With the first quarter of 2019 in the books, equity and fixed income markets have delivered one of their strongest starts in decades – a welcome start to the year given the way 2018 ended. So, what explains the strong start? A few thoughts: encouraging trade talks between China and the U.S., increased U.S. wage growth, positive corporate earnings, but perhaps most of all is the Federal Reserve’s cautious tone regarding future interest rate increases.
Many in the financial media sounded alarms that 2019 would be a dismal year, but for patient investors, the opposite has occurred thus far. US Stocks and Bonds are up nearly 14% and 3% respectively, according to data from Dimensional Fund Advisors (Source: DFA 1ST Quarter 2019 Review). And with many portfolios having recovered from much of the 2018 year-end rout, this may be a good time to review your overall asset allocation to ensure it’s aligned to your goals.
This is also an opportune time to reevaluate which of your dollars should be in the market (and susceptible to market fluctuation), and which dollars should be set aside in low-risk, capital preservation vehicles.
Lastly, many investors are worried about the next recession and what that could mean for their portfolios. To that end, we continue to engage with industry experts and research analysts who have a pulse on the global economy. While we should expect volatility to occur at any time in the financial markets, for now, let’s enjoy one of the best first quarters in nearly 30 years.
Some big economic news since our last writing as the Federal Reserve recently provided guidance that indicates they plan to hold rates steady between now and the remainder of the year. This was a positive sign for the equity markets as it signals that the Fed does not want to stunt economic growth – which is what raising rates could likely do at this point. Important to note that while the Fed is not raising rates, they are not reducing rates either, which would typically signal concerns that the economy is in trouble. Instead, the Federal Reserve seems poised to hold rates where they are—what some economists refer to as the “Goldilocks” level.
In other positive news, wage growth for the period of February 2018 to February 2019 increased 3.4% according to data tracked by the U.S. Department of Labor. Accordingly, this represents the highest increase since 2009.
Also interesting to note is that one aspect of the yield curve has inverted (the 2 month treasury bill rate recently traded higher than 10 year treasury yield), drawing concerns that a recession could be imminent. However, research we’ve read indicates that we should be looking at the 2-year treasury vs. the 10-year treasury—which so far, has yet to invert. We’ll continue to keep an eye on the yield curve as it could foreshadow darker times ahead for the economy.
If you’re like most investors, you’ve probably already filed your 2018 taxes. Hopefully you weathered the new tax reform changes with a positive outcome. Based on conversations we’ve had with our network of CPA professionals, many clients are feeling the impact of lower paycheck withholding rates, whereas other clients are benefiting from the higher standard deduction and the larger child tax credits and the new qualified business income deduction.
Regardless of your experience, now is a great time to review your portfolio for potential changes you can implement for the rest of 2019 so as to be well-positioned for a favorable tax year.
We’ve also noted a significant increase in the number of IRA to Roth IRA conversions and qualified charitable contributions. If you’re unsure of these strategies and want to learn more, please reach out to us for more information.
ADDITIONAL SPRING PLANNING INFORMATION
- 2019 IRA/Roth IRA contribution limits have increased to $6,000 year ($7,000 if age 50 or older) and 401k limits have increased to $19,000 ($25,000 if over age 50)
- Consider pulling your Credit Report and reviewing for accuracy
- Review and update your estate plan. Also, review and update your various beneficiary designations – and don’t forget to check your life insurance policy beneficiaries as well
- Plan your charitable giving for the rest of the year—and if you’re over the age of 70, consider if making these charitable contributions from your retirement account makes tax sense
Disclosures: The opinions expressed above are those of Jeff DeLarme and are subject to change. Investing involves risk. Past Performance is no guarantee of future results. This wealth briefing has been written for educational purposes and is not a solicitation to invest or buy securities and does not constitute investment advice. Any data included or referenced has been sourced from what are believed to be reliable sources, but should not be relied upon.
Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. There is an inverse relationship between interest rate movements and fixed income prices. Generally, when interest rates rise, fixed income prices fall and when interest rates fall, fixed income prices rise. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability.
Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.