Archives for June 2014

Markets Close Mixed Weekly Update – June 30, 2014

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Markets lost some momentum on slow trading and ended the week mixed. Despite the sluggish behavior, equities are up strongly for the quarter and the S&P 500 is poised for its longest rally since 1998.1 While the S&P lost 0.10% and the Dow fell 0.56%, the Nasdaq managed a gain of 0.68%.2

Economic data was largely unsurprising last week. A dismal first quarter GDP update didn’t faze investors who regarded it as old news. While Q1 GDP growth fell to -2.9%, investors blamed the contraction on the unusually cold weather and cuts to healthcare spending.3 On the other hand, lukewarm consumer spending in May caused economists to trim economic growth expectations for the second quarter. Despite the poor showing, analysts admitted that challenges in calculating healthcare spending might have artificially lowered spending numbers.4

On the geopolitical front, the Ukrainian government in Kiev signed historic free trade agreements with the EU, Georgia, and Moldova, integrating the economies of the three former Soviet-Bloc countries more closely with Europe, and potentially paving the way for future entry into the EU. The move immediately drew threats from Russian leaders, who are worried about losing control over their neighbors.5 Although the situation is far from resolved, we can hope that the threat of further economic sanctions will cause Russia to back down.

As the clock ticks down on the second quarter, investors are looking ahead for economic data to support hopes that economic activity picked up in the last three months. The short trading week is packed with economic releases, including the June Employment Situation report and a speech by Fed chair Janet Yellen.



Monday: Chicago PMI, Pending Home Sales Index, Dallas Fed Mfg. Survey

Tuesday: Motor Vehicle Sales, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Wednesday: ADP Employment Report, Factory Orders, EIA Petroleum Status Report, Janet Yellen Speaks 11:00 AM ET

Thursday: Employment Situation, International Trade, Jobless Claims, ISM Non-Mfg. Index

Friday: U.S. Markets Closed for Independence Day Holiday



Federal student loan rates rise on July 1. Legislation that ties student loan rates to prevailing market rates means that federal loan rates will reset on July 1. Visit for more information on loan rates.6

Consumer sentiment rises in June. A final reading of June sentiment shows that consumers felt more optimistic about the economy in June and are upbeat about their future prospects. Hopefully, these positive feelings will be seen in higher Q2 consumer spending.7

Rising food and fuel prices drag on consumers. Rising demand, drought, and global oil uncertainties are causing prices on gasoline and food to rise around the country. Prices on meat, dairy, and even coffee are up, and producers are passing those costs on to consumers. If Americans continue to take a hit at the pump or grocery store, it could cause consumer spending to fall later this year.8

Sales of new and existing homes rise in May. Home resale’s rose more than expected in May and the inventory of properties was the highest it’s been in 1-1/2 years. New home sales skyrocketed to a six-year high, though the smaller sample size makes this measure more volatile. While it’s too soon to know for certain, these numbers suggest that the housing market may be recovering from its slump.9.10


Is It Actually a Good Idea to Pay Off a Low-Interest Mortgage?

Home loans frequently make up significant amounts of household debt, and reducing as much debt as possible before entering retirement can seem like a good idea. A 2013 survey found that 40% of Americans age 55 and older believe that paying off their mortgage was the smartest financial move they ever made.1 There’s also a certain peace of mind that can come from having one less bill to pay in your later years.

However, given today’s low interest rates, your mortgage may be the cheapest form of debt to hold, and it may make sense to use the extra money in different ways. Given the choice, should you pay down your low-interest mortgage as soon as possible, or use the extra income to save more aggressively?

As with so many things, the answer is: it depends. Everyone’s personal financial situation is different, and there are many factors to consider before making a decision about your mortgage.

Here are some questions to help guide your decision-making:

Are you maxed out on contributions to tax-advantaged accounts?

If you have crunched the numbers on your retirement assets with a financial advisor and feel comfortable with your savings, you may be able to devote more income to extra mortgage payments.

However, if you haven’t maxed out your contributions or are concerned about your retirement preparation, you might be better off putting extra money into tax-advantaged saving accounts. The final years before retirement represent your last opportunity to add significantly to your nest egg, and it’s important to make sure you have enough put away.

How would your taxes be affected by paying down the mortgage?

For many people, mortgage interest payments are deductible on federal taxes, which reduces the effective interest rate paid on the loan. Since contributions to retirement accounts, health savings accounts, and other qualified accounts are frequently tax deductible, making extra contributions (instead of extra mortgage payments), may add more to your bottom line.

However, if you are no longer able to deduct the interest on your mortgage, and are already maxed out on your tax-advantaged contributions to retirement accounts, paying down your mortgage could make financial sense. Keep in mind that taxes are just one part of the overall picture, and it’s important to view your financial situation holistically.

Do you have adequate cash reserves?

Emergency savings are a critical part of your long-term financial plan. Unexpected life events like the loss of a job, a sudden illness, or expensive repairs can put a strain on your household finances. Having several months of income saved in cash can help you cover major expenses without being forced to liquidate investments or go into debt. If you don’t already have an emergency reserve – or don’t have enough money set aside – you should consider saving those extra mortgage payments for a rainy day.

Have you weighed risk against potential return?

Paying off high-interest credit card debt or personal loans is a no brainer. The average variable credit card APR was 15.61% at the end of April 2014.2 This means you’re essentially ‘earning’ that much back on every dollar you pay off. You’re not likely to find investments paying that much consistently, so your priority should be to pay off that debt as quickly as possible.

However, given how low mortgage rates are – especially if you’re getting a tax break on the interest – you’ll want to carefully weigh the possibility of earning market returns higher than your interest rate. Market returns are not guaranteed, so it’s a good idea to have a financial representative walk you through these calculations and help you understand your own attitude about risk and return.

How would paying off your mortgage affect your peace of mind?

Most financial decisions have emotional components, which is why it’s so important to develop an understanding of your long-term goals. For many folks, knowing that they own their home free and clear outweighs most financial considerations. If being able to pay off your mortgage early helps you sleep better at night, it might be the best decision for you.


As you can see, there are many important variables that must be factored into a decision about paying off your mortgage. If you have any questions about the benefits and drawbacks of holding a mortgage or any other loan, please give us a call. We frequently help our clients evaluate their personal financial situations and help them determine the right strategy for their needs and goals.


Is the Bull Market Over? Weekly Update – June 23, 2014


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Markets rallied strongly last week and closed at new records for the S&P 500 and Dow. Though stocks ran in circles early in the week, they picked up the pace after Wednesday’s reassuring Federal Open Market Committee (FOMC) meeting announcement. For the week, the S&P 500 gained 1.38%, the Dow grew 1.02%, and the Nasdaq added 1.33%.1

There were no surprises from the Fed’s June Open Market Committee meeting. The FOMC announced another $10 billion cut to quantitative easing, lowering monthly bond purchases to $35 billion, and emphasized its commitment to data-driven decision-making with respect to future interest rate hikes. The Fed also released economic projections for the rest of the year, forecasting an unemployment rate of 6.0%-6.1% at the end of the year. On the down side, the Fed lowered expectations for annual Gross Domestic Product (GDP) growth, projecting that the economy will grow just 2.1%-2.2% this year.2 Investors counted the meeting as a win, reassured that the Fed is still willing to support markets.

Stocks jogged past more milestones last week, producing record highs for the S&P 500 and the Dow on Friday. Such performance naturally leads to the question: Is the bull market ending? By the calendar, you might think so. The average bull market lasts 62 months,3 and we passed that mark earlier this year, but there are several good reasons for why we aren’t looking for the end just yet:4

1)    Economic growth is still moderate. Bull markets often end when the economy gets overheated and investors start worrying about the next recession. GDP growth is still below-trend, and current forecasts show that it probably won’t crack 3.0% until 2015.5 Future economic growth potential may give this bull market a second wind.

2)    There’s still money on the sidelines. Many investors and corporations have piles of cash sitting around uninvested. When these stragglers finally start buying into the trend, the inflow of cash may send markets higher.

3)    Plenty of bull markets last longer than 62 months. The one between 1987 and 2000 lasted roughly 150 months, and the rally between 1949 and 1956 lasted about 87 months.6

Now, we can’t assume that markets will continue their upward progress indefinitely. As we discovered in the first few months of the year, declines do happen. One of the benefits of an active management strategy is that we can use these interruptions in the overall trend to cherry pick solid investments at attractive prices. Overall, we’re still cautiously optimistic about market performance going into the latter half of the year. We’ll know more about future prospects as Q2 economic data and earnings reports trickle in over the coming weeks.



Monday: PMI Manufacturing Index Flash, Existing Home Sales

Tuesday: S&P Case-Shiller HPI, New Home Sales, Consumer Confidence

Wednesday: Durable Goods Orders, GDP, EIA Petroleum Status Report

Thursday: Jobless Claims, Personal Income and Outlays

Friday: Consumer Sentiment



U.S. exports slump. America’s current account deficit – the difference between imports and exports – widened in the first quarter largely because the cold weather caused exports to pile up in port. Hopefully, stronger overseas demand will cause exports to pick up in the second quarter.7

Weekly jobless claims fall. The number of Americans filing new claims for unemployment benefits fell more than expected last week, suggesting that labor market conditions continue to improve.8

U.S. manufacturing production rises. Factory production rose significantly in May, supporting the belief that the sector is rebounding strongly after the first quarter slowdown. Since manufacturing contributes 12.5% to GDP growth, we can hope for a strong showing this quarter.9

Oil prices rise on Iraq fears. The price of Brent crude oil rose above $113/barrel as the fighting in Iraq intensified and shut down the country’s biggest refinery. Though exports have not yet been affected, it’s likely that prices will continue to be affected as investors respond to disruption fears.10



Are Student Loans The Next Bubble?

As graduating students look to build their resume they might want to leave out one accomplishment: most indebted class ever to graduate.  According to National Center for Education Statistics, the average student graduating in 2014 will have $33,000 in student loans.1


Not only is the average debt rising faster than inflation, the number of students needing to take out loans has risen from less than half in 1994 to just over 70% this year.1 The total debt is closing in on $1 trillion according to Federal Reserve Bank of New York, Bloomberg.2


According to the Consumer Financial Protection Bureau, CFPB, more than 7 million borrowers of federal or private student loans were more than 270 days late on payments which puts them in the default category.  This means that from the $1 trillion of federal student loans about $90 billion has been defaulted on.3  Could this lead to a crisis similar to the subprime loan crisis of 2008? Although student loan debt is second in ranking on consumer debt it is dwarfed by mortgage debt.2  This chart should help put the two into perspective when it comes to the impact on our economy.


Also, on average 90% of student loans are Federal student loans which are backed by the government.2   Having such a large amount backed by the federal government would reduce the amount of pressure put on the lending industry.  In 2006 leading up to the subprime crisis, 84% of those loans were from private lending companies.4  This means that the smaller size of the student loans and the minority being held privately would keep the student “bubble” from impacting the overall market in the same way that the subprime loans did.

So if there isn’t a risk of repeating the subprime crisis why all the talk about student loans lately?  One of the biggest concerns is the trend of both the student debt and the earnings the students are getting out of college.1   If this trend continues we could see more students in default as well as a drag on the growth of the Gross Domestic Product.


There is some relief, Federal loans can sign up for the “Income Based Plan” or the “Pay As You Earn”.  These plans keep the payments below a certain percent of the income of the borrower and forgives any debt after 25 years (10 years for public service employees).5  Allow qualifying and the annual reporting can be a hassle.

You might be asking; “I have young kids that I hope will attend college one day, what can I do?”

  1. Start planning in advance for your children, look into opening a college saving plan that can grow tax free to increase your savings for college.
  2. Encourage your teenagers to consider the cost of college compared to the average salary for the career they plan on pursuing.  Some careers are better achieved by apprenticeship or an internship.
  3. Apply for all scholarships that are available for your children.
  4. Consider the costs of dipping into your retirement account.  It may be better for your kids to take out some student loans if it will keep you from putting your retirement in jeopardy.

Always seek advice from your financial advisor when making these decisions.





Markets End Slow Week Lower Weekly Update – June 16, 2014

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Markets snapped their winning streak and ended the week down slightly as investors decided to take some profits off the table. The light economic calendar led to sluggish activity since investors were reluctant to commit to positions without new data to bolster their analysis. For the week, the S&P 500 lost 0.68%, the Dow fell 0.88%, and the Nasdaq slid 0.25%.1.

Geopolitics took center stage last week when Iraqi insurgents captured Mosul and Tikrit, major cities in northern Iraq, and advanced toward Baghdad. In response to the threat, the U.S. moved a carrier group into the Persian Gulf to support the government in Baghdad. Analysts are worried about how instability in Iraq might affect global oil markets. U.S. crude oil rose to nearly $105/barrel on the new security fears.2 Iraq is an important Organization of the Petroleum Exporting Countries (OPEC) producer and disruptions in regional supplies could send oil prices through the roof and throttle consumer spending.3

In Ukraine, the ongoing conflict escalated when well-armed pro-Russia separatists shot down a Ukrainian military plane. Russia and Ukraine have been caught in a standoff since March, when Russia annexed Crimea. European leaders spoke with Ukrainian and Russian officials about the incident, stressing the need for a cease-fire in eastern Ukraine and a return to stability.4 EU countries rely on natural gas supplies that pass through Ukraine, and interruptions could cause price spikes and temper much-needed economic growth in Europe.

On the economic front, last week’s data was mixed. Weekly jobless claims increased slightly, but the overall trend is still heading in the right direction, giving economists hope that businesses will step up hiring this quarter.5 However, the latest consumer sentiment numbers show that lower-income Americans are worried about wages and economic growth even as higher-income consumers are staying upbeat about their prospects. This split in attitudes could spell trouble for the economy if low-income Americans become reluctant to spend.6

The week ahead is packed with economic events, including the June Federal Open Market Committee (FOMC) meeting, which concludes Wednesday. Analysts don’t expect any surprises from the Fed, which has been taking pains to present an image of slow, predictable change in order to avoid spooking investors. However, analysts are hoping for more guidance about future interest rate increases as well as Fed economic projections, which will forecast Gross Domestic Product (GDP), unemployment, and inflation.7


Monday: Empire State Mfg. Survey, Treasury International Capital, Industrial Production, Housing Market Index

Tuesday: Consumer Price Index, Housing Starts

Wednesday: EIA Petroleum Status Report, FOMC Meeting Announcement, FOMC Forecasts, Chair Press Conference 2:30pm

Thursday: Jobless Claims, Philadelphia Fed Survey


Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Detroit bond settlement reached. Bankruptcy court mediators announced that a settlement had been reached between the City of Detroit and bondholders over the treatment of unsecured general obligation bonds. Although final details have not been released, it is likely that bondholders will receive only a percentage of their principal, though bond insurers may make up some of the difference.8

Producer prices fall. The price paid for goods and services by U.S. producers fell for the second straight month, but economists still think inflation is firming up. Producer prices matter because higher prices generally lead to higher inflation as consumers are forced to pay more for goods and services.9

Retail sales growth less than expected. Though consumers spent more on retail goods for the fourth straight month in May, sales growth was slower than forecasted. This trend may mean that consumers will be less likely to increase their spending later this year.10

Would you pay more in taxes to fix your roads? The brutal winter has taken a toll on roads across America and federal maintenance dollars are coming up short. A recent AAA survey found that two-thirds of respondents would be willing to take a tax hike or pay more at the pump to improve roads.11

U.S. Economy Regains All Jobs Lost in the Recession Weekly Update – June 9, 2014

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Markets rallied for the third week in a row, sending stocks to new all-time highs on the back of a strong May jobs report. For the week, the S&P 500 rose 1.34%, the Dow gained 1.24%, and the Nasdaq grew 1.86%.1

Markets shot up on Friday after a better-than-expected jobs report showed slow and steady improvement in the labor market. Here are some high level takeaways: The economy gained 217,000 new jobs in May, many in business services and healthcare, indicating that the quality of available jobs may also be improving. Though headline unemployment is unchanged at 6.3%, digging deeper, we can see that the number of people who can’t find full-time jobs has fallen, as has the number who are forced to work part-time for lack of better options.2 This is great news for the labor market.

We also want to point out an important milestone reached last month: The economy has regained all of the jobs lost in the recession. The chart below shows that total nonfarm employment in the U.S. reached 138.5 million in May, up 8.8 million since the bottom of the recession in 2010.3


While this is a noteworthy event, when we consider population growth and labor force growth, employment is still below healthy levels and the labor market still has a ways to go.

The European Central Bank voted to adopt aggressive measures to prop up Europe’s lagging economy. Though the ECB hasn’t quite reached Federal Reserve-style quantitative easing measures, it cut interest rates below zero, charging banks for holding money overnight. Economists hope the move will force banks to lend money out rather than pay to keep it on deposit, increasing the availability of credit to businesses and staving off deflation.4 Reactions to the move were mixed, with some analysts applauding the move, while others worried about the possible effects on savers. Regardless of the outcome, it will likely take several quarters to see any effects of the new lower interest rates.

The week ahead is thin on economic data, but investors will be looking at Friday’s consumer sentiment report to see if Americans have regained their optimism after a weak showing in mid-May. Since consumer spending accounts for about two-thirds of economic growth, consumer attitudes play an important part in economic forecasts and short-term market movements. Retail sales will also be in focus on Thursday.



Wednesday: EIA Petroleum Status Report, Treasury Budget

Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories

Friday: PPI-FD, Consumer Sentiment


Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

Student loan debt behind housing stall? A former Federal Housing Administration head blames crushing student debt loads for delayed household formation and lackluster home sales. Higher housing prices in desirable urban areas may also make it challenging for first-time homebuyers to purchases homes.5

Consumer credit use rises. Americans ramped up their use of credit cards in April, pushing consumer credit growth to its fastest pace in nearly three years. Credit card use is up to its highest annual rate since November 2001. Higher use of credit is a potentially positive sign for consumer spending.6

Factory orders rise. Orders to American factories rose in April for the third straight month, adding to the growing pile of evidence that suggests U.S. manufacturing is picking up speed after the slow winter. Manufacturing is a significant component of the economy and strong gains should add to GDP growth this quarter.7

Motor vehicle sales rise. Auto sales surged last month, rising 11%, confirming that cold winter weather was the main factor in weak demand early this year. Despite issues with recalls on some brands, several automakers logged double-digit monthly sales growth.8

June 2014 Monthly Video Update

Markets End May at New Highs Weekly Update – June 2, 2014

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Markets rallied for most of last week, pushing the S&P 500 and the Dow to new record closes. For the week, the S&P 500 rose 1.21%, the Dow gained 0.67%, and the Nasdaq grew 1.36%.1 Despite some volatile weeks, markets ended May on an upbeat note. For the month, the S&P 500 picked up 2.10%, the Dow gained 0.82%, and the Nasdaq rose 3.10%.2

On the economic front, investors got their second look at first quarter Gross Domestic Product (GDP) growth last week and the revised estimate shows that the economy contracted by 1.0% in the first three months.3Markets shrugged off the disappointing news, partly because much of the GDP drop can be attributed to weather. Despite the dip in Q1 GDP growth, Philly Fed President Charles Plosser is still optimistic about a stronger second quarter and projects that annual GDP may still reach 3.0%.4

A gauge of consumer sentiment fell in May as Americans worried about stagnant wage growth. While most respondents were confident that the economy is on an upward trend, many were concerned about how poor income growth will affect their standard of living this year.5 Jobless claims fell sharply last week. The four-week moving average of claims also fell to a new post-recession low, indicating that the labor market continues to recover.6

You might have heard of the seasonal investing trope “sell in May and go away.” The theory is that stock investors should sell out of their positions in May and buy again in November because they should avoid holding equities over the summer. The strong performance markets experienced last month is a perfect example of why you should ignore these types of formulas. Complex market behavior is impossible to predict with any accuracy, and long-term investors need to focus more on long-term financial goals than on short-term market performance.

The week ahead is heavy with economic data, including the much-anticipated May jobs report, which investors will look to in order to confirm the upward trend in the labor market.



Monday: PMI Manufacturing Index, ISM Mfg. Index, Construction Spending

Tuesday: Motor Vehicle Sales, Factory Orders

Wednesday: ADP Employment Report, International Trade, Productivity and Costs, ISM Non-Mfg. Index, EIA Petroleum Status Report, Beige Book

Thursday: Jobless Claims

Friday: Employment Situation



Durable goods orders rise unexpectedly. Analysts were surprised by a sudden increase in April orders for long-lasting goods. This is the second straight month of solid gains, indicating that the manufacturing sector – contributing about 12.5% of GDP – is rebounding with the overall economy.7

Fewer Americans rely on food stamps. In a positive sign for the financial health of low-income households, the number of Americans claiming Supplemental Nutrition Assistance Program (SNAP) benefits has fallen. As the economic recovery continues, it’s hoped that government spending on SNAP benefits will continue to drop.8

U.S. personal spending falls in April. Personal consumption, a government measure that captures overall spending on goods in services, fell slightly in April after rising a seasonally adjusted 1.0% in March. Some of the decline can be attributed to lower spending on heating as the weather warmed, indicating that underlying consumer demand still remains strong.9

Home prices rise in March. Prices of U.S. single-family homes continued to rise in March, but at a slower pace than a year ago. This is a sign of persistent deceleration in the housing market. However, it may represent a return to normalized home buying activities driven by underlying economic fundamentals rather than pent up demand.10