This past week was interesting since the Fed decided to remain as is for the time being on their stance towards raising interest rates in Sept. I think this would have been a foregone conclusion long beforehand but for a few Fed governors having indicated they thought there might be a good possibility for a rate hike yet this year. Saying this AFTER the meeting would have gotten a yawn, saying it prior...a knee jerk reaction causing more volatility.
My personal opinion is that they were testing the waters a bit for Chairwoman Yellen prior to the actual meeting...but they wouldn't do that now would they?...(me smiling)
Since the next opportunity is November along with the presidential election, I think the conclusion is December, where Wall Street wanted it all along. Now this puts in play speculation for 2017, but let's not get too far over our skis just yet. Right now, all our indicators are status quo for bullishness and favoring stocks over bonds and way over cash. I still think we are heading for choppy waters over the next 45-65 days simply due to the election cycle and the candidates we are all forced to choose from, so until we have clearer vision, we stay put and remain cautiously optimistic.
Have a delightful week!
Stocks Rally After Fed Stands Pat
WEEKLY UPDATE - September 26, 2016
Stocks rallied again last week after the Federal Reserve voted not to raise interest rates this month. While few expected the Fed to act last week, official statements suggest the path to higher rates looks clearer. For the week, the S&P 500 gained 1.19%, the Dow grew 0.76%, the NASDAQ added 1.17%, and the MSCI EAFE stayed stable.
Let's dig more deeply into the Fed's recent statements. The Fed cited continued strength in the labor market, economic growth, and better wage growth in its case for higher interest rates. However, tepid inflation (largely due to lower energy prices) and a desire to get the timing right caused most of the Federal Open Market Committee (FOMC) to vote to hold rates steady.
Three members of the FOMC dissented from the majority vote, believing that the Fed should have raised interest rates this month. One dissident, Boston Fed President Eric Rosengren, believes that the labor market could overheat in 2017, potentially derailing the economic recovery if action isn't taken.
An overheating labor market could send wages to unsustainably high levels while productivity (output per worker per hour) falls. While higher wages might sound pretty good to American workers, unsustainable labor market trends could lead to the sharp recessionary contraction economists want to avoid. However, the health of the labor market doesn't boil down to a single measure of unemployment, and the rest of the committee seems to believe that raising interest rates too soon is riskier than potentially raising them too late.
The market appears to agree, and investors see the Fed reinforcing the idea that the economy still has room to grow. At least one Wall Street analyst believes we're in the "sixth or seventh inning of a nine inning game." Despite the Fed's increasingly hawkish tone about raising interest rates, Wall Street isn't fully convinced the central bank will pull the trigger in December. Though the FOMC will meet again in November, the Fed is unlikely to make a move until after the election. The latest estimate of trading interest shows that traders view the odds of higher rates in December at 54.2%.
The Fed has worked hard to convince the public that it intends to raise rates soon. Why? One of the tools the central bank can use to affect markets is that of its "bully pulpit," the leverage of its powerful position. In the past, the Fed has used the bully pulpit to sound the warning about irrational market highs and give Americans plenty of notice about future policy moves. The Fed hopes that telegraphing plays will give markets time to digest the news and avoid a shock.
This week, Monday's presidential debate and a key meeting of Organization of the Petroleum Exporting Countries (OPEC) members could lead to more market volatility. Oil prices have been a major driver of market movements this year and movement toward freezing production (thereby reducing the supply glut that is contributing to low prices) would cause volatility. How likely is a coordinated production freeze? Not very likely since it would require historic cooperation between geopolitical opponents such as Saudi Arabia and Iran. We'll keep you informed.
Monday:New Home Sales, Dallas Fed Manufacturing Survey
Tuesday:S&P Case-Shiller HPI, Consumer Confidence
Wednesday:Durable Goods Orders, EIA Petroleum Status Report
Thursday:GDP, International Trade in Goods, Jobless Claims, Pending Home Sales Index
Friday:Personal Income and Outlays, Chicago PMI, Consumer Sentiment
Housing starts fall more than expected. Groundbreaking on new houses fell 5.8% in August as building activity declined broadly after increasing this summer. However, a rebound in permits for new houses suggests housing demand may strengthen.
Existing home sales fall for second straight month. Home resales fell in August, dinged by a shortage of housing inventory on the market. Growth in home prices is outpacing wage growth, weighing on sales activity.
Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits fell by 8,000 to a two-month low last week. Continued labor market growth could give the Fed the green light to raise interest rates in December.
Manufacturing gauge drops to three-month low. A measure of manufacturing activity slipped in September as weakness in new orders and a strong dollar weighed on demand. New orders rose at the slowest rate this year and hiring was slow.
Early Withdrawal? Here's What You Should Know
Taking money out of your retirement account before age 59 ½ is not something to be undertaken lightly because it can trigger additional taxes and penalties. Here are some things to keep in mind:
- You must report all early withdrawals to the IRS, unless the money is treated as a rollover. For more information about rollovers, consult a qualified tax professional.
- You must generally pay a 10% penalty on top of your income taxes on an early withdrawal, though there are many exceptions to this rule, depending on your retirement plan or account.
- If you make an early withdrawal, you may need to file Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," along with your federal tax return.
The tax treatment of retirement accounts can be complicated, and it's a very good idea to consult a financial professional who understands your total financial picture before making early withdrawals.
Tip courtesy of IRS.gov
Tee Up Toward Trouble
If you're faced with a hole with an obstacle or out of bounds area, always tee up on the side the trouble is on. For example, if you have an obstacle on the left side of the fairway, tee up as far to the left as possible so that you can aim right and make a more aggressive swing while safely avoiding the obstacle.
Tip courtesy of John Stahlschmidt, PGA| Golf Tips Mag
Stay Fit as You Age
Medical researchers found that physical decline begins much earlier than originally thought. For most of us, endurance, balance, and strength start declining by the time we hit our 50s.
Though more studies need to be done, current medical knowledge shows that maintaining and ramping up physical activity early is key to staving off physical and mental decline. Even if you're not as active as you should be, it's never too late to start a fitness regime. Speak to your doctor about creating a customized activity routine.
Tip courtesy of AARP
Buy for Life
Think carefully about your next household purchase and try to buy items that will last. Statistics suggest that a shocking number of purchases are discarded and thrown away shortly after purchase and many of these items end up clogging landfills. Instead of buying with disposability in mind, think about investing more time and money in a purchase and keeping it as long as possible.
Tip courtesy of Seattle PI
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.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.
The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
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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.
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