October 2017 Market Letter

“It takes a licking, and keeps on ticking.”

One of the most enduring commercial tag lines ever is this chestnut that promoted Timex watches for over two decades. The voice over man, John Cameron Swayze, was perfect for the role. Watches were put under water, run over by vehicles, and left out in thunderstorms. And still, they kept on ticking.

Kind of like today’s stock market, don’t you think?

Let’s just take a brief overview of recent events that could have derailed equities’ positive performance:

  • Hurricane Harvey devastating southeast Texas with record flooding
  • Hurricane Irma causing unprecedented wind damage to Florida
  • Hurricane Maria basically demolishing Puerto Rico
  • Brinksmanship, including near daily insult trading, potentially leading to war with North Korea
  • Failure of Congress to pass the repeal and replacement of Obamacare (again)(again)(again)
  • The eighth month of the Trump Presidency without a single legislative victory
  • Continuance of the Russia investigation by Special Prosecutor Robert Mueller
  • A potential “Katrina” moment as the humanitarian crisis worsens in Puerto Rico
  • Further polarization among Republicans as former judge Roy Moore wins Alabama Senate primary
  • Federal Reserve Chairwoman Janet Yellen becoming more hawkish on monetary policy
  • September being a historically poor month for stocks

In earlier times, any one or two of these events would have at least made the stock market blink. But this market seems to have a life of its own. Why? The answer is as simple as one word – promise.

Yes, the first major promise of the Trump administration has been broken (many times). Reforming health care finally has moved to the back burner since it will now take 60 votes in the Senate to effect major changes. Frankly, as I’ve stated before, I feel that the President and Congress erred significantly in tackling Obamacare first. The project wasn’t the proverbial low hanging fruit that many thought it would be. Wall Street has been far more interested in two other promises: tax reform and infrastructure.

Congress is now in the process of a rapid pivot away from healthcare to tax reform discussion. As we remember from prior history in the Reagan and George W. Bush administrations, this isn’t exactly an easy subject either. However, it’s a fact that the United States has a higher corporate tax rate than the vast majority of developed nations. It’s also a fact that the tax code is far too complex (even for me as a CPA). Finally, it’s a fact that many multinational corporations have stashed billions of dollars overseas in an effort to avoid being taxed.

The promise of tax reform is keeping the fire burning on Wall Street. Pundits can list the positives – more money in consumers’ pockets; job creation by corporations with a lower tax rate; repatriated dollars recycling through the monetary system; overall growth stimulus. Whether any of these concepts prove to be true will be seen. However, for now, it’s merely the promise that’s working. If substantive tax reform can be followed by infrastructure initiatives, then we’ve got a double header.

My sense of things is that there’s more risk to the upside than the downside for equities. Of course, we could have a garden variety correction of 5-8% at any time. We’re long overdue for one, and frankly, it would be both healthy and normal. Even though stocks appear to be fully valued at present, the promises of tax reform and infrastructure would possibly be a further impetus for corporate earnings. If this occurs, traditional market metrics and valuations would not have to be stretched.

After many missteps in Washington, it’s time to get things done. This bull market, while admittedly long in the tooth, should still have legs if our elected officials can get their acts together. In the meantime, despite all of the lickings, it still keeps on ticking.

Please feel free to give me your thoughts and comments. As always, I am grateful for your continued trust and support. I look forward to hearing from you soon.

Sincerely,

 

Bill Schiffman

Registered Representative

______________________________

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.

Diversification cannot assure a profit or guarantee against a loss.

 

What Should I Be Asking My CPA About My Investments?

The IRS Tax Code is, as you know, not a small document, nor is it one that remains static year over year.  Given the rapid pace of regulatory changes, many people elect to employ a tax professional to annually help navigate the process and make sure that deductions afforded to you are being taken advantage of.  While many of your tax professionals have probably already asked you the following questions, we thought it would be helpful to remind you of some good topics to discuss.  If you haven’t had a discussion with your CPA about these items, it may make sense to ask and see if there’s any additional tax savings available to you:

  • Can/Should I be Contributing More to A Retirement Account? We often get the scenario where a client has some excess money built up in their savings and asks us what to do with it, and often the first place we like to look are retirement accounts.  The benefits of tax-advantaged retirement accounts are hard to pass up, and the IRS Code around who can contribute, when, and how much is not the easiest thing to understand.  Your tax professional will be able to evaluate your situation, what plans you have access to at work, whether there’s an opportunity to fund an IRA or SEP/SIMPLE IRA (for the Self-Employed), and whether you’re “phased-out” from making any contributions.  Often times, they can run a simulation for you showing the difference between contributing and not contributing, which can redirect money from Uncle Sam’s pocket into yours.
  • Is There An Opportunity For Me To Take Advantage of A Lower Capital Gains Bracket? While this is not as common, in some cases individuals might find themselves in fairly low tax bracket in years between retirement and starting social security income.  Individuals who choose to delay their social security benefit and live off after-tax assets in the meantime could take advantage of light taxable income years by selling low-basis investments they’ve been hanging onto.  If they can stay at the 15% tax bracket, their capital gains tax rate is 0%.  It’s difficult to pull off, but with good planning it can be a fruitful exercise.
  • Are There Other Tax-Advantaged Tools I Should Be Taking Advantage Of? It’s always good to have a quick refresher, particularly around benefits enrollment time in Oct/Nov, of what company benefits are available to you and whether they can help your tax situation.  Having access to benefits like a Health Savings Account (HSA) and Dependent Care Flexible Spending Account (FSA) are ways to re-route money that would otherwise get taxed and spent on medical and dependent/childcare into a tax-free manner if used appropriately.
  • Are My Investment Advisory Fees Deductible? If you itemize on your taxes, some fees may be deductible. The IRS is very specific about which fees paid on your investments can be used as a deduction, but some indeed are. It’s not as common for fees within IRAs to be deductible, but fees paid directly to investment advisors from after-tax (“non-qualified”) investment accounts may be.  Most fees that exist in mutual funds are buried in the expense ratios, which are not usually deductible.
Any tax advice contained herein is of a general nature. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. Fee-Based Planning offered through W3 Wealth Advisors, LLC – a State Registered Investment Advisor – Third Party Money Management offered through ValMark Advisers, Inc. a SEC Registered Investment Advisor – Securities offered through ValMark Securities, Inc. Member FINRA, SIPC – 130 Springside Drive, Suite 300 Akron, Ohio 44333-2431 * 1-800-765-5201 – W3 Wealth Management, LLC and W3 Wealth Advisors, LLC are separate entities from ValMark Securities, Inc. and ValMark Advisers, Inc.

September 2017 Market Letter

“Well there’s flooding down in Texas… all the telephone lines are down… well there’s flooding down in Texas… all the telephone lines are down… and I’ve been trying to call my baby… Lord and I can’t get a single sound…”

There’s no more appropriate song for what’s happening in southeast Texas than this one from the late native Texan, Stevie Ray Vaughan. Hurricane Harvey has been a storm of biblical proportions. My thoughts and prayers go out to all those affected by the unprecedented rainfall. I couldn’t be more proud of the first responders and thousands of volunteers who have worked tirelessly to save lives. Unlike the major rifts occupying most of America’s daily life, the aftermath of Hurricane Harvey will depend on folks continuing to support each other in the months and years to come.

Aside from the tragic loss of life and displacement of so many Texans, there is an enormous economic toll. Houston is the country’s 4th largest city, and it has the second largest port. A sizable percentage of oil and gas exploration and refining is done in the region. It’s difficult to assess the total damage to the area, but it promises to eclipse Katrina. My feeling is that, as in New Orleans, many people will simply not come back to Houston, Beaumont, Corpus Christi, or other cities. It’s going to take quite a while before Houston regains its mojo.

Given the backdrop of Harvey along with increased tensions over North Korea and general Washington dysfunction, it’s amazing that the stock market hasn’t given up ground. Equities performance in August was infinitesimally positive, while fixed income faltered ever so slightly. On the stock front, technology, health care, and biotech were sector winners, while energy and telecom were laggards. The Volatility Index had its moments, with a large spike on the day that North Korea launched a missile over Japan. However, the VIX ended the month at an extremely calm level. The biggest gainer for August was gold, which made sense as a safe haven in the midst of endogenous turmoil.

According to Standard & Poor’s, August over the last 50 years has been a negative month for stock performance. September is actually the worst month for equities, and so we’ll see what lies ahead. At least Wall Street kept the good vibe going over the last 31 days. What would be possible reasons for momentum to stop?

The first one is that volume historically increases after Labor Day. Many traders take extended vacations in August, but they’ll be back at their desks this week. If selling stocks is done at a higher volume, it could mean extended downside for equities. Secondly, further rumblings with North Korea would appear to be a potentially sizable negative. Thirdly, losses from Hurricane Harvey could be larger and more time-consuming than expected. Finally, news (or lack thereof) from our nation’s capital could be a primary factor.

Congress gets back to work after the August recess, and they’ve got plenty to chew on. A continuing resolution needs to be passed to keep the government moving. The debt ceiling needs to be raised again. Any stoppage or suspension of vital activities would send a difficult message politically and economically. More than possibly any other agenda item, Wall Street is hitching its wagon to comprehensive tax reform. My feeling is that market risk would be to the upside if something substantive were to be passed. Lower corporate tax rates would lead to higher earnings for most companies. A decline in individual rates would put more money in American pockets, and hence be a catalyst for consumer spending. However, if it appears that, like health care, little or nothing gets accomplished, my feeling is that conditions would be ripe for a correction.

I remain cautiously optimistic about equities. Anecdotal information from my travels around the country is primarily solid. Company earnings and balance sheets remain historically strong. Minutes from the last Federal Reserve meeting were rather dovish, suggesting that there might not be a third hike in interest rates in 2017. The bottom line is that positive momentum continues to persist on Wall Street in the face of many crosscurrents. The resiliency of the market has been amazing. Let’s hope that the trend continues.

As always, I thank you for your confidence and trust. I look forward to hearing from you soon. Please keep the flood victims in your hearts.

Sincerely,

Bill Schiffman

Registered Representative

______________________________

The opinions expressed in this letter are those of William Schiffman and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results.

Diversification cannot assure a profit or guarantee against a loss.