What I’m Watching This Week – 18 August 2014

The Markets

Last week domestic equities managed to build on the gains of the week before. The Dow industrials finally returned to positive territory for the year, and the Nasdaq had the kind of weekly gain it hasn’t seen since late May. Meanwhile, geopolitical tensions helped spur interest in the relative safety of the benchmark 10-year Treasury, cutting the yield to its lowest level since June 2013.

Market/Index

2013 Close

Prior Week

As of 8/15

Weekly Change

YTD Change

DJIA

16576.66

16553.93

16662.91

.66%

.52%

Nasdaq

4176.59

4370.90

4464.93

2.15%

6.90%

S&P 500

1848.36

1931.59

1955.06

1.22%

5.77%

Russell 2000

1163.64

1131.35

1141.65

.91%

-1.89%

Global Dow

2484.10

2532.94

2575.60

1.68%

3.68%

Fed. Funds

.25%

.25%

.25%

0 bps

0 bps

10-year Treasuries

3.04%

2.44%

2.34%

-10 bps

-70 bps

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.

Last Week’s Headlines

  • Auto and department store sales declined in July, while grocery stores, gas stations, restaurants, clothing stores, and building supply stores all saw gains. That left total retail sales essentially flat for the month, though the Commerce Department said they were up nearly 4% from a year earlier.
  • Wholesale prices rose 0.1% in July, according to the Bureau of Labor Statistics. That was slightly less than June’s 0.4% increase, and cut the annual wholesale inflation rate for the last 12 months to 1.7% from June’s 1.9%. The biggest monthly increases were seen in transportation and warehousing, which were up 0.5%, while wholesale food costs rose 0.4% and energy prices fell 0.6%.
  • Led by a 10.1% increase in auto manufacturing, U.S. industrial production rose 0.4% in July, according to the Federal Reserve. The overall increase represented the sixth straight monthly gain. Even aside from the surge in autos, production was up 0.2%, and the percentage of the nation’s manufacturing capacity that’s being used rose to 79.2%.
  • After the Fed’s Empire State manufacturing survey hit a four-year high, the August report showed that improvement had slowed substantially as the reading fell 11 points to 14.7.
  • Sluggish economic recovery in the 18-member eurozone stalled completely during Q2 as growth fell from 0.2% in Q1 to 0. More worrisome was the -0.2% decline in both the German and Italian economies, which are two of the tentpoles of the region’s economy. The larger 28-member European Union saw a 0.2% increase in gross domestic product, and the official EU statistics agency said GDP had risen in both areas compared to a year earlier (0.7% for the eurozone and 1.2% for the EU).

Eye on the Week Ahead

Speeches at the Fed’s annual Jackson Hole conference could influence markets given the internal debate over the timing of interest rate hikes. Investors will continue to monitor the situations in Ukraine, Gaza, and Iraq, and housing and consumer inflation data also are on tap.

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). 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.

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. Market indices listed are unmanaged and are not available for direct investment.

Members of the Military: Estate Planning

Whether you’re a veteran or just starting out in the military, planning and preparing your estate is of vital importance. Why is estate planning so critical? Because, at your death, you leave behind the people you love and all your worldly goods. Without proper planning, you have no say about who gets what, and more of your property may go to unintended recipients instead of your loved ones. If you care about how and to whom your property is distributed, you need to prepare your estate plan.

Who needs estate planning?

Estate planning is important regardless of your financial situation. In fact, it may be more important if you have a smaller estate because the final expenses could have a much greater impact on your estate. Wasting even a single asset may cause your loved ones to suffer from a lack of financial resources.

Your estate plan may be relatively simple and inexpensive, such as preparing a will to distribute basic accounts and assets and designating beneficiaries for your life insurance policy(s) and retirement account(s). If your estate is larger or you have more assets, the estate planning process may be more complex and expensive. In any case, you’ll probably need the help of professionals, including an estate planning attorney, a financial planner, an accountant, and possibly an insurance professional.

Issues to consider

Your estate plan should be geared to your particular circumstances. Some factors that may impact your estate plan include whether:

  • You own real estate, especially if you own property in different states
  • You have minor children or children with special needs
  • You are married
  • You intend to contribute to charity
  • Your estate might be subject to estate tax
  • You become disabled or incapacitated and are unable to manage your financial affairs

How do you begin planning your estate?

It generally begins with an analysis of what you own. The type of assets and property you own can affect how you plan your estate. Next, formulate goals and objectives for your estate plan. Decide whom you want to inherit from your estate. Consider whether you want to place any restrictions or conditions on an inheritance (e.g., specify a replacement should a named beneficiary predecease you; control distributions to minors or someone you consider a spendthrift).

Consider how taxes might impact your estate. Taxes that may factor into your estate plan include federal and/or state gift and estate taxes, state inheritance taxes, and federal and/or state income taxes.

Additional goals and objectives you might consider include whether you want to:

  • Provide for your family’s financial security
  • Ensure that your property is preserved and passed on to your beneficiaries
  • Avoid disputes among family members
  • Provide for family members’ education
  • Determine who will manage your assets and property after your death and who will be responsible for carrying out your wishes (e.g., executor, personal representative, trustee)
  • Avoid probate
  • Minimize estate and other taxes
  • Plan for your potential incapacity

Common estate planning tools

Many strategies and tools available that can help you carry out your estate plan. In most cases, these tools are governed by specific state law, as well as federal law in some instances. Therefore, you should consult with a knowledgeable estate planning attorney to ensure that your legal documents and estate plan comply with the appropriate laws. The following is a brief description of several common tools and strategies:

  • Last will and testament: A legal document that describes to whom and how you want your property distributed, names the person or entity that will administer your estate, and specifies who will care for your minor or disabled child.
  • Trust: A separate legal entity that can hold property and assets, for the benefit of one or more people or entities (e.g., spouse, children, charities), and can be implemented while you’re living or at your death, usually through your will. Trusts may incur up-front costs and often have ongoing administrative fees.
  • Durable (financial) power of attorney: A document in which you name someone to act on your behalf for a specific purpose (e.g., sell your home) or to manage your financial affairs should you become unable to do so yourself.
  • Health-care directives: A health-care proxy and living will allow you to express your wishes about the administration of medical treatment and life-prolonging measures during times when you cannot otherwise express those intentions.
  • Guardian for minors: Generally included in your will, this is the person who will be responsible for the care and protection of your minor children.
  • Beneficiary designations: Often overlooked, this important function applies to financial products you own such as life insurance, annuities, and qualified savings accounts such as your Thrift Savings Plan and IRAs, and supersede instructions in a will.
  • Funeral and burial arrangements: Your wishes for your funeral, the disposition of your remains (e.g., cremation, burial), and organ donations .may be expressed in your will, trust, or in a separate writing.

Survivor benefits

Whether you are receiving military retirement pay, a private pension, or income from the military or private employment, your death could cause serious financial hardship to your family. A major part of estate planning is developing strategies and contingencies to provide for your family after your death. Servicemembers have several benefits including life insurance, death gratuity, and survivor benefits that may be available to help survivors should the unthinkable happen.

  • Life insurance: Offered through the military in several forms for active members and veterans including Servicemembers’ Group Life Insurance, Veterans’ Group Life Insurance, and Veterans’ Mortgage Life Insurance.
  • Death gratuity: A $100,000 death gratuity is paid to the next of kin of members of the military who die while on active duty or within 120 days of separation.
  • Dependency and Indemnity Compensation (DIC): A monthly benefit paid to eligible survivors of servicemembers who die while on active duty, or veterans whose death is due to service-related injury or disease, or veterans whose death is nonservice-related but who are receiving or entitled to receive VA compensation for service-related disabilities and who are totally disabled. Other eligibility requirements may also apply.
  • Survivor Benefit Plan (SBP): A pension-type plan in the form of an annuity that can be purchased to pay your surviving spouse and children a monthly payment based on a percentage of your retired pay. If you are on active duty, retirement-eligible, and have a spouse and/or children, they are automatically protected under SBP at no cost to you while still on active duty. You must pay premiums for coverage once you retire from the military.
  • TRICARE: Health insurance is available to certain eligible surviving family members of deceased active duty or retired service members. Conditions for eligibility may apply and costs for coverage and benefits available may vary based on the sponsor’s military status at the time of death and whether the family member is a surviving spouse or child.
  • Additional benefits: Available for survivors of veterans and servicemembers who die while on active duty includes burial in a national, state, or military installation cemetery (this is also available to spouses and dependent children of the servicemember), headstone or marker provided by the government, burial flag, and reimbursement for a portion of burial expenses.

What I’m Watching This Week – 11 August 2014

The Markets

Investor indecision about the future of equities prices, coupled with light summer trading volumes, led to volatility across the board last week. Friday’s 186-point rally gave the Dow some relief after two down weeks, though not enough to nudge the index into positive territory for the year. The small caps of the Russell 2000 had their strongest week since early July, though they also remained down year-to-date. Meanwhile, geopolitical tensions increased demand for the relative security of the benchmark 10-year Treasury bond, sending its yield down. However, riskier high-yield bonds saw some selling pressure.

Market/Index 2013 Close Prior Week As of 8/8 Weekly Change YTD Change
DJIA 16576.66 16493.37 16553.93 .37% -.14%
Nasdaq 4176.59 4352.64 4370.90 .42% 4.65%
S&P 500 1848.36 1925.15 1931.59 .33% 4.50%
Russell 2000 1163.64 1114.86 1131.35 1.48% -2.77%
Global Dow 2484.10 2561.22 2532.94 -1.10% 1.97%
  1. Funds
.25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.52% 2.44% -8 bps -60 bps

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.

Last Week’s Headlines

  • Growth in the U.S. services sector accelerated in July. The Institute for Supply Management’s gauge of activity in service industries rose 2.7% to 58.7%–its highest level since the index was launched in 2008.
  • New orders at U.S. manufacturers were up 1.1% in June. The Commerce Department said the gain boosted factory orders to their highest level since record-keeping began in 1992 and that June was the fourth month of the last five to see an increase.
  • A drop in oil imports helped cut the U.S. trade deficit by 7% in June, according to the Commerce Department. U.S. exports rose 0.1% to their highest level on record, while imports dropped 1.2%.
  • Italy’s economy fell back into recession, falling 0.2% in Q2; it was the second consecutive quarterly contraction. The GDP of the eurozone’s third largest economy also was down 0.3% from the same quarter a year earlier.
  • In retaliation for new European Union and U.S. economic sanctions, Russia imposed a one-year ban on a variety of food imports and said it’s considering prohibiting EU and U.S. flights from Russian airspace over Siberia.
  • As expected, the European Central Bank left key interest rates unchanged. President Mario Draghi said measures already adopted are having an effect and that it was too early to assess the potential impact of Russia’s ban on European food imports.
  • Eleven of the largest U.S. banks must rewrite their proposed plans for handling a potential bankruptcy. The Federal Reserve and Federal Deposit Insurance Corp. said the plans contained “no credible or clear path” to achieve an orderly failure and avert any need for the type of bailouts provided during the 2008 financial crisis. The banks have until July 2015 to submit revised so-called “living wills.”
  • Fair Isaac Corp. said it will change the way it calculates credit scores, underweighting unpaid medical bills and excluding overdue bills that are subsequently paid or settled with a collection agency. The changes could make it easier to get credit.

Eye on the Week Ahead

With the Q2 earnings season winding down, retail sales and wholesale inflation data will vie with global conflicts for investor attention. Speeches by two members of the Fed’s monetary policy committee are likely to review the arguments for and against accelerating an interest rate hike. Finally, options expiration at week’s end plus trading volumes that are likely to remain relatively low could mean additional volatility.

What I’m Watching This Week – 4 August 2014

The Markets

A strong GDP report, generally positive corporate earnings, and a slightly more optimistic outlook from the Fed couldn’t offset the ongoing stream of bleak news about geopolitical problems and investor desire to take some money off the table. The Russell 2000’s recent losing streak spread to the large caps as the S&P 500 had its worst week of the year. Argentina’s default on sovereign debt helped prompt a selloff on Thursday, which cut 317 points from the Dow and sent it back into negative territory for the year.

Market/Index 2013 Close Prior Week As of 8/1 Weekly Change YTD Change
DJIA 16576.66 16960.57 16493.37 -2.75% -.50%
Nasdaq 4176.59 4449.56 4352.64 -2.18% 4.22%
S&P 500 1848.36 1978.34 1925.15 -2.69% 4.15%
Russell 2000 1163.64 1144.72 1114.86 -2.61% -4.19%
Global Dow 2484.10 2630.48 2561.22 -2.63% 3.10%
Fed. Funds .25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.48% 2.52% 4 bps -52 bps

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.

Last Week’s Headlines

  • The initial estimate of 4% U.S. economic growth in Q2 showed a strong rebound from Q1’s 2.1% contraction. However, the Bureau of Economic Analysis’s initial estimate is subject to revisions over the next two months (for example, the initial Q1 estimate showed a 0.1% gain). Increases in exports and consumer spending (especially on durable goods) as well as more business inventory investment and state/local government spending drove the gains in gross domestic product.
  • The unemployment rate ticked up slightly to 6.2% in July but was still at its lowest level in almost six years and more than a full percentage point below a year earlier. The Bureau of Labor Statistics also said the 209,000 new jobs added to payrolls in July roughly equaled the average monthly job gains over the last year; though that’s down from the pace of the last three months, July was the sixth straight month in which 200,000+ new jobs have been added.
  • Home prices continued to improve, but at a slower pace. All the cities in the S&P/Case-Shiller 20-City Composite Index report issued last week saw increases, but the 9.4% increase over last May was down from the previous month’s 10.8% year-over-year gain.
  • The Federal Reserve’s monetary policy committee continued to reduce its bond purchases, cutting them to $25 billion a month. The Federal Open Market Committee statement noted increased spending by both consumers and businesses as well as improvements in employment, though it also said there continues to be slack in the labor market. It also said that as long as inflation remains below 2%, its target interest rate is likely to remain at its current level for “a considerable time” after new bond purchases end completely. However, the moderately more positive language plus hawkish comments from one committee member helped elevate concerns about the timing of rate increases.
  • Both the European Union and the United States attempted to increase pressure on Russia to end support for Ukrainian rebels. Previous sanctions have been largely directed toward individuals; the new measures are expected to affect Russian banks, the country’s oil industry, and the military. The EU agreement is designed to isolate Russia economically without hampering Europe’s fragile economic recovery.
  • After Argentina failed to reach a settlement with large holders of $13 billion of sovereign bonds that have already been restructured once, Standard & Poor’s declared it in default on other interest payments. Coupled with a quarterly loss reported by Portugal’s second-largest bank, Argentina’s debt problems once again raised questions about the resilience of emerging economies.
  • Trustees of the fund that finances Medicare reported that slower growth in federal health-care spending as a result of the Affordable Care Act appears to have helped delay by four years the date by which Medicare is expected to run out of money. The trustees now see that occurring in 2030. Social Security is expected to be solvent until 2033, but trustees of the Social Security Trust Fund said that unless action is taken, a shortfall might require cuts in disability benefits starting in late 2016.
  • According to the Commerce Department, U.S. construction spending slumped nearly 2% in June. However, that was still 5.5% higher than in June 2013. Both public and private spending on residential and commercial building fell.
  • The Institute for Supply Management said U.S. manufacturing continued to accelerate in July as its survey of purchasing managers rose to 57.1 from 55.3 (any number above 50 indicates expansion).

Eye on the Week Ahead

Investors will try to gauge whether last week’s downdraft was the start of something bigger or a much-needed breather for a lengthy bull market.

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). 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.

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. Market indices listed are unmanaged and are not available for direct investment.

Monthly Market Review – July 2014

The Markets

Encouraging economic news, generally positive Q2 corporate earnings reports, and stable Federal Reserve policy had to battle multiple geopolitical conflicts for investor attention. Both the S&P 500 and Dow industrials managed to set fresh all-time highs early in July, but the S&P managed to follow through to additional records while the Dow slipped back under 17,000. After five straight positive months, both succumbed to profit-taking that left them under water for July. That handed the year-to-date lead to the Nasdaq (barely), while the small caps of the Russell 2000 gave up most of the previous month’s gains and joined the Dow in negative territory for the year. Global conflicts and instability in some emerging markets also hurt the Global Dow.

After a June rally, gold prices slid back under $1,300 an ounce in July. A stronger dollar allowed the price of oil to drop below $100 a barrel by the end of the month. Meanwhile, the benchmark 10-year Treasury yield ended the month up slightly from where it began.

Market/Index 2013 Close Prior Month As of 7/31 Month Change YTD Change
DJIA 16576.66 16826.60 16563.30 -1.56% -.08%
Nasdaq 4176.59 4408.18 4369.77 -.87% 4.63%
S&P 500 1848.36 1960.23 1930.67 -1.51% 4.45%
Russell 2000 1163.64 1192.96 1120.07 -6.11% -3.74%
Global Dow 2484.10 2605.62 2579.30 -1.01% 3.83%
  1. Funds
.25% .25% .25% 0 bps 0 bps
10-year Treasuries 3.04% 2.53% 2.58% 5 bps -46 bps

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.

The Month in Review

  • The U.S. economy seems to have rebounded from Q1’s 2.1% contraction, growing 4% in Q2. However, that initial estimate of gross domestic product is subject to revisions by the Bureau of Economic Analysis over the next two months (for example, the initial Q1 estimate showed a 0.1% gain). Increases in exports and consumer spending (especially on durable goods) as well as more business inventory investment and state/local government spending drove the GDP gains.
  • The unemployment rate remained at its lowest level in almost six years (6.2% in July), which is more than a full percentage point below a year earlier. The Bureau of Labor Statistics also said the 209,000 new jobs added to payrolls in July roughly equaled the average monthly job gains over the last year.
  • Manufacturing data was generally encouraging. New orders for U.S. manufacturers were at their highest level since late 2013, according to the Institute for Supply Management, and the ISM’s gauge of the services sector showed growth continuing, though at a slightly more moderate pace. Durable goods orders, especially business orders for capital equipment, rebounded from a May slump, and the Federal Reserve said U.S. manufacturing output rose for the fifth straight month.
  • The housing market showed signs of fatigue. According to the Commerce Department, sales of new homes plunged more than 8% in June and were 11.5% lower than a year earlier. Home prices measured by the S&P/Case-Shiller 20-City Composite Index continued to improve, but the 9.4% increase over last May represented a slower pace than in April. And wet weather in the South helped slow housing starts by 9.3%. However, the National Association of Realtors® said home resales were up 2.6% for the month.
  • Both the European Union and the United States tried to increase pressure on Russia to end support for Ukrainian rebels by adopting new measures that are expected to affect Russian banks, the country’s oil industry, and the military.
  • Higher gas prices helped send consumer inflation up 0.3% and wholesale prices up 0.4% in June. That put annual inflation rates at 2.1% (consumer) and 1.9% (wholesale), according to the Bureau of Labor Statistics. Meanwhile, retail sales rose 0.2% in June, though the Commerce Department doesn’t adjust the figures for price increases such as those seen in food costs.
  • The Securities and Exchange Commission announced new rules governing money market mutual funds that are intended to guard against a sudden run on such funds. The rules, which will be implemented over time, will require a floating net asset value for funds serving institutional investors (those serving individuals will continue to strive for a stable $1 per share price, though there will continue to be no guarantees that they will always do so). The SEC also would allow non-governmental money market funds to impose restrictions during a crisis to deter withdrawals.

Eye on the Month Ahead

The dog days of August will likely keep trading volumes light, which can sometimes heighten volatility. The Federal Reserve will pause its Great Unwind of quantitative easing, likely picking up again in September, and global conflicts could continue to counterbalance any economic good news.