Investment Commentary – September 11, 2018

Year to Date Market Indices as of Market Close September 11, 2018
Dow 25,971 (5.06%)
S&P 2,887 (8.02%)
NASDAQ 7,972 (15.49%)
Gold $1,201 (-9.62%)
OIL $69 (17.13%)
Barclay Bond Aggregate (-1.33%)
Fed Funds Rate 2.0% (last increase was 6/13/18)

Stocks end higher as tech shares rebound

Stocks ended higher on Tuesday led by a bounceback in tech shares. The Dow Jones Industrial Average DJIA, +0.44% advanced around 114 points, or 0.4%, to finish near 25,971, according to preliminary figures. The S&P 500 SPX, +0.37% , added around 11 points, or 0.4%, to end near 2,888. The tech-heavy Nasdaq Composite Index COMP, +0.61% climbed around 48 points, or 0.6%, to close around 7,972. Tech and telecoms were the main driver of the rally in equities. Apple Inc. AAPL, +0.02% , Facebook Inc. FB, -0.07% and Microsoft Corp. MSFT, +0.05% all ended higher by more than 1%. Energy stocks also surged on the back of higher oil prices.

Trump signed an executive order on retirement savings. Here’s what you need to know

At the end of August, Donald Trump traveled to Charlotte, North Carolina, and signed an executive order asking the Labor and Treasury Departments to look into some changes that might affect your clients’ retirement income savings plans. It’s unclear how much the order will do without legislation from the U.S. Congress, but it’s best if you know what the order says and what it aims to do.

Raising the RMDs age

This first part of the order directs the appropriate regulatory agencies to reevaluate this rule. Right now, when a retiree reaches 70½, they’re required to take money out of their IRA and their 401(k) and only if you are no longer employed by the company offering your 401(k). The average life expectancy in the U.S. when this cap was set in 2002 was 77 years. Today, that number has risen to 78½—not a large increase. If you don’t take the RMD withdrawal, you could face penalties on top of the taxes you owe.

Raising the age cap, though, would benefit financial firms especially, because clients could choose to keep more money in their accounts for longer. The move has been supported by firms like BlackRock and Prudential. In a July 2018 report, quoted by Forbes, BlackRock said, “We recommend increasing the starting age requirement [possibly to 75] to encourage individuals to continue to save during their early retirement years, given that they are expected to live longer.”

Some retirement income specialists are skeptical raising the RMD age cap would change much, since most people will choose to withdrawal their money when they’re eligible. Most people, in other words, aren’t working and saving past age 70½. Still, the change could affect those who work past 70½, or those who choose to scrimp and save in their early retirement years.

Here’s how stocks perform around midterms, in one chart

With the midterm elections less than two months away, U.S. stock-market investors are increasingly paying attention to the upcoming vote, viewing it as a potential turning point for the political environment and, with it, the market’s prospects.

The vote will be held on Nov. 6, and comes at a time of unusually high political uncertainty, particularly surrounding such key economic issues as trade and taxes.

Control of both houses of Congress is at stake. Currently, the Democratic Party is largely favored to take control of the House of Representatives, though they’re seen as having a harder hurdle to flip the Senate from Republican control. The Wells Fargo Investment Institute calculated a 50% chance of a divided government, and only a 20% chance that the Democrats retake both houses.

Uncertainty, over which party controls each chamber, as well as what the political makeup would mean for market-relevant legislation, is likely to spur volatility going into the vote. However, history suggests that investors should expect strong performance afterward, once the uncertainty passes and investors are able to analyze what the new political environment might mean for equities.

According to the Wells Fargo Investment Institute, the S&P 500 sees an average pullback of nearly 19% in midterm-election years, based on data going back to 1962 (or 14 midterm cycles). In the year after the midterm, however, the S&P climbs more than 31%, on average.

Around the web:

Slight pullback: U.S. stock indexes fell as the S&P 500 and the NASDAQ retreated from the record levels they achieved the previous week. The NASDAQ sustained the biggest decline by far after outpacing the S&P 500 and the Dow by wide margins in the preceding two weeks.

Trade worries: Growing tensions between the United States and China weighed on equities on Friday as President Trump warned that his administration was prepared to quickly roll out more tariffs on Chinese imports. The White House has been gearing up to impose tariffs on $200 billion in Chinese goods in addition to the $50 billion already targeted.

Other Notable Indices (YTD)
Russell 2000 (small caps) 12.75
EAFE International -4.41
Emerging Markets -6.77
Shiller Annuity Index 12.66

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.