Market Commentary – June 10, 2019

Surprise! It was a great week for markets.
Since the U.S.-China trade conflict resumed in early May, investors have been off balance. The possibility of escalating tariffs on Mexico heightened economic uncertainty. Then, last week’s unemployment report arrived with less than stellar news – just 75,000 jobs were created in May. The number was well below expectations. The Bureau of Labor Statistics revised March and April employment numbers downward, too.1, 2, 3

We know investors hate uncertainty. So, why did major U.S. indices rally?

The answer may be hope. There was hope negotiations with Mexico would produce results and tariffs would be avoided. There was hope trade issues with China, in tandem with less-than-stellar economic news, would encourage the Federal Reserve to cut rates. There was hope lower rates would stimulate the economy and lift share prices higher.4, 5

Investors were right about Mexico and tariffs.

On Saturday, The Wall Street Journal reported the United States and Mexico reached a last-minute agreement on immigration that takes tariffs off the table for now.6 It was good news. Before the agreement was reached, the vice president of the Center for Automotive Research told PBS NewsHour, “…the cost of a vehicle, a new vehicle in the U.S. is going to go up somewhere between $1,100 and $5,400 a vehicle…It will hit GDP, up to [a] $34 billion hit to GDP. And we would see almost 400,000 American jobs disappear.”7

Investors may be right about interest rates, too. Expectations for Fed rate cuts are rising. MarketWatch reported, “The fed fund futures market now show traders see a 72 percent chance of a rate cut at the Fed’s July 31 meeting, and an around 23 percent probability of a rate cut in the June 19 meeting.”8

Last week, the Dow Jones Industrial Average and Standard & Poor’s 500 Index each gained more than 4 percent. The Nasdaq Composite was up 3.9 percent.4

How much is the wedding going to cost you? You may not have noticed, but the average cost of weddings has risen sharply – and not just for the bride and groom and their parents. Costs have also increased for members of the wedding party and guests.9

One reason for rising costs is the popularity of destination weddings. One-quarter of weddings take place far from home, as couples opt for sunset weddings on the beach in the Virgin Islands or nuptials shared under blossoming cherry trees in Washington, D.C. and Japan. TripSaavvy.com reported:10, 11

  • The average destination wedding has a budget of $28,000 for 48 guests.
  • Guests spend almost $700 to attend. Of course, international venues may have a higher price tag.
  • The honeymoon cost for a destination wedding averages about $8,200.

In a Fox News opinion article, Liberty Vittert, Professor of Practical Data Science at Washington University, offered her thoughts:9

“Yes, we all know that the cost of weddings has become ridiculously exorbitant, at an average cost of $33,391 per wedding (that’s almost $240 per guest). Meanwhile, the median household income in the United States is $59,039. It is so common to see this preposterous amount of money spent that it doesn’t really faze me anymore…As a wedding guest to an in-town wedding, you need to account for clothing, transportation, gift, and (potentially) booze. That can easily amount to $300. If it is out of town, hold your horses. By adding in travel and accommodation costs, you can easily be up to $700…If you are in the wedding, just throw your wallet in the toilet and flush.”

If you have relatives you’d rather not see, having your wedding on a mountaintop in Patagonia may be a sound choice. More than one-half of those surveyed said cost would prevent them from attending destination weddings.10

There are other options. Couples could have small weddings near home or elope to exotic destinations and then have celebratory parties when they get home. Whoever is footing the bill would be able to bank the savings as an investment in the future.

Weekly Focus – Think About It
“Love recognizes no barriers. It jumps hurdles, leaps fences, penetrates walls to arrive at its destination full of hope.”
–Maya Angelou, Poet and author12

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

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* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
1 https://www.reuters.com/article/us-usa-economy/weak-us-employment-report-raises-red-flag-on-economy-idUSKCN1T8086
2 https://www.theguardian.com/business/live/2019/may/31/markets-trump-shock-mexico-tariffs-trade-war-china-brexit-ftse-100-business-live?page=with:block-5cf0f8d38f082f7da1f2b3e0#block-5cf0f8d38f082f7da1f2b3e0
3 https://www.bls.gov/news.release/empsit.nr0.htm
4 https://www.barrons.com/articles/dow-jones-industrial-average-rally-51559957870?mod=hp_DAY_3 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-10-19_Barrons-The_Dows_Big_Rally_was_Scary_and_Not_in_a_Good_Way-Footnote_4.pdf)
5 https://www.stlouisfed.org/publications/inside-the-vault/spring-2011/low-interest-rates-have-benefits-and-costs
6 https://www.wsj.com/articles/trump-says-u-s-has-reached-deal-with-mexico-11559954306 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-10-19_WSJ-US_Mexico_Reach_Deal_to_Avoid_Tariffs-Footnote_6.pdf)
7 https://www.pbs.org/newshour/show/trumps-mexico-tariffs-would-affect-u-s-consumers-would-they-also-slow-immigration
8 https://www.marketwatch.com/story/traders-now-see-75-chance-of-fed-rate-cut-in-july-2019-06-05
9 https://www.foxnews.com/opinion/liberty-vittert-millennials-weddings-spending
10 https://www.tripsavvy.com/wedding-statistics-and-honeymoon-facts-1860546
11 https://www.tripsavvy.com/what-is-a-destination-wedding-1864077
12 https://www.goodreads.com/quotes/126888-love-recognizes-no-barriers-it-jumps-hurdles-leaps-fences-penetrates

Red Flags for Tax Auditors

Red Flags for Tax Auditors

Let's Talk!

No one wants to see an Internal Revenue Service (IRS) auditor show up at his or her door. The IRS can’t audit every American’s tax return, so it relies on guidelines to select the ones most deserving of its attention.

Ever wonder why some tax returns are eyeballed by the Internal Revenue Service while most are ignored? Short on personnel and funding, the IRS audited only 0.60% of all individual tax returns in 2017, and the vast majority of these exams were conducted by mail. So the odds are pretty low that your return will be singled out for review. And, of course, the only reason filers should worry about an audit is if they are fudging on their taxes.

That said, your chances of being audited or otherwise hearing from the IRS escalate depending on various factors, including your income level, the types of deductions or other tax breaks you claim.

Here are six flags that may make your tax return prime for an IRS audit.¹

The Chance of an Audit Rises with Income
According to the IRS, less than 1% of all individual taxpayer returns are audited. However, the percent of audits rises to over 2% for those with incomes between $500,000 and $1 million, and is over 4% for those making between $1 million and $5 million.²

Deviations from the Mean
The IRS has a scoring system it calls the Discriminant Information Function that is based on the deduction, credit, and exemption norms for taxpayers in each of the income brackets. The IRS does not disclose its formula for identifying aberrations that trigger an audit, but it helps if your return is within the range of others with similar income.

When a Business is Really a Hobby
Taxpayers who repeatedly report business losses increase their audit risk. In order for the IRS not to consider your business as a hobby, it needs to have earned a profit in three of the last five years.

Non-Reporting of Income
The IRS receives income information from employers and financial institutions. Individuals who overlook reported income are easily identified and may provoke greater scrutiny.

Discrepancies Between Exes
When divorced spouses prepare individual tax returns, the IRS compares the separate submissions to identify instances where alimony payments are reported on one return but alimony income goes unreported on the contra party’s return.

Claiming Rental Losses
Passive loss rules prevent deductions of losses on rental real estate, except in the event when an individual is actively participating in the property’s management (deduction is limited and phased out), or with real estate professionals who devote greater than 50% of their working hours to this activity. This is a deduction to which the IRS pays keen attention.

  1. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
  2. IRS, 2017

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Market Commentary – June 3, 2019

Tariff trouble.
Just two weeks ago, the U.S. government lifted tariffs on Mexico and Canada. So, it was a surprise last week when President Trump tweeted the United States would impose an escalating tariff on all goods imported from Mexico until the flow of migrants to the United States’ southern border stops.

The pending tariffs have potential to hurt both American and Mexican economies, reported The Economist. “Two-thirds of American imports from Mexico are between related parties, where one partner owns at least 10 percent of the other, so any tariff will cause problems along tightly integrated supply chains.”

In 2018, Mexico was the second largest supplier of imported goods to the United States. It provided 13.6 percent of U.S. imports. In addition, Mexico was the second largest importer of U.S. goods. The country took in 15.9 percent of overall U.S. exports, including machinery, electrical machinery, mineral fuels, vehicles, and plastics, according to the Office of the United States Trade Representative.

The new tariffs (a.k.a. import taxes) may increase costs for ordinary Americans. Last week, Liberty Street Economics explained the costs associated with Chinese tariffs:

“U.S. purchasers of imports from China must now pay the import tax in addition to the base price. Thus, if a firm (or consumer) is importing goods for $100 a unit from China, a 10 percent tariff will cause the domestic price to rise to $110 per unit…it is not a true cost for the U.S. economy because the money is simply transferred from buyers of imports to government coffers and thus could, in principle, be rebated.”

A different type of cost occurs when companies find new suppliers. For example, a company that chooses not to pay tariffs can buy goods elsewhere. They might choose to pay a Vietnamese firm $109 for a product rather than pay a Chinese firm $110 ($100 plus a 10 percent tariff). In this situation, the consumer pays a higher price and there is no tariff revenue that could be rebated. This is called a deadweight loss.

In total, Liberty Street Economics estimated the cost of 2018 tariffs on Chinese goods at $419 a year for the typical household ($132 in deadweight loss). The tariffs imposed in 2019 are expected to cost $831 a year ($620 in deadweight loss).

Liberty Street Economics did not estimate the potential consumer cost of new tariffs on Mexico.

Major U.S. stock indices finished lower last week. Yields on U.S. Treasuries moved lower, too, suggesting investors may have been seeking safe havens.

Let’s hear it for the Dogs. Some people love cats. Some people love dogs. Some people believe your preference offers insight to your personality. You have probably heard variations on this idea. WebMD offered the example that cat owners are open, curious, creative thinkers, while dog owners are outgoing, enthusiastic, self-disciplined planners.

Recently, a bit of data emerged that may please dog owners in Britain. It seems canines in the United Kingdom are outstanding personal trainers. A University of Liverpool study, published in April in Scientific Reports, found:

“The odds of [dog owners] meeting current physical activity guidelines of 150 minutes per week were four times greater than for [people who don’t own dogs]. Children with dogs reported more minutes of walking and free-time (unstructured) activity. Dog ownership is associated with more recreational walking and considerably greater odds of meeting [physical activity] guidelines…It is recommended that adults undertake at least 150 minutes of moderate-to-vigorous intensity physical (MVPA) activity per week.”

British dogs are better at ensuring their owners get enough exercise than American and Australian dogs. In both the United States and Australia, a significant number of dog owners reported their dogs live outside and exercise on their own.

Few cats are willing be leashed and taken for walks, so cat ownership is less likely to help owners meet physical activity goals. Regardless, cat owners may realize some health benefits. A University of Minnesota study found cat owners were 30 percent less likely to die from heart attacks or strokes than non-cat owners. It remains unclear whether cats help lower stress and anxiety or cat owners tend to have low-stress personalities.

Weekly Focus – Think About It
“Owners of dogs will have noticed that, if you provide them with food and water and shelter and affection, they will think you are god. Whereas owners of cats are compelled to realize that, if you provide them with food and water and shelter and affection, they draw the conclusion that they are gods.”
–Christopher Hitchens, Author and columnist

Best regards,
John F. Reutemann, Jr., CLU, CFP®

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

Investment advice offered through Research Financial Strategies, a registered investment advisor.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Most Popular Financial Stories

No Results Found

The page you requested could not be found. Try refining your search, or use the navigation above to locate the post.

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* You cannot invest directly in an index.
* Stock investing involves risk including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
* To unsubscribe from the Weekly Market Commentary please reply to this e-mail with “Unsubscribe” in the subject.

Sources:
https://www.npr.org/2019/05/17/724357441/u-s-to-lift-tariffs-on-canadas-and-mexico-s-steel-and-aluminum
https://twitter.com/realdonaldtrump/status/1134240653926232064
https://www.economist.com/finance-and-economics/2019/05/31/donald-trump-vows-to-use-tariffs-to-punish-mexico-for-migrants (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_TheEconomist-Donald_Trump_Vows_to_Use_Tariffs_to_Punish_Mexico_for+Migrants-Footnote_3.pdf)
https://ustr.gov/countries-regions/americas/mexico
https://libertystreeteconomics.newyorkfed.org/2019/05/new-china-tariffs-increase-costs-to-us-households.html
https://www.barrons.com/articles/dow-jones-industrial-average-drops-for-sixth-straight-week-on-tariff-tumult-51559351582?mod=hp_DAY_4 (or go to https://peakcontent.s3-us-west-2.amazonaws.com/+Peak+Commentary/06-03-19_Barrons-Dow_Drops_for_Sixth_Week_Because_Tariffs_Arent_Just_for_China_Anymore-Footnote_6.pdf)
https://www.marketwatch.com/story/2-year-treasury-yield-slumps-to-2-after-trump-wields-tariff-threat-against-mexico-2019-05-31
https://pets.webmd.com/ss/slideshow-truth-about-cat-people-and-dog-people
https://www.nature.com/articles/s41598-019-41254-6
https://www.medicalnewstoday.com/articles/98432.php
https://www.goodreads.com/quotes/tag/pets

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