners’ beneficiaries. Why, you ask? Let’s just call it what it is – a revenue raiser. The SECURE Act will essentially do away with the stretch IRA as we have known it. The Act changes the rules for tax-qualified retirement plans and IRAs upon the death of the account owner. The exceptions to the Act are surviving spouses, disabled or chronically ill individuals, individuals who are less than 10 years younger than the account owner, or minor children of the account owner who have not yet not reached the age of majority. All others will generally be required to take distribution of the inherited IRA by the end of the tenth calendar year following the year of the employee or IRA owner’s death. Plainly stated, most beneficiaries will end up with the “10-year rule.” In other words, this change will generally apply to most non-spouse beneficiaries inheriting an IRA after December 31, 2019.
So, if you are not part of the exception, (and again, most will not be) qualified retirement plans and IRA distribution planning has just become far more important and critical than ever before.
The trade war with China may cool with more mutual concessions, or accelerate, which would continue to dampen global economic growth. Not to change horses here, the new year will begin with the impeachment process and end with November's presidential election. What happens in between is anyone's guess. Will unemployment and inflation remain low? Will stocks continue to experience growth? Will oil and gas prices moderate or surge? Will the domestic economy continue to accelerate, or suffer a setback? Can the world economy recover, or will it continue to stagnate? If nothing else, 2020 looks to be an interesting year.
Remember Harry S. Dent, Jr. who, in October 1999, wrote The Roaring 2000's? Harry has been widely respected in the financial world for his accurate forecasts – though he has been wrong as often as he is right. One prediction was that the DOW would reach 21,500 to 35,000 by the year 2008. His crystal ball was a little cloudy on that one but, nonetheless, he did reveal that the government doesn’t drive our economy, consumers and businesses do. The consumer has proven him right on that one!
Here’s some fairly eye-popping data on the various index performances in 2019 for you:
Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.
||As of 9/30
- Equities: The year 2019 was a solid one for investors. A year after one of the worst fourth quarters since the Great Recession, stocks rebounded to close 2019 with several major indexes reaching record highs. Despite the trade war with China, investors stayed the course for most of the year, pushing stocks to their best year since 2013.
- Each of the benchmark indexes listed here closed 2019 in fine fashion, led by the tech stocks of the Nasdaq, which gained more than 35%. The large caps of the Dow (23.34%) and the S&P 500 (28.88%) also fared well by year's end. The small caps of the Russell 2000 began the year on a tear, ending February up almost 17%. However, the small-cap benchmark index pulled back some in March but remained a steady gainer for much of the rest of the year, closing 2019 about 24% ahead of where it started. Impressive for sure.
- Bonds: U.S. Treasury yields swung dramatically in 2019, ranging from a low of 1.43% to a high of 2.80%.
- Oil: Oil prices began 2019 at $46.54 per barrel and continued pushing higher, reaching a peak price of $66.60 per barrel in April.
- Interest rates: The Federal Open Market Committee lowered interest rates three times during 2019 after raising them four times in 2018. Each time the target range decreased by a quarter of a point. The first rate drop occurred in July, followed by a rate decrease in September and a final cut in October. The Committee left rates unchanged following its last meeting for 2019 in December. At this moment, (literally) we believe the overall view of the economy is favorable
- Gold: Gold prices rose over 18% in 2019. Gold prices began the year at $1,278.30 on January 1. Prices hit a low in May of $1,267.30 to a high in September of $1,566.20. The price of gold closed 2019 at $1,520.00.
Eye on the Year Ahead
We can all celebrate that although economic growth slowed in 2019, it was clearly not enough to prompt investors to avoid stocks. However, fears of a global economic slowdown continuing into 2020 could affect the U.S. economy as well. The housing market still hasn't picked up the pace and is generally lagging other economic mainstreams. Ongoing global trade negotiations between the United States and China should bode well for the U.S. and global economies. Some would say it may ultimately be that our economy, equity markets, and standing in the world depends on the outcome of the impeachment proceedings and November's presidential election. Time will tell.
Barbara, Gloria, and Kate
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
Some Final Thoughts ~ The good the bad and the, well, let’s hope there’s none of that . . .
- Fed dovish pivot
- Positive corporate profit growth
- Healthy consumer and business fundamentals
- High confidence
- Favorable financial conditions
- Moderate inflation
- Very few signs of imbalances —massive debt growth, over investment, capacity constraints
- Aging business cycle
- Slowing global growth
- Trade policy missteps
- Higher volatility
- Fading fiscal stimulus
- Acceleration in wages and other business costs
- Geopolitical shocks
- Higher federal debt levels
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.
|Data sources: Economic: Based on data from U.S. Bureau of Labor
Securities offered through Securities America, Inc, Member FINRA/SIPC. Advisory services offered through Financial Focus LLC. Financial Focus LLC and Securities America are not affiliated.