November 2, 2015

November 2nd, 2015

Social Security – Last Week’s Budget Legislation

President Obama is expected to sign into law a Federal Budget which will close Social Security Loopholes.

Under last week’s budget legislation to increase the debt limit, Congress added legislation to close perceived Social Security rule “loopholes” including various “File-and-Suspend” strategies that allow spousal and dependent benefits to be paid while still earning delayed retirement credits.

The new rules will kick in 6 months from now, grandfathering anyone currently going through file-and-suspend but limiting anyone who tries to suspend benefits thereafter.

Currently you have to be at least 66 to do file and suspend. Therefore you would need to be 65 and 6 months as of today to still use the File-and-Suspend strategies that allow spousal and dependent benefits to be paid while still earning delayed retirement credits.

Voluntary suspension applications will be continue to be available to those unique scenarios where someone truly started benefits early, has had a change of mind and wants to stop them (assuming the application is filed within a 12 month window of receiving benefits).

Contact me if you have any questions regarding these pending legislative changes.

Stock Market Rally

Domestic stocks had the best monthly gain in four years for October — the Dow Jones Industrial Average soared 8.5%, and the Standard & Poor’s 500 index 8%.

The rise in equity prices continues to be supported by several factors including:

  • Favorable reports on manufacturing activity in the U.S. and eurozone, overshadowing lackluster Chinese business activity report
  • A flurry of Merger & Acquisition activity including the recent announcement of Visa’s acquisition of Visa Europe for about $18.2 billion.

The Markets Last Week

For investors, October was a treat. Stocks finished the week and the month on a high note. The market rose 0.2% in light trading last week, fuelled in part by short-covering and continued merger activity.

The Dow Jones Industrial Average soared 8.5%, and the Standard & Poor’s 500 index 8%, in October, for both the best monthly gain in four years. On the week, after a late Friday swoon, the Dow finished up 0.1%, or 16, to 17,663.54, while the S&P 500 index rose four points to 2079.36. The Nasdaq Composite moved up 0.4% last week to 5053.75.

There wasn’t much “plain vanilla” buying from institutional investors, says Tom Carter, a trader at JonesTrading. With market short-interest levels at the highest they’ve been in years, last week’s Federal Reserve news pushed shorts to cover, he adds.

Wednesday, the Fed’s Federal Open Market Committee meeting statement specifically—and unusually—emphasized the potential for a rate hike at its next meeting, Dec. 15-16.

The Fed futures market shows that investors now think a rate hike is a toss-up in December, up from a 33% chance before the meeting. Though the initial market reaction to the statement was negative, shares turned decidedly positive by day’s end.

The market appears to be toggling back and forth on the desirability of a Fed hike, says Terri Spath, chief investment officer for Sierra Investment Management.

There will be numerous opportunities for continued confusing signals from various Fed officials, in speeches and the like before its December meeting. Chair Janet Yellen testifies in Congress Dec. 3. That likely means more volatility.

Chris Gaffney, president of EverBank World Markets, says what the Fed does in December doesn’t matter as much as what it does after. The central bank has said the path to higher rates will be gradual, he says, not hard to believe given the prognosis of more tame U.S. economic data.

Spath adds: “The possibility of a one-and-done by the Fed is higher than a lot of people think.” Though the market has recovered most of its losses since August, “it’s a muddle-through [U.S.] economy and there’s not a lot of room for price/earnings multiple expansion,” she adds. “We’re not poised for a big run from here.” (Source: Barron’s Online).

The Numbers

Returns through 10-30-2015 1-week Y-T-D 1-Year 3-Years 5-Years 10-Years
Bonds- BarCap  Aggregate Index   -.3    1.1    2.0     1.6     3.0     4.7
US Stocks-Standard & Poor’s 500    .2    2.7    5.2   16.2   14.3     7.9
Foreign Stocks- MS EAFE Developed Countries   -.3    2.1    0.0     8.0    4.8     4.8

Source: Morningstar Workstation. Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  Three, five and ten year returns are annualized excluding dividends.

Motivational Quote of the Week

“The two most important days in your life are the day you are born and the day you find out why.

 – Mark Twain

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