Download March 2016 - Heller Wealth Advisors

Heller Wealth Advisors, LLC
47 Maple Street, Atrium Suite 302
Summit, NJ 07901
973.287.5437
www.hellerwealth.com
MARCH 2016
Market Update
(all values as of 02.29.2016)
Stock Indices:
Dow Jones
16,516
S&P 500
1,932
Nasdaq4,557
Bond Sector Yields:
2 Yr Treasury
0.78%
10 Yr Treasury 1.74%
10 Yr Municipal 1.76%
High Yield
9.12%
YTD Market Returns: Dow Jones
-5.21%
S&P 500
-5.47%
Nasdaq
-8.98%
MSCI-EAFE
-9.21%
MSCI-Europe-8.60%
MSCI-Pacific-10.34%
MSCI-Emg Mkt -6.78%
US Agg Bond
1.96%
US Corp Bond
0.91%
US Gov’t Bond 2.12%
Commodity Prices:
Gold1,238
Silver14.90
Oil (WTI)
32.78
Currencies:
Dollar / Euro
1.09
Dollar / Pound
1.38
Yen / Dollar
113.96
Dollar / Canadian .73
MARCH 2016
Current Environment - Macro Overview
Volatile oil prices and uncertainty about
the presidential race led to erratic markets throughout February, yet buffered by
improving economic news including GDP
growth for the fourth quarter of 2015 that
was revised higher from 0.7% to 1.0%, as
released by the Commerce Department.
The Commerce Department also reported that consumer spending rose 0.5% in
January, the biggest gain in 10 months,
along with an increase in Personal Consumption Expenditures (PCE) of 1.3%
in December. Economic indicators such
as these are tracked closely by the Federal Reserve for signs of improvements
in the overall economy, which may lead
the Federal Reserve to raise rates faster
than anticipated. Many economists believe that a delicate balance between
economic growth and interest rate increases is the Fed’s biggest challenge.
Saudi Arabia and Russia came close to
an oil production cut agreement, but
then scraped the idea last minute send-
ing oil prices lower. Energy markets
were hoping for some sort of production cut from two of the world’s largest
producers in order to prop prices up.
With U.S. companies now allowed to export oil since the removal of the 40-year
export ban on December 18th, the country is poised to improve the efficiency
and flexibility of global oil markets as
U.S. oil finds its way into other countries.
U.S. banks will undergo more stringent stress tests imposed by the Federal Reserve, designed to assess how
well banks can absorb negative economic impacts, such as high unemployment, low growth, and low interest rates, which inhibit bank earnings.
The stress tests have become the Fed’s
main tool for keeping banks in check.
Sources: U.S. Department of Commerce,
Federal Reserve Bank
Equity Overview - Domestic Stock Market
Domestic and international equity markets continued on a volatile course as central banks further explored the negative
yield arena of government bonds. U.S.
equities rebounded towards the end of
February from lows earlier in the month.
The S&P 500 Index moved back above
a critical technical indicator for the first
time since the end of December. The
50-day moving average is used by
technical stock analysts to help determine the direction of the market.
With the U.S. presidential election
not until the fall, many analysts believe that the markets will trade
in a range bound pattern until then.
Sources: Bloomberg, S&P
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An Estimated 77.5 Million Americans Paid No Federal Income Tax In 2015
45% of Americans Pay No Federal Income Tax - Fiscal Policy
Disparity of income has been a preponderate
subject for politicians and activist groups for
sometime, yet in the end it’s those that earn the
higher incomes that pay for the majority of taxes.
An estimated 77.5 million Americans, identified as households, pay
no federal income tax. The non-partisan, non-profit tax group known as
The Tax Policy Center, released income tax data it analyzed for 2015
and found that nearly half, about
45.3% of American households,
paid no federal income tax in 2015.
The Tax Policy Center estimates that
the percentage of Americans that will not pay
income tax in 2016 will drop slightly to 44.5%.
Generous tax credits and low tax brackets for
low-income earners allow minimal to no federal
tax payments. The Tax Policy Center did find that
these lower income households did pay their share
of state, local, property, sales, and excise taxes.
Federal tax data for
2014 and 2015 showed
the top 1% of taxpayers
subject to a higher effective tax rate, averaging
about 23%, seven times
higher than taxpayers in the bottom 50%.
The
ultra
wealthy,
also
know
as
the top 1% of taxpayers, with annual incomes of about $2 million, pay about 44%
of all of the federal income taxes in the U.S.
Source: Tax Policy Center/Washington D.C.
Stamp Prices Set To Go Down - Market Fact
For the first time in 97 years,
the U.S. Postal Service is lowering the price on first class
postage. Effective April 10th,
a first class stamp will cost 47
cents, down from 49 cents. The
last postal price drop was in
1919 when a first class stamp
dropped from 3 cents to 2 cents.
sales has spurred a growth in
package shipments over the past
few years. Standard mail, such as
first class letters and postcards,
represent 76% of postal revenue.
Other postage dropping in
price on April 10th includes
postcards, from 35 cents to
34 cents, and international
stamps from $1.20 to $1.15.
The price reduction is part
of a prearranged agreement with Congress
when the USPS was allowed to increase the
price of stamps by three cents in 2014 in order
to stem a dramatic loss in revenue. The price
hike was set to last for only two years, allowing the USPS to raise over $4.6 billion in revenue. Stamp prices may still increase as inflation
picks up, since postage is pegged to inflation.
Unfortunately for those who so far have purchased countless types of Forever stamps
with an array of pricing, colors and themes,
new purchases at the new “Forever” price
will have to be made while putting aside
all others priced above until the (not-so)
Forever stamp is again at least 49 cents.
Optimistically for the USPS, the advent of internet
Sources: USPS
MARCH 2016
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India Seen As Next Big Growth Story After China - International Demographics
At the beginning of each year, the International
Monetary Fund (IMF) releases its World Economic Outlook, a projection of where the organization predicts economic growth will come from.
Japanese 10 Year Governrment Bonds Sold At -0.024%
For the past 20 years, China has led the global markets as the fastest major emerging
China’s slowdown has affected international markets as the fear of an analogous occurrence with other countries could happen. Numerous smaller emerging market countries
have become dependant on China’s growth as
production opportunities have trickled over.
India is the single largest
democracy in the world
and the second most populous country after China, with over 1.2 billion
people. With a work force
of over 486 million people, India has the world’s
second largest labor
force as of 2011 according to the CIA Factbook.
market country, until now. As tracked by the
IMF, India has begun to take the place of China, with an estimated 7.5% growth rate
versus China’s 6.3% growth for 2016. Estimates for 2017 project a further slowdown
for China and continued growth for India.
It is expected that as India
builds out and modernizes
its infrastructure, which
started in China nearly
30 years ago, it will also experience tremendous
growth as new jobs are created with a growing number of India’s population becoming consumers.
Source: IMF; World Economic Outlook, 01/16
Release
Fixed Income Update - Global Bond Markets
Government bond yields from various developed
countries fell into negative territory in February,
as central banks applied further stimulus efforts.
Yields on the 2-year German bond fell to
-0.53% and yields on Japanese 10-year bonds
traded at -0.024%, a first for Japanese debt.
As international yields fell in February, so did
U.S. government and corporate yields. Mortgage
rates also fell as key lending rates such as the 10year Treasury fell to yields not seen since 2012.
MARCH 2016
The lower-than-expected yields drew renewed
concern about a global economic slowdown as
well as leading to unintended market dynamics. Economists have traditionally seen lower
yields prompt lending and spending, but some
hoarding of cash has resulted instead. As rates
have fallen below zero in certain markets, investors are better off holding cash themselves rather than paying governments to hold their cash.
Sources: Bloomberg
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1,000 Yen & 1,000 Swiss Franc Bills Are In Demand As Yields Have Gone Negative
New Trade Relationship Develops - Global Trade
The lifting of sanctions
against Iran has enticed multinational companies as well
as countries worldwide to
seek relations with one of the
world’s oldest civilizations.
With an anemic economy and tarnished political landscape, Brazil has emerged as one
of Iran’s newest trading partners. As export sales rise for natural resources such
as oil and minerals, Iran’s need to import what it doesn’t produce will increase.
Brazil will accept payments from Iran in
euros and other currencies starting this
year as it sells large ticket items such
as planes, cars, and machinery to Iran.
As the Brazilian real has
dropped in value, the country’s products have become
more affordable worldwide,
thus creating an opportunity
for new exports to new and
existing trade relationships.
Another reason for Brazil to build upon a trade
relationship with Iran is one of need. Brazil’s vast
manufacturing industry is in dire need of natural gas, used as fuel for many of its manufacturing plants. Iran plans to export vast amounts of
liquefied natural gas to Brazil over the next few
years in order to accommodate Brazil’s demand.
Sources: Reuters, CIA Factbook
Negative Yields Drive Demand For Large Dominated Bills - Currency Dynamics
With rates plunging throughout Europe
and in Japan, demand for large denominated bills has risen over the past few months,
as investors and individuals are finding
storing wealth in stable currencies is better than paying central banks (or receiving
a negative yield) to hold those same assets.
The negative yields orchestrated by the ECB in
Europe and the Bank of Japan have both caused
unintended consequences. Many believe that
rather than seeing an increase in lending by financial institutions and spending by consumers
because of lower rates, less money is actually exchanging hands resulting in less economic
activity. World trade shrank 13.8% in 2015, as
tracked by the Netherlands Bureau of Economic Policy Analysis World Trade Monitor.
MARCH 2016
Government
bond yields in
Europe and Japan dropped
into negative
territory in February, with the German 2-year bond
at -0.53%, and
the Swiss 10-year
bond at 0.4%. Japan sold 10-year bonds with a negative yield for the
first time ever on February 29th. The $19.5 billion
worth of bonds were priced with a yield of -0.024%.
In particular demand were U.S. 100 dollar
bills, which are plentiful worldwide and easily traded. Demand for Bank of Japan notes
ranging from 1,000 yen to 10,000 yen denominations each increased as rates fell below zero in Japan. Swiss 100 to 1,000 franc
bills also experienced an increase in demand as yields throughout Europe fell.
At odds with the rest of Europe is Britain,
whose consideration of exiting the EU has led
to an increase in British government bonds.
Sources: ECB, BOJ, Fed, Eurostat, Netherlands
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U.S. Has Over 5.5 Million Jobs To Fill - Labor Market Update
Job Market Health Is Improving As 5.6 Million Jobs Need To Be Filled
The Department of Labor released its most
recent data for open jobs, with 5.6 million open positions in December, just
shy of a 5.7 record set in July of 2015.
The data show that employers are optimistic
about long-term economic growth and are willing to post new positions in order to compete for
a dwindling pool of qualified workers across the
country. Such dynamics may eventually lead to
higher wages as competition for a tight labor supply encourages employers to bid salaries higher.
Job openings were created across various industries, an optimistic note as viewed by economists.
Transportation, business services, and health education saw the most job openings on a national
level. Certain positions tend to require higher skill
sets, thus increasing the time that positions remain open until employers find qualified workers.
Separations, also known as employee turnover,
have not changed much in the past year. Separations include employees that have quit, layoffs,
and discharges. This is also a measure of the labor
market’s health, such as when companies have
fewer layoffs and when companies incentivize
employees to stay. So, no increase in separations
is essentially a positive sign for the labor market.
Source: Dept. of Labor
Britain’s Possible EU Exit (Brexit) Affects The Pound - Currency Overview
The possibility of Britain’s exit from the European Union (EU) has sent the British pound lower, making it the worst performing currency of a
developed nation versus the dollar year to date.
The pound fell below 1.40 versus the dollar in
February, raising fears of inflation as British consumers buy plenty of imported goods, subject to
higher prices as the pound is able to buy less be-
cause its devaluation. Britain has been an integral
component of the 28 nation EU for four decades.
Economists and analysts are closely watching the
direction of the pound as it could possibly affect
surrounding European countries and pose a risk
to further fragmentation of the European Union.
Moody’s rating agency expressed concern that Britain’s exit from the EU might
hinder its credit rating, thus increasing the country’s cost to borrow money.
The yield on the gilt, Britain’s 10-year government bond, rose to 1.45% in late February, as bonds were sold in anticipation of
higher rates should an exit of the EU occur.
Sources: EuroStat, Bloomberg, Reuters,
MARCH 2016
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The EIA Projects Gasoline To Average Over $2.25 per Gallon Next Year
Gasoline & Oil Prices Projected To Rise - Commodities Update
Each month, the Energy Information Agency (EIA) tracks the price of gasoline nationwide as well as how much households (consumers) are buying overall.
The EIA expects gasoline prices to start rising this year, while continuing to head higher into 2017 as demand picks up and supply levels drop. Gasoline prices had been
falling because of lower crude oil prices,
which account for about two-thirds of the
price U.S. drivers pay for a gallon of gasoline.
Increases in fuel economy are also contributing
to lower fuel expenditures, as cars and trucks
are more efficient and travel farther on a gallon
of gasoline. According to the Environmental Protection Agency, the production-weighted fuel
economy of cars has increased from 23.1 miles
per gallon for 2005 cars to almost 28 mpg for
2014 cars, an increase of over 20%. Similarly, the
fuel economy for trucks has increased 19%, from
16.9 mpg to 20.1 mpg in the same timeframe.
The Consumer Price Index (CPI), a statistical
measure of inflation, has gasoline accounting for
5.1% of consumer spending as of October 2014.
Reductions in gasoline prices ultimately impact
the relative weight of gasoline compared to other expenditures such as shelter, clothing, food,
and
entertainment
in price indices compiled by the Bureau
of Labor Statistics
(BLS) and the Bureau
of Economic Analysis.
The demand for gasoline is very price
inelastic over short
time periods, meaning changes in price
have little impact
on the number of
gallons used. Falling gasoline prices
allow
households
to spend their income on other goods
and services, pay down debt, and/or increase savings. However, the longer prices remain low, the more time households
have to plan for driving vacations and decide on where to spend their excess money.
Sources: EIA, Commerce Dept., BLS, EPA
*Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI,
WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer
or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate
and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal,
tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.
MARCH 2016
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