Bob's Blasts

 

Bob's Blast

October, 2017

Equity markets continued to push higher in the third quarter on the back of healthy economic data, strong corporate earnings and the prospect of corporate tax reform. Tax reform should be positive for equity markets but remains uncertain in the face of continued political gridlock. Without tax reform, will double-digit corporate earnings growth and GDP growth at the fastest pace in almost three years be enough to keep the rally going? 

What are our managers saying and what is the research indicating moving forward?

While no one knows exactly what the market is going to do, we are hearing much more optimism lately.  Hopefully, everyone who attended our recent client event enjoyed Dr. Claus te Wildt's presentation on the markets and outlook. For those that weren't able to attend, Claus made the case for further gains and the difference now versus before the financial crisis. 

  • Low oil prices
  • Manufacturing coming back to the US
  • Housing shortages
  • Banks well capitalized
  • Corporate balance sheets strong and cash near record levels
  • Consumers with much lower debt-to-income ratios
  • Coordinated global economic expansion - strongest since financial crisis
  • Corporate earnings up over 20% in past 15 months and increasing
  • No immediate inflation concerns
  • Pro business oriented policies from Washington

A few potential risks to the continued market rally include geopolitical (North Korea, Iran, Syria, terrorism), US political (What can actually get done?) and the potential for rising interest rates.  While markets can pullback at anytime, economic data and conditions aren't currently indicating recessionary pressures and the end of this current bull market. Always remember that even in a bull market, double-digit pullbacks can and will happen.    

One issue that could impact almost every American is potential tax reform. Recently, the framework for tax reform was released by Republican leadership. As proposed, it would represent the largest overhaul of the tax system since President Reagan. Key components include reducing the number of tax brackets, lowering corporate taxes, changing the standard deduction and repealing the estate tax.  As witnessed with healthcare reform, passing legislation is much more difficult than presenting ideas.  Only time will tell if our elected officials can come together or tax reform ends up with a similar fate as healthcare.  With so much uncertainty, it’s hard to recommend tax planning strategies to implement before year’s end. We did want to point out a couple of ideas to consider. With any tax decision, please consult a tax professional before implementing.  

  • Consider paying next year’s property tax before end of year, if able. One of the proposed changes is eliminating state and local taxes as an itemized deduction.  Property tax can be taken as a deduction in the year paid, so accelerating the deduction may be helpful if it’s eliminated in 2018. 
  • Consider accelerating other itemized deductions that can be taken in 2017 instead of waiting until 2018 if possible.  With the possible elimination of many itemized deductions, it may be beneficial to take now while they’re still in place.
  • For business owners, consider making any large equipment purchases that can be written off in 2018 and not 2017.  One proposal is allowing equipment purchases to be written off in the year purchased and not ammortized over many years.

We also wanted to take a minute to again touch on the recent Equifax data breach.  As many of you have heard by now, Equifax (one of the three credit reporting agencies), suffered a security breach. You can find out if you were impacted on Equifax's website. If impacted, there are a few of things to consider.

  • Equifax is offering consumers a year of free credit monitoring service.  
  • Requesting fraud alerts from all three credit reporting agencies will make it more difficult to create credit under your name with stolen information.
  • The most robust protection consumers can access - a security freeze - prevents any new lines of credit from being issued. While offering the highest protection, this could cause an inconvenience if you needed to access credit or take a loan in the future as you would then need to unfreeze your credit.
  • Monitor your financial statements for any unusual activity. Hackers will sometimes make a small transaction on a hacked account just to see if it’s active before committing more extensive fraud.

Don't hesitate to call if you have any questions regarding markets, potential tax changes, the Equifax breach or anything else that’s on your mind.  Please let us know of any cash needs for the remainder of the year or 2018 as we can use this as an opportunity to take gains and rebalance accounts while stocks are up.  We will be sure to pass along any updates we come across that may impact your financial situation. 

 

This material is meant for general illustration and/or informational purposes only.  Views expressed in this newsletter may not reflect the views of Royal Alliance Associates, Inc.  It is our goal to help investors by identifying changing market conditions.  However, investors should be aware that no financial advisor can accurately predict all of the changes that may occur in the market.  International investing involves special risks including greater economic and political instability, as well as currency fluctuation risks, which may be even greater in emerging markets. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. This article contains forward looking statements and projections.  Past performance is no guarantee of future results.

 

 

 

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