| December 18, 2018

Macro Overview – December 2018

The Group of Twenty (G20) summit in Argentina produced two significant trade deals for the United States, a revised trade agreement with Canada and Mexico as well as a trade tariff truce with China. The trade arrangements were initially received positively by global financial markets alleviating months of uncertainty surrounding trade and international commerce. Skepticism surrounding the trade truce with China has evolved, questioning the extent of a trade agreement and its details.

Volatility continued into November spilling over from October’s trading frenzy. All major equity indices saw their gains for the year vanish in mid-November, then rebound at month end to recapture some of those same gains. Many analysts believe that lower stock valuations are posing buying opportunities for domestic and international investors.

Some analysts perceive the latest market pull back as a normal course resulting from transitioning to a higher rate environment and slowing growth prospects. Market pullbacks are common when the market experiences a sentiment shift and tries to decipher which sectors and industries are favored to perform. Market volatility in November has been a result of uncertainty surrounding trade, Fed rate hikes, and economic prospects.

Uneasiness in the markets were amplified by a rapid fall in the price of oil, which declined to levels not reached since late 2017. Analysts attribute the slump to a rising supply of oil as well as a perceived slowdown in the global economy. Oil’s price decline is the latest obstacle for stock indices to recapture recent losses. The demand for oil internationally is seen as an indicator of global economic health.

Rates fell abruptly towards the end of November as the Fed signaled that it may scale back its process of projected rate increases in 2019. The Fed believes that rates are currently at a level just below its neutral stance, which Fed members estimate to be near 2.9 percent to 3 percent.

Data compiled and released by the International Energy Association (IEA) revealed that the United States has officially become the largest producer of oil in the world, surpassing both Russia and Saudi Arabia. As of the end of this summer, U.S. oil production is over 11.5 million barrels per day.

Real estate values in storm and fire ravaged areas of the country are coming under pressure as potential buyers reassess the environmental risks that have become increasingly apparent.

The shift in leadership within the House of Representatives leaves various regulations and economically sensitive bills open for debate, yet infrastructure is believed to be a topic of agreement for both parties. Build America Bonds (BABs), which are taxable municipal bonds introduced under the prior administration, are expected to help expand and fund infrastructure projects nationwide. In addition, both parties wish to reduce taxes further for the middle class.

According to the National Retail Federation (NRF), there were roughly 165 million Black Friday Weekend store and online shoppers this year, less than the 174 million from last year’s. The NRF found that the average shopper spent $313 during the Black Friday sales days, down from the $335 figure in 2017. The NRF suspects that shoppers are starting their spending earlier in the season, now immediately after Halloween, rather than waiting until Thanksgiving.

Sources:, Federal Reserve, NFR, IEA, Commerce Department

Year End Volatility For Equities - Global Equity Market Overview

Major U.S. equity indices stabilized in November as markets reassessed October’s pullback. The Dow Jones Industrial and S&P 500 indices made up of larger cap stocks rebounded over 1.5% in November, outpacing the tech heavy Nasdaq index for the month.

Emerging market equities rebounded in November as the dollar’s rise slowed and investors found value in various developing economies. Ongoing tariff and trade tensions have been hampering capital investment and trading arrangements for companies in the emerging markets.

Many hope that U.S. companies will use excess cash for capital investment rather than for stock buybacks, which has been a primary use of cash for many domestic companies.

Some analysts expect that the Fed’s perceived slow down in rising rates, along with the trade and tariff arrangements that occurred as a result of the G20, may prove positive and supportive for the markets following weeks of rampant volatility. Some companies have been holding back on hiring and capital expenditures until a resolution is finally achieved on trade.

There is a growing notion that the markets are headed towards a period of lower capital appreciation because of subdued economic and earnings growth. Economically sensitive sectors including industrials and consumer discretionary have pulled back in sync with technology and energy since the beginning of October.

Sources: S&P, Dow Jones, FRED, Bloomberg

Rates Fall In November - Fixed Income Update

The recent trend in rising rates slowed in November as expectations intensified that the Fed may not raise as ambitiously in 2019 as initially projected. The yield on the 10-year Treasury bond fell from 3.24% at the beginning of the month to 3.01% at month’s end. The drop in rates may be interpreted by equity markets as either positive or negative.

Federal Reserve officials acknowledged the adoption of a more flexible process in gradually increasing rates in 2019, where a neutral rate is targeted. The so-called neutral stance taken by the Fed causes uncertainty as to how the Fed perceives the direction of economic growth, as the neutral rate generates monetary policy that is neither stimulative nor restrictive.

Many believe that the impact of the Fed’s rate hikes this year have not yet fully materialized, thus creating a neutral stance for the Fed to allow it time to decide.

Sources: U.S. Treasury Dept., Federal Reserve, U.S. Treasury

Tax Breaks For Family Caregivers - Tax Planning

As the number of elderly has grown nationwide, so has the need for caregivers. The baby boom generation, the largest demographical segment of the U.S. population at 74 million, are now entering their late 60s and early 70s. Many are still very capable of caring for themselves, but others are in need of assistance as they progress into their senior years.

Unfortunately for many, the costs associated with an assisted living facility are not feasible and in other cases, not an option just yet. So instead, a growing number of elderly are staying in their homes or living with their families. Many times, a son or daughter will move in with mom or dad and essentially become their part-time or full-time caregiver. Some elderly end up moving in with family members where they actually become part of the household.

The challenge for family members that act as caregivers is the financial burden that may be imposed. An estimated 34.2 million adults provide some sort of unpaid care for elders aged 50 and older in 2015. Over 85% of these caregivers provide assistance directly for relatives. The average caregiver commits over 24 hours per week in providing care for elders.

Even though there is no actual pay for family member caregivers, there is a tax break when done properly. Under the new tax rules, taking a personal exemption for a qualified friend or family member has been replaced by the larger standard deduction. However, the rules still allow caregivers to claim those receiving care as dependents as long as the following criteria are met for the person being cared for:

The person cared for is a relative as defined by the IRS or a non-resident that has lived with the caretaker for at least six months.

Earns less than $4,050 (2017) per year, not including Social Security or disability benefits.

Is unable to pay over 50% of personal living expenses.

Can’t be claimed as a dependent by anyone else.

In addition, a $500 credit is available for 2018 taxes for non-child dependents intended to assist those caring for disabled or senior family members.

Tax rules allow the caretaker to claim medical expenses incurred by dependents on Schedule A, in excess of 7.5% of the caregivers AGI. Per the IRS Publication 502, medical expenses include the costs of diagnosis, cure, mitigation, treatment, prevention, to mention a few.

In addition to federal tax considerations, some states also allow for special tax credits meant solely for caregivers. Taxpayers should verify with their state of residency to confirm any additional tax credits.

Sources: U.S. Census Bureau,

**Market Returns: All data is indicative of total return which includes capital gain/loss and reinvested dividends for noted period. Index data sources; MSCI, DJ-UBSCI, WTI, IDC, S&P. The information provided is believed to be reliable, but its accuracy or completeness is not warranted. This material is not intended as an offer or solicitation for the purchase or sale of any stock, bond, mutual fund, or any other financial instrument. The views and strategies discussed herein may not be appropriate and/or suitable for all investors. This material is meant solely for informational purposes, and is not intended to suffice as any type of accounting, legal, tax, or estate planning advice. Any and all forecasts mentioned are for illustrative purposes only and should not be interpreted as investment recommendations.