When Stocks are Priced for Perfection - February 3, 2020

When stocks are priced for perfection, the market can become vulnerable to unexpected events. Since early October, market tailwinds have been strong. These include low interest rates and an expanding Fed balance sheet via T-bill purchases, modest economic growth, and subsiding trade tensions.

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Reacting to the Unknown–Coronavirus - January 29, 2020

Stocks have repeatedly hit new hits. When shares are priced for perfection, they are more vulnerable to surprises. On Monday, stocks declined amid growing worries about an epidemic in China and its potential global economic impact.

Coronavirus has infected over 4,600 people and has killed 106, nearly all in China (CNBC as of January 28).

  • As of January 27, the Center for Disease Control (CDC) reported 5 cases in the U.S.

In comparison, preliminary flu estimates in the U.S. are much higher, but investors have ignored the numbers.

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Interest Rates and Today’s Long-Lasting Expansion - January 27, 2020

On Wednesday, the Fed will conclude its two-day meeting. It is widely expected that central bankers will keep the fed funds rate at 1.50 – 1.75%.

Economic growth has moderated versus a year ago, and interest rates are low and continue to underpin the economy.

One way we can determine whether or not interest rates are supportive or restrictive of economic growth is to compare the current fed funds rate with nominal GDP (Gross Domestic Product—the broadest measure of the value of economic output). Nominal GDP is actual GDP plus inflation.

The graphic below compares the quarterly average fed funds rate with the eight-quarter average of nominal GDP going back to 1960.

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Securing Your Retirement - January 22, 2020

At the end of 2019, Congress passed the SECURE Act, which makes dramatic changes to the laws that govern retirement accounts.

Changes include—

  • The age for required minimum distributions (RMDs) from retirement accounts is raised from 70 ½ to 72, if you turned 70 ½ on or after January 1, 2020.
  • One may contribute to a traditional IRA past 70 ½ years old, if one is still working.
  • Part-time workers gain better access to 401(k) accounts.
  • 529 plans may now be used to pay down student loans – up to $10,000.
  • It will be easier to offer annuities in 401(k) accounts.
  • Plan participants will begin receiving a monthly projected income statement based on current retirement assets.
  • Within the first year, parents may withdraw up to $5,000 penalty-free from an IRA or an employer-sponsored retirement plan to pay for adoption or birth expenses. Taxes will be incurred at the marginal rate.
  • The new law encourages small business owners to join forces to offer 401(k) plans. 

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Falling Mortgage Rates Boost Housing - January 21, 2020

Mortgage rates have a big influence on housing. Last year, the 30-year fixed mortgage rate peaked in November, averaging 4.87%. Rising rates throughout much of 2018 slowed housing activity as we can see in the graphic below.

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