What I’m Watching This Week – 26 January 2015

The Markets

It was a clean sweep for the Nasdaq as it posted gains on all four days of a market week shortened by Martin Luther King Day. As the Nasdaq was moving into positive territory for the year, the other major indices lost ground on Friday, at least in part due to the uncertainty caused by the death of Saudi Arabia’s King Abdullah, but all posted solid gains for the week. The markets generally ignored signs of an economic slowdown in China and the continuing slide in oil prices.

Market/Index 2014 Close Prior Week As of 1/23 Weekly Change YTD Change
DJIA 17823.07 17511.57 17672.60 .92% -.84%
Nasdaq 4736.05 4634.38 4757.88 2.66% .46%
S&P 500 2058.90 2019.42 2051.82 1.6% -.34%
Russell 2000 1204.70 1176.65 1188.93 1.04% -1.31%
Global Dow 2501.66 2447.65 2501.48 2.2% -.01%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 1.83% 1.79% -4 bps -38 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

  • While “deflategate” dominated American airwaves last week, concern about a deflationary spiral of a different kind caused the European Central Bank to announce a qualitative easing program worth at least €1.1 trillion ($1.3 trillion). The ECB hopes this monetary stimulus will increase investment and consumption, and turn around Europe’s stagnating economy.
  • Greek drama redux: Greece’s anti-austerity opposition party Syriza, led by Alexis Tsipras, topped vote-getters in Sunday’s election, but fell just two seats short of the number necessary for a parliamentary majority, leading Syriza to announce it would form a coalition government with another anti-austerity party, the Independent Greeks. At risk, with the anti-bailout Syriza party in control, is Greece’s willingness to go along with conditions imposed by its creditors after bailouts in 2011 and 2013, which could prompt fresh concerns about default and a “Grexit” from the eurozone.
  • Despite low inventories, existing-home sales bounced back in December and climbed above an annual pace of 5 million sales for the sixth time in seven months, according to the National Association of Realtors®. Existing-home sales rose 2.4% to a seasonally adjusted annual rate of 5.04 million in December, up from 4.92 million in November, and up 3.5% from last December, the third straight month of year-over-year increases. Median home prices for 2014 rose to $208,500, their highest level since 2007, but total sales fell 3.1% from 2013.
  • Meanwhile, the Department of Commerce announced that new residential construction rose to a seasonally adjusted annual rate of 1,089,000, a 4.4% increase over November, and a 5.3% increase over December 2013. Single family home starts rose 7.2% in December, to a seasonally adjusted annual rate of 728,000, the best since 2007.
  • The Conference Board’s Leading Economic Index® for the United States increased 0.5% in December, following a 0.4% increase in November, and a 0.6% increase in October. Ataman Ozyildirim, Economist at The Conference Board, said that “December’s gain in the LEI was driven by a majority of its components, suggesting the short-term outlook is getting brighter and the economy continues to build momentum.”

Eye on the Week Ahead

In what should be a very interesting week, all eyes will be on the Federal Reserve to see how the European stimulus plan might impact the Fed’s plans for U.S. interest rates. And investors will be closely watching for any developments in Saudi Arabia and Greece. Meanwhile, earnings season continues in high gear, with major companies like Apple and Microsoft reporting.

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New Rates Released for Veterans Pension

The U.S. Department of Veterans Affairs (VA) provides a tax-free, supplemental pension to qualifying wartime veterans and their families. To be eligible, veterans must have limited income and assets, and they generally must have a period of service that includes at least one day on active duty during wartime and 90 days total active duty time. Veterans who entered active duty after September 7, 1980 generally must have served at least 24 months or the full period for which they were called or ordered to active duty. Also, veterans must have been discharged under conditions other than dishonorable.

In addition to these basic service requirements, to be eligible, a veteran must be:

  • Age 65 or older, or
  • Totally and permanently disabled, or
  • a patient in a nursing home receiving skilled nursing care, or
  • Receiving Social Security Disability Insurance, or
  • Receiving Supplemental Security Income

Monthly benefit

A veteran who qualifies for the pension will receive a monthly benefit check. The amount he or she receives depends upon the veteran’s marital status, whether the veteran has dependent children, whether the veteran is able to care for himself or herself, and the veteran’s countable family income and net worth.

A veteran with countable family income exceeding the maximum annual pension rate (MAPR) as set by Congress will not be eligible for pension benefits. Otherwise, the MAPR is reduced, dollar-for-dollar, by countable income, with the difference paid monthly to the veteran or eligible survivor. Uninsured medical expenses paid by a veteran that exceed 5 percent of the MAPR may reduce the family countable income and increase the pension benefit. The latest MAPR rates, effective December 1, 2014, are available on the U.S. Department of Veterans Affairs website, www.benefits.va.gov.

Based on rates effective December 1, 2014, the MAPR for a veteran with a spouse (who is not a veteran) is $16,851. If that veteran had countable family income of $10,500, and uninsured medical expenses of $4,000, the veteran would be eligible to receive a monthly pension of $792, calculated as follows:

$16,851 x .05 = $842 (5% of MAPR)

$4,000 – $842 = $3,158 (medical expenses that exceed 5% of MAPR)

$10,500 – $3,158 = $7,342 (countable income reduced by medical expenses that exceed 5% of MAPR)

$16,851 – $7,342 = $9,509/12 = $792 (MAPR reduced by countable income, paid monthly)

Veterans and survivors, who are eligible for a pension and require the assistance of another person to perform functions of everyday living or are housebound, may receive an additional monthly payment through Aid and Attendance (A&A) or housebound allowances. The A&A and housebound benefits are also subject to a MAPR.

What I’m Watching This Week – 20 January 2015

The Markets

A surprise move by Switzerland’s central bank made already unsettled financial markets even more volatile. For the third straight week of 2015, equities saw strong ups and downs that resulted in losses for the week. The uncertainty drove the benchmark 10-year U.S. Treasury yield even further below 2% as demand for a safe haven sent prices higher.

Market/Index 2014 Close Prior Week As of 1/16 Weekly Change YTD Change
DJIA 17823.07 17737.37 17511.57 -1.27% -1.75%
Nasdaq 4736.05 4704.07 4634.38 -1.48% -2.15%
S&P 500 2058.90 2044.81 2019.42 -1.24% -1.92%
Russell 2000 1204.70 1185.68 1176.65 -.76% -2.33%
Global Dow 2501.66 2459.59 2447.65 -.49% -2.16%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 1.98% 1.83% -15 bps -34 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 Swiss National Bank shocked financial markets by deciding not to maintain a cap on the amount the Swiss franc can rise against the common eurozone currency. As a result, both the euro and shares of Swiss companies were hard-hit in the wake of the decision, which was made in anticipation of further weakening of the euro once the European Central Bank meets next week. In other central bank actions, India cut its key interest rate by 25 basis points to 7.75%; it was the first cut in almost two years and is intended to help spur growth.
    • The largest monthly decline in U.S. consumer energy costs since December 2008, which included a 9.4% drop in gas prices, was largely responsible for cutting the Consumer Price Index by 0.4% in December. The Bureau of Labor Statistics said that means consumer prices overall have increased only 0.8% over the last 12 months; that’s sharply lower than the 1.3% annual rate recorded in November. Higher costs for shelter and medical care were offset by declines in not only energy but also clothing, air fares, vehicles, and household furnishings.
    • The plunging cost of oil also helped cut wholesale prices 0.3% in December, according to the Bureau of Labor Statistics. The decline–the fourth in the last five months–was the sharpest drop in more than 3 years. December’s figure left the wholesale inflation rate for the last 12 months at 1.1%; however, excluding food and energy, the 12-month increase in wholesale prices was 2.1%.
    • Early holiday shopping may have helped cut December’s retail sales by 0.9% in the wake of a strong November. The Commerce Department said December’s decline was the largest since January 2014.
    • Warmer than usual temperatures in some parts of the United States in December led to reduced production by utilities, which contributed to a 1% decline in the nation’s industrial production. However, the Federal Reserve Board said that aside from utilities, industrial production rose 0.7%. The Fed’s Empire State manufacturing survey showed stronger growth than in November, while its Philly Fed survey showed slower growth.
    • Exports from China increased 9.7% in December, according to the country’s General Administration of Customs. Investors took that as an encouraging sign for the global economy as a whole.
    • The Federal Reserve’s Beige Book report showed that the U.S. economy continued to expand at a moderate pace in December, with consumer spending increasing in most of the Fed’s 12 districts.

Eye on the Week Ahead

Europe is likely to dominate the coming week’s news. Investors are hoping for additional stimulus measures from the European Central Bank, and will be watching polls in Greece to see if anti-bailout forces are likely to make gains in Sunday’s parliamentary election. Those results could affect the country’s willingness to go along with conditions imposed by its creditors after bailouts in 2011 and 2013, and could prompt fresh concerns about a “Grexit” from the eurozone.

What I’m Watching This Week – 12 January 2015

The Markets

It was a grim week, not only in France but in financial markets worldwide. Despite a mid-week bounce, equities prices continued to follow oil on a downward path. The small caps once again bore the brunt of the selling, while the price of oil fell below $50 a barrel. Not surprisingly, U.S. Treasuries benefitted from the world’s black mood; as prices rose, the benchmark 10-year yield dropped below 2% for the first time since May 2013.

Market/Index 2014 Close Prior Week As of 1/9 Weekly Change YTD Change
DJIA 17823.07 17832.99 17737.37 -.54% -.48%
Nasdaq 4736.05 4726.81 4704.07 -.48% -.68%
S&P 500 2058.90 2058.20 2044.81 -.65% -.68%
Russell 2000 1204.70 1198.80 1185.68 -1.09% -1.58%
Global Dow 2501.66 2491.50 2459.59 -1.28% -1.68%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 2.12% 1.98% -14 bps -19 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

  • Minutes of December’s Federal Open Market Committee meeting showed that the committee’s recent shift to language about “patience” was intended to underscore its desire to remain flexible in dealing with rate hikes, basing decisions on ongoing data rather than a timetable.
  • The addition of 252,000 new jobs in December cut the unemployment rate by 0.2% to 5.6%. According to the Bureau of Labor Statistics, those additions exceeded 2014’s 246,000 monthly average gain. However, hourly wages fell 5 cents to $24.57, though they were 1.7% higher than in December 2013.
  • The pace of growth in the U.S. manufacturing sector slowed in December, according to the Institute for Supply Management. The institute’s most recent survey showed a 3.1% drop from November’s 59.3% reading. However, any figure above 50% represents expansion, and December’s figure was roughly equal to the monthly average for all of 2014.

Eye on the Week Ahead

Monday’s after-hours Alcoa announcement marks the unofficial kickoff to the earnings reporting season for Q4, which could overshadow U.S. inflation and manufacturing data.

Good News for 529 Plan Savers: More Investment Flexibility

Thanks to legislation passed in December, beginning in 2015, owners of 529 accounts will be able to change the investment options on their existing plan contributions twice per calendar year instead of just once. This increased flexibility is a welcome option for parents and grandparents who use 529 plans to save for their children’s or grandchildren’s college education.

Previously, if an account owner had exhausted his or her once-per-year investment change allowance, the only way to change investment options again on existing contributions in the same year was to change the beneficiary of the account, which may not have been desirable or feasible.

Many college savers–and even states that manage 529 plans–have characterized the once-per-year rule as too restrictive and have called for changing it. Congress listened once before. During the stock market downturn that began in 2008, Congress passed a rule allowing 529 account owners to change their investment options on existing contributions twice per year, but only for 2009. The once-per-year rule kicked back in for 2010.

Although a jump from one investment change to two isn’t earth-shattering (some would argue it’s not nearly enough), it still offers a bit more flexibility for 529 plan savers who want to make an additional investment change during the same calendar year.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

 

What I’m Watching this week – 5 January 2015

The Markets

A couple of disappointing economic reports coupled with year-end tax maneuvers put the few traders who were at their desks last week in selling mode. All four domestic indices plus the Global Dow lost more than 1%, while the benchmark 10-year Treasury yield fell as prices rose.

Market/Index 2014 Close Prior Week As of 1/2 Weekly Change YTD Change
DJIA 17823.07 18053.71 17832.99 -1.22% .06%
Nasdaq 4736.05 4806.86 4726.81 -1.67% -.20%
S&P 500 2058.90 2088.77 2058.20 -1.46% -.03%
Russell 2000 1204.70 1215.21 1198.80 -1.35% -.49%
Global Dow 2501.66 2529.85 2491.50 -1.52% -.41%
Fed. Funds .25% .25% .25% 0% 0%
10-year Treasuries 2.17% 2.25% 2.12% -13 bps -5 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 growth of U.S. home prices showed signs of slowing in October as the S&P/Case-Shiller 20-City Composite Index saw a -0.1% downturn for the month. October’s 4.5% increase year-over-year also was slightly less than September’s 4.8%. However, 8 cities reported the pace of increases had actually accelerated; two months ago, all 20 cities reported weakening.
  • The Institute for Supply Management said its gauge of U.S. manufacturing showed slowing growth. The index reading of 55.5% was 3.2% lower than November’s reading, though any number above 50 indicates expansion.
  • Construction spending in the United States fell 0.3% in November, and the Commerce Department said a 1.7% drop in government spending on schools and infrastructure was responsible for much of that decline. However, total construction spending was up 2.4% from last November.

Eye on the Week Ahead

In 2015’s first full week of trading, minutes of the Federal Reserve’s most recent monetary policy committee meeting will be parsed for information about what led to elimination of the “considerable time” language in its most recent statement about future interest rates. And as always, Friday’s unemployment report will be of interest.

Wishing you all an AMAZINGLY SUCCESSFUL 2015 !