Investment Commentary – January 14, 2020

Year to Date Market Indices as of Market Close January 14, 2020
• Dow 28,909 (1.41%)
• S&P 3,283 (1.62%)
• NASDAQ 9,243 (3.11%)
• Gold $1,547(1.80%)
• Oil $58.38 (-4.62%)
• Barclay Bond Aggregate (0.57%)
• All World Index (1.43%)
• Fed Funds Rate 1.75 (Three -0.25 rate cuts in 2019)
• US Real GDP Growth 2.1 Q3/2019 (Up from 2.0 in Q2)

Stocks see-saw ahead of US-China phase one trade deal signing

The US-China trade deal could be next catalyst for stocks

Stocks ended the session little changed, albeit not without a little volatility late in the day as investors continued to wait on the details of the phase one trade deal with China and after the big banks kicked off earnings season.

Speaking to FOX Business’ Lou Dobbs on Monday, U.S. Trade Representative Robert Lighthizer explained how select tariffs will work.

“We maintain $380 billion worth of tariffs on important products,” Lighthizer said. “So across the board is a really, really good deal for the United States. And it will work if reformers in China want it to work. And if that happens, great. If it doesn’t happen, it’s fully enforceable.”

As for earnings, investment banks JPMorgan Chase and Citigroup reported results that exceeded expectations, as Wells Fargo continued to struggle. JPMorgan earned a record profit in 2019 as trading revenue surged. Citigroup also reported better-than-expected results thanks to its credit card and trading businesses. Meanwhile, Wells Fargo recorded a $1.5 billion charge related to an array of legal issues, putting a dent in its profit.

Delta Air Lines surged after reporting its fourth-quarter profit topped estimates as it gained customers from other airlines who were hampered by cancellations of the 737 Max.

Tesla continued to zoom higher after investment bank Jefferies raised its price target to $600 a share from $400. Shares crossed the $500 mark for the first time Monday and have already gained 25.5 percent this year.

Four Major Highlights Of The SECURE Act

The Setting Every Community Up for Retirement Enhancement Act, better known as the SECURE Act, was signed into law on Friday, December 20. The SECURE Act is one of the most dynamic changes to retirement legislation since the Pension Protection Act of 2006, and addresses a wide variety of retirement planning topics.

Given that many of these changes became effective on January 1, 2020, there are a few key areas that may immediately affect your retirement plan. Here are four major changes created by the new law:

1.) Required Minimum Distributions (RMDs) Will Start at Age 72, Not Age 70½

Starting January 1, 2020, you will need to start withdrawing money from your traditional IRAs and employer tax deferred accounts such as 401(k)s, 403(b)s, and 457s at age 72, a change from the current withdrawal requirement of age 70½.

If you turned age 70½ in 2019 (born prior to July 1, 1949), you will still need to take your RMD for 2019 no later than April 1, 2020. If you are currently receiving RMDs (or should be) because you are over age 70½, you must continue taking these RMDs. Only those who will turn 70½ (born on or after July 1, 1949) in 2020 or later may wait until age 72 to begin taking required distributions.

2.) You Can Contribute to Your Traditional IRA After Age 70½

Beginning in the 2020 tax year, the new law will allow you to contribute to your traditional IRA in the year you turn 70½ and beyond, provided you have earned income. You still may not make 2019 (prior year) traditional IRA contributions if you are over 70½.

3.) Inherited Retirement Accounts

Upon death of the account owner, distributions to non-spouse individual beneficiaries must be made within 10 years. The current rules that allowed a non-spouse IRA beneficiary to “stretch” required minimum distributions (RMDs) from an inherited account over their own lifetime (and potentially allow the funds to grow tax-free for decades) has been eliminated. The rule applies to inherited funds in a 401(k) account or other defined contribution plan as well.

There are exceptions for spouses, disabled individuals, and individuals not more than 10 years younger than the account owner. Minor children who are beneficiaries of IRA accounts also have a special exception to the 10-year rule, but only until they reach the age of majority.

If you’ve already inherited a stretch IRA, rest easy. The changes from the bill that close loopholes that allowed stretch IRAs applies to beneficiaries of someone who dies after the end of 2019.

Market Headlines

Dow 29K?: For the first time, the Dow briefly eclipsed 29,000 points—a threshold that it reached briefly on Friday morning before slipping later in the day and closing at nearly 28,824. It took just 37 trading sessions for the index to rise to 29,000 after breaching 28,000 in mid-November.

Fast start: On the heels of the U.S. stock market’s best year since 2013, the first full week of 2020 was a strong one, with the S&P 500 and the Dow rising nearly 1% and the NASDAQ adding almost 2%. For the S&P 500, it was the sixth positive week out of the past seven.

Geopolitical tensions: Financial markets appeared to take their cues from the U.S.-Iran conflict, with stocks rising on Wednesday and Thursday after angry rhetoric between the two countries subsided following military strikes. A gauge of market volatility, the Cboe Volatility Index, fell about 10% for the week.

Tech leadership: Information technology stocks continued to lift the market after a year in which the sector posted a total return of more than 50%. A handful of the biggest tech stocks gained more than 1% to lift the broader market on Wednesday—a key factor in the weekly outperformance by the tech-oriented NASDAQ relative to other broad indexes.

The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investments.