Investment Commentary – May 9th, 2017

Market Indices as of Market Close May 5th, 2017
Dow 20,975 (6.14% YTD)
S&P 2,396 (7.06% YTD)
NASDAQ 6,120 (13.70% YTD)
Gold $1,220 (5.47%)
OIL $45.84 (-18.82%)
US 10Y Treasury 2.394 (-5.10%)
Barclay Bond Aggregate (1.27% YTD)

Fed official warns Fannie-Freddie reforms could cause shocks

A Federal Reserve official warned U.S. lawmakers on Tuesday that any reforms that reduce the massive lending presence of mortgage giants Fannie Mae and Freddie Mac in the multi-family real estate market could shock that sector of the economy.

Members of Congress and the Trump administration have signaled they will overhaul the two government-sponsored enterprises (GSEs), which the government took over during the 2008 financial crisis, after they suffered massive losses on bad mortgages.

Boston Fed President Eric Rosengren, who also used a speech to warn about the inflationary pressures if U.S. unemployment were to drop much further, said the agencies hold or guarantee some 44 percent of multi-family loans.

“Policymakers looking to reform the GSEs might look at the GSEs’ large and growing footprint in the market and ask whether this level of government-sponsored exposure is safe, and whether that level of government support is appropriate,” he said at New York University Stern School of Business.

“A potential and significant shock to this sector of the commercial real estate market could occur if proposals require the GSEs to reduce their holdings of multi-family loans.”

Market-moving headlines:

OIL SLICK: A global surplus of oil weighed on oil prices and energy stocks, and U.S. crude prices fell below $46 a barrel on Thursday to their lowest level in five months. Year to date, crude prices are down more than 15%.

STUCK IN REVERSE: The positive sales momentum that automakers have enjoyed in recent years may be reversing course. A private report on Tuesday showed that U.S. auto sales fell in April by 4.7% compared with the same period a year ago.

GREEK DRAMA: Greece on Tuesday agreed with its international creditors to implement further austerity measures to extend the struggling nation’s financial bailout.

FED STAYS COURSE: The U.S. Federal Reserve Board on Wednesday kept interest rates unchanged and said that recent economic weakness could be temporary. The Fed last lifted rates in mid-March, and its next meeting is in mid-June.

HEALTHCARE REFORM: President Trump’s proposal to repeal and replace the Affordable Care Act cleared the House on Thursday on a close 217-to-214 vote. The legislation now moves to the Senate.

EUROPEAN RALLY: An index of European stocks climbed on Friday to its highest level in nearly two years, driven higher in part by recent improvement in European economic data.

Reminder: Should You Make A Charitable Contribution From Your IRA?

Good news for taxpayers over the age of 70 1/2. Congress has voted to make permanent the exclusion from income of up to $100,000 per person, per year, for Individual Retirement Account (IRA) distributions which are given directly to charities. This law will end the uncertainty which has existed for the past several years when taxpayers were trying to decide whether to direct their IRA distributions to charity. Congress generally did not get around to extending the expired tax legislation known as “extenders” until very late in the year. One year the extenders were not passed until the January of the subsequent year and were applied retroactively.

Editor’s Note: Donating to your Required Minimum Distribution to your favorite charity and declaring it as a tax free distribution is now permanent! This can easily be done with the stroke of a pen.

Leaders this past week were Consumer Goods and Technology. Among the laggards were Utilities and conglomerates.

THIS DAY IN FINANCAL HISTORY: Social Security Gets A Boost
On this day in 1977, President Jimmy Carter proposed legislation to make sure Social Security would stay secure. The proposed legislation called for a .5% increase in taxes to extend the life of Social Security. After being revised in Congress, the bill was passed in the winter of 1977.

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.