Summit Financial Group Newsletter

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Northern Star Newsletter 5/26/14

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Message from Jon

I was reading an article on Bloomberg this morning that was commenting that the Fed chairman, Mrs. Yellen was growing concerned with the diminishing demand in housing and the fact that the Fed had very little in their arsenal they could use to positively impact this fact. I am sure that you could make several good arguments as to why this is a concern. Was it a long hard winter, lagging jobs market, tight lending standards by banking institutions or just a consumer base that is redefining what the American dream is and maybe it does not revolve around owning your own home?

This is just one more piece of seemingly independent data points that unless you have others, one could easily miss the potential significance of. Housing is considered a leading economic indicator and a forecaster of the strength of the US economy by many. When the average consumer has a rising valuation in their home, they "feel" wealthy and therefore tend to spend more. Since we are and have been for some time now, a consumer driven economy, spending is very important to the recovery and sustainability of the US economy. Does this statement default to a correction and collapse of the markets...NO! It does however, go on the list of concerns about the continued rally in the markets and strength of the markets in the near-term. In 2008-2009, many were caught unaware and were devastated by the collapse (severe correction) in the markets. Interview after interview one could hear the same comment.."someone should have seen this coming". The problem is, when you do see it coming, many do not want to hear what you have to say. If you act prematurely, you risk leaving potential returns on the table. If you are too late, you lose principal you could have retained having acted earlier.

I think that regardless of the catalyst, the fact still remains that when the market corrects, the Fed will have very little in their arsenal to stem the downturn. Since there is no empirical evidence my concerns will manifest into a reality so we remain on course. We are however, certainly more conservative now than prior and so far, our approach has been justified by the YTD ROR of all three indexes listed below.

Our Moderate-Defensive Portfolios YTD are up about 5% (+/-) and have a risk level of about 62% less than the S&P 500 TR USD. Is that our plan...yes and no. Our plan is to take risk when it is in our favor to do so and reduce risk when the markets are not in our favor. Right now, we are sleeping well at night knowing we are taking MUCH less risk given the current market conditions.

Till we speak again, enjoy the weather!
Jon


Markets Rally on Housing Data

Weekly Update - May 26, 2014

Despite some volatility, markets rallied on better-than-expected housing numbers, putting the S&P 500 above 1900 for the first time.[1] For the week, the S&P 500 gained 1.21%, the Dow gained 0.70%, and the Nasdaq grew 2.33%.[2]

The housing market took center stage last week on upbeat reports on new and existing home sales. Sales of new homes in the U.S. rose 6.4% in April after slumping for the previous two months.[3] Existing home sales grew for the first time in 2014, creeping up a modest 1.3% in April.[4] Though analysts don't expect this "spring thaw" to rescue the housing sector, they hope that it will lead to stronger growth in the second quarter.[5] High prices and rising mortgage rates have sidelined many buyers, but stronger labor market trends could strengthen home buying trends.

Initial jobless claims spiked more than expected last week, however, continuing claims dropped to their lowest level since December 2007. The four-week moving average of initial claims also dropped, indicating that unemployment trends are generally moving in the right direction.[6]

However, a recent poll revealed that nearly half of unemployed Americans are thinking about or have given up the job hunt. Feelings of discouragement and hopelessness are preventing many survey respondents from continuing to seek work; even when jobless benefits have run out. The survey also indicated that many long-term unemployed are not willing to relocate or pursue education that could help them land a job. Mismatches between available jobs and worker skills could be contributing to unemployment and under-employment trends.[7]

The Fed released meeting minutes from the April Federal Open Market Committee (FOMC) meeting, and while the report contained no surprises, investors were reassured by the meeting's focus on an exit strategy for quantitative easing. The minutes also emphasized the desire by some Fed insiders to give the public more information on future Fed plans in order to give markets more time to digest key policy shifts.[8]

Looking ahead at the holiday-shortened week, investors will be taking a close look at Thursday's Gross Domestic Product (GDP) report as well as key consumer sentiment numbers. Strong spending and consumer confidence data would support hopes that economic activity is picking up in the second quarter.

ECONOMIC CALENDAR:

Monday: U.S. Financial Markets closed for Memorial Day holiday
Tuesday: Durable Goods Orders, S&P Case-Shiller HPI, Consumer Confidence, Dallas Fed Mfg. Survey
Thursday: GDP, Jobless Claims, Pending Home Sales Index, EIA Petroleum Status Report
Friday: Personal Income and Outlays, Chicago PMI, Consumer Sentiment

 


 

Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.


HEADLINES:

Gas prices close to three-year norm. For the third year in a row, average gas prices are within a few cents of $3.64 over the Memorial Day holiday. Steady gas prices are a result of stable crude oil prices, which have been supported by rising output from the U.S., Canada, and Brazil.[9]
Beef prices heading north. Long-lasting drought conditions in California and other major agricultural states are boosting the price of summer staples like beef, pork, and fruits. The USDA expects overall food inflation to increase to 3.5% in 2014.[10]
U.S. manufacturing growth picks up. A measure of factory activity in the U.S. hit a three-month high in May and grew at the fastest pace since early 2011. Expansion in the manufacturing sector could lead to higher GDP growth this quarter.[11]
Vacation rental scams on the rise. Scammers are using Craigslist and other online classifieds to lure in vacationers with low prices on rentals in hot areas. To protect yourself, rent through a reputable agency or verify owner details and always pay with a credit card for extra protection.[12]


Tax Tips For a Summer Job

If a young family member is taking on a summer job after school lets out, pass along these helpful tips from the IRS:

  • Don't be surprised when your paycheck is smaller than you expect. Employers pay your taxes directly to the IRS through withholdings.

  • Keep in mind that all tip income is taxable and you must report tip income over $20 monthly to your employer.

  • Even if you don't earn enough from your summer job to owe income taxes, your employer must withhold Medicare and Social Security taxes from your pay.

  • Any money you earn from working for others is subject to taxes. If you mow lawns, babysit, or earn money outside of a regular job, you may be considered self-employed by the IRS.

  • For more information about tax rules for students and first-time job holders, visit IRS.gov or consult a qualified tax advisor.

Tip courtesy of IRS.gov[13]


Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets.

The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.

The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.

The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies.

The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.

The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index.

The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index.

The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

Google Finance is the source for any reference to the performance of an index between two specific periods.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Past performance does not guarantee future results.

You cannot invest directly in an index.

Consult your financial professional before making any investment decision.

Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.

[1] http://abcnews.go.com/Business/wireStory/sp-500-index-closes-1900-time-23848560

[2] http://goo.gl/3BNoot

[3] http://www.usatoday.com/story/money/business/2014/05/23/april-new-home-sales/9482499/

[4] http://www.usatoday.com/story/money/business/2014/05/22/april-existing-home-sales/9430897/

[5] http://www.reuters.com/video/2014/05/23/april-cant-salvage-spring-home-buying-se?videoId=313074414&videoChannel=5

[6] http://www.bloomberg.com/news/2014-05-22/jobless-claims-in-u-s-increased-more-than-forecast-last-week.html

[7] http://rt.com/usa/160596-47-percent-unemployed-not-looking/

[8] http://online.barrons.com/mdc/public/page/9_3063-economicCalendar.html

[9] http://abcnews.go.com/Health/wireStory/gasoline-prices-familiar-summer-nears-23854802

[10] http://www.reuters.com/article/2014/05/23/us-usa-agriculture-inflation-idUSBREA4M0FI20140523

[11] http://www.reuters.com/article/2014/05/22/global-economy-idUSL1N0O813A20140522

[12] http://www.cnbc.com/id/101694859

[13] http://www.irs.gov/uac/Newsroom/Tax-Information-for-Students-Who-Take-a-Summer-Job

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 did NOT participate in the downturn of 2008-2009

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