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Where's the Market?

Ladenburg Thalmann Market Commentary

Q3 2019

Introduction

After two strong quarters of market performance, stocks and bonds still managed to eke out positive returns in the third quarter. Economic data moderated throughout the quarter however rebounded higher towards the end of the quarter. The labor market continues to be a bright spot for the economy with the unemployment rate holding steady at 3.7% as of August. A strong labor market has supported strong consumption here in the U.S., so while GDP growth has declined from the first quarter, it is still up 2.0% as of the second quarter. Lastly, inflation slightly ticked up from the start of the quarter with the Consumer Price Index (CPI) up 1.7% year over year as of August. With sluggish economic data released globally due to uncertainty surrounding matters such as trade, the Federal Reserve cut short term interest rates twice during the quarter by 0.25% each. Despite geopolitical headlines such as tariff battles between the U.S. and major trading partners, Brexit and tension in the Middle East, stock and bond markets have moved higher with help from the Fed and more positive economic surprises recently. While our portfolios have participated in these moves higher, we do not dismiss the influence these unresolved events have had on market sentiment. For this reason, we continue to take risk in our portfolios but do so in a conservative manner.

 Domestic Equities

 U.S. stocks managed to generate a positive return of 1.70% for the third quarter despite growing fear of a global slowdown. Similar to the second quarter, volatility persisted, as the S&P 500 posted a positive return of 1.44% in July, then reversed course in August down -1.58% and then rebounded in September up 1.87%. The selloff in August can be primarily attributed to the heightening of trade tensions between the U.S. and China and recession angst over the 10-year Treasury yield falling below the 2-year Treasury yield (which has preceded the last 7 recessions). While tariffs are never good for any country involved, they tend to hurt foreign countries like China more than the U.S. due to their higher dependency on exports. Although U.S. businesses may be more sheltered from trade tension, they still incur higher costs as a result of the tariffs that go into effect and more so, may be reluctant to invest in their own businesses because of uncertainty surrounding future tariffs. Despite escalating trade tension throughout the quarter, earnings growth for companies in the S&P 500 were up 1.6%. With earnings growth projected to be negative for Q3 2019, stock valuations that aren’t the most attractive, and a softer economic backdrop we recommend a neutral stance on equities.

 International Equities 

International developed equities and emerging market equities returned -1.07% and -4.25% for the third quarter, respectively, both lagging the S&P 500. The Eurozone economy grew at a 0.2% rate in the second quarter, below its long-term trend. The weakness was driven by Germany, which saw GDP contract by 0.1% on the quarter. Slowing economic growth in China and rising trade tension represent challenges for the Eurozone, as China was the eurozone’s third-largest export destination and largest source of imports. European Central Bank President Mario Draghi announced in September that the ECB would resume net asset purchases of twenty billion Euros per month to help support their economy. The ECB policy rate and ten-year German Bund yields are negative, well below the levels seen in developed counterparts such as the U.S., U.K., and Japan. Weak productivity, high unemployment, and an aging population are likely to drag on economic growth in the area over the longer term. Within emerging markets, trade tension continues to weigh on major emerging market economies such as China and other developing countries that are dependent on the Chinese economy. The U.S. raised tariffs in September of 15% on an additional $112 billion of imports from China. China’s economic growth has continued to slow, as July marked the fourth straight month of contraction in manufacturing PMI before the August reading came in above 50, signaling expansion. The economy could show further weakness in the months ahead as new rounds of tariffs take effect. There are many uncertainties in international and emerging markets, but due to inexpensive valuations and the potential resolutions to the pending conflicts, there may be buying opportunities in the future. Despite slowing economic data, both international and emerging market equities have been positive this year up 12.80% and 5.89%, however, still lag the S&P 500.

 Fixed Income

Fixed income continued its successful run in 2019 to post positive returns in the third quarter of 2.27% as measured by the Bloomberg Barclays US Aggregate Bond index. Lower quality corporate bonds benefited from investors’ continued appetite for risk while longer maturity bonds were supported by falling long term interest rates. The Federal Reserve continued its easing cycle with another 0.25% rate cut in August, as the central bank attempts to navigate an aging U.S. economy amid a global manufacturing slowdown and continued geopolitical uncertainty. Chairman Powell has refused to elaborate on the Fed’s next move, though market expectations are for one more cut before the end of the year. As a result of the market’s downward projection for interest rates and a broader flight to quality, demand for longer duration securities increased and pushed yields downward, with the 10-year U.S. Treasury yield dipping as low as 1.45% after ending the previous quarter at 2.00%. Moving forward, we believe fixed income yields will remain lower for longer but provide diversification in a portfolio.

 Alternatives 

The Morningstar Diversified Alternative index returned 0.93% for the third quarter underperforming the S&P 500 but with significantly less volatility (as measured by standard deviation). Gold, which many investors regard as a “safe-haven” asset, is back in demand and pushed the price to six-year highs in July. Gold ended the third quarter at 1,465/oz. On the other hand, oil prices have felt pressure. A lingering trade war, weakening global economic data, a strong dollar, and persistently high supply levels have pressured oil prices to fall mostly below $60 since June, until recent attacks on Saudi Arabian oil fields decreased production and pushed prices higher. Overall, U.S. crude fell -7.53% over the course of the third quarter to $54.07 per barrel.

 Real Estate

The recent improvement in housing data has raised optimism that the housing market could be regaining its footing after hitting a soft patch during the first half of 2019. Housing starts and building permits surged in August to their highest levels since 2007, increasing 12.3% to a seasonally adjusted annual rate of 1.364 million units and 7.7% to a rate of 1.419 million units respectively. Similarly, new home sales rose 7.1% to a seasonally adjusted annual rate of 713,000 units in August while the NAHB index, an index that tracks homebuilder optimism and a leading indicator for the housing market, hit a yearly high in September as it rose to 68 from an upwardly revised 67 reading in August. Falling mortgage rates and solid demand may be offsetting headwinds from tariffs and a tight labor market faced by builders. The average rate on the 30-year fixed mortgage ended the third quarter at 3.99% down almost 1.18% from its peak of 5.17% in November of 2018.

 Conclusion

With fear of a potential recession being the main focus of investors throughout the year, stocks and bonds continue to move higher. The question we are now asking ourselves is “what is the next catalyst for the market to move even higher?” Although economic data has surprised to the upside more recently, we remain cautious given the uncertainty surrounding trade policy and future Federal Reserve decisions. The equity market can certainly be helped by an accommodative Fed, but we would like to see more substantial economic activity to confirm a trend to the upside. With that in mind, we remain cautious but continue to take a neutral stance on risk assets.

Although this market outlook has been prepared from public and private sources and data that LTAM believes to be reliable, LTAM makes no representation as to its accuracy or completeness. Any securities, indices, and other financial benchmarks shown are provided for illustrative purposes only, and reflect reinvestment of income, dividends, and other earnings. They do not reflect the deduction of advisory fees. Indexes are unmanaged and investors cannot invest directly in an index. Investors should bear in mind that past performance is no guarantee of future results and there can be no assurance that the Program will achieve comparable results. Investment products are subject to investment risk, including possible loss of the principle amount invested and should review the prospectus before investing. The information and views expressed are given as at the date of the writing and are subject to change. This information is not to be used or considered as an offer or the solicitation of an offer to sell or buy any securities mentioned herein. Ladenburg Thalmann Asset Management Inc. is a registered investment advisor and subsidiary of Ladenburg Thalmann Financial Services Inc. which is traded on the NYSE American: LTS.


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

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Have You Heard?

Arizona Tax Credits for 2017

The state of Arizona offers its taxpayers the opportunity to make contributions to schools and non-profit organizations that reduce the amount of tax owed to the state or increase the amount of the taxpayer’s refund, dollar-for-dollar. There are three main communities tax credit donations serve, and donors can contribute to any or all of them. To learn more about each, read on.  This summation is for informational purposes only.  Be sure to check with your tax professional to verify whether any of these strategies are beneficial in your particular situation.

Qualifying Charitable Organizations

This individual income tax credit is available for contributions to Qualifying Charitable Organizations that provide assistance to residents of Arizona who either receive Temporary Assistance of Needy Families (TANF) benefits, are low-income residents of Arizona or are chronically ill or physically disabled children residing in Arizona.

Starting with the 2013 tax year, taxpayers no longer have to itemize deductions to claim a credit for contributions to a Qualifying Charitable Organization or Qualifying Foster Care Charitable Organization.

Maximum Credit for Any Tax Year

Single or head of household: 
$400 (Qualifying Charitable Organization)
+ $500 (Qualifying Foster Care Organization)
= $900 Total

Married filing jointly: 
$800 (Qualifying Charitable Organization) 
+ $1,000 (Qualifying Foster Care Organization) 
= $1,800 Total

Beginning in 2016, the qualifying charitable organization and qualifying foster care organization donations are no longer linked, so you can take both credits for a new maximum of $900 ($1,800 for married filing jointly).

Donation Deadline
April 17, 2018 (for 2017)

Credit/Deduction Distinctions
Any charitable contribution that is included in itemized deductions on your federal return must be removed from your Arizona itemized deductions if the contributions were claimed as an Arizona credit. Donations made to organizations not listed on the department’s published website are typically allowable as deductions. You cannot claim both a deduction and a credit for the same charitable contribution on your Arizona return.

NOTE TO DONOR: Many charities indicate on their websites if they are qualified for this credit. Annual reports are often available online as well so that you can see how the organization spends its money. If a charity’s website does not provide this information, you can call and ask for copy of its certification letter from the ADOR.

Resources

School Tax Credits 

There are three school tax credits available for individual taxpayers: one for contributions to public schools and two for contributions to Private School Tuition Organizations.

Public Schools

An individual may claim a credit for making contributions or paying fees to a public school for support of extracurricular activities or character education programs. These are school-sponsored activities that require enrolled students to pay a fee in order to participate. You are allowed to specify which programs you would like your contribution to support when making a donation.

Maximum Credit for Any Tax Year

Single or head of household: $200
Married filing jointly: $400

Donation Deadline
April 17, 2018 (for 2017)

Resources

Private School Tuition Organizations

The Original Individual Tax Credit Program allows Arizona taxpayers to make a contribution to a School Tuition Organization that will help to fund private school students’ tuition.

In 2012, the Overflow/PLUS/”Switcher” Individual Tax Credit Program was signed into law, allowing donors to claim an additional tax credit OVER AND ABOVE the Original. Donors must first meet the Original Program maximum in order to claim the Overflow tax credit. Overflow Tax Credit donation revenues may only be allocated to students that meet certain criteria as determined by Arizona state law.

Maximum Credit by Tax Year

Original Program
Single or head of household 2017: $546
Married filing jointly 2017: $1,092

Overflow/Plus/ Swicher Program
Single or head of household 2017: $543
Married filing jointly 2017: $1,085

Donation Deadline
April 17, 2018 (for 2017)

Information for Donors

What is a School Tuition Organization (STO)?
A school tuition organization is one that is tax exempt under Section 501(c)(3) of the Internal Revenue Code, allocates at least 90 percent of its annual contributions to scholarships or grants and makes its scholarships/grants available to students of more than one qualified school.

What is a qualified school?
A qualified school is a non-governmental preschool for disabled students, or a non-governmental primary or secondary school located in Arizona. The school cannot discriminate on the basis of race, color, disability, familial status or national origin. The primary school begins with kindergarten, and the secondary school ends with grade 12. Qualified schools must also require all teaching staff and personnel that have unsupervised contact with the students to be fingerprinted.

Resources

Military Family Relief Fund

This individual income tax credit is available for contributions to the Arizona Military Relief Fund, which was established by the Arizona Legislature in 2007 (Arizona statute 41-608.04) and is administered by the Arizona Department of Veterans’ Services (ADVS). The fund provides financial assistance to the families of currently deployed Service Members and post-9/11 Military and Veteran Families for hardships caused by the Service Member’s deployment to a combat zone.

Maximum Credit for Any Tax Year

Single or head of household: $200
Married filing jointly: $400

*Donations to the fund will only qualify for the credit if the total amount donated to the fund during the calendar year has not exceeded one million dollars. Donations made to the fund once the total donations for the calendar year reach one million dollars will not qualify for the credit. The determination of whether a donation will qualify for the credit is made on a first come, first served basis. The ADVS will provide you with a receipt that will let you know if your donation qualifies for the credit. The ADVS will also send a copy of that receipt to the Arizona Department of Revenue.

Donation Deadline
December 31

Additional Notes to Donors

There is no carry forward for this credit. You must claim and use this credit on the tax return filed for the taxable year for which you made your donation. This credit is available only to individuals and cannot be claimed as both a tax credit and an itemized deduction in the same taxable year. Before you claim this credit, you must have received a receipt from the ADVS showing all of the following:

  • Your full name and address
  • The last four digits of your social security number
  • The amount you donated
  • That your donation qualifies for the credit

Resources


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

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So many things—other than your investments—effect your finances. Discover some useful information here.

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Something to Think About

Digital Estate Planning

Have you made plans or considered making plans for your electronic information and online accounts after you die? The term for this is “digital estate planning,” and for anyone who spends time online, it’s something that deserves serious thought. 

If you handle your household utility payments online, for example, how easy would it be for your family to figure out when the bills are due in the weeks after your death? If all notices for those accounts are sent to you via email, it’s something they may not consider right away and late fees--or even shut offs for non-payment--might occur. If you belong to an online community or have friends online, would anyone know to inform them of your death? Do you have any prepaid accounts or frequent flyer miles that will need to be transferred to someone else upon your death? Do you store photos and videos online and want your family to receive copies after you are gone?

Some online accounts can simply be closed or allowed to lapse, but other accounts might be important and, in the event of your death, it’s possible that you will have electronic documents or other information that need to be disseminated, deleted, archived, memorialized or even destroyed. Digital estate planning gives you time to consider these things ahead of time and put instructions in place so that your family or executor will know how to access critical information in the event of your death and handle your information or other online assets appropriately.

Keep in mind that, for some accounts, the terms of service you agreed to when the account was created will determine what happens to your information when you die. Your email account, for example, will be handled very differently depending on which company you have the account with. Apple will close your account and won’t share the contents with anyone, regardless of your wishes. With a Google Gmail account, you can choose to designate another person to handle your account after a set period of inactivity. Outlook will share all your information with anyone who can provide them with appropriate documentation. 

If it matters to you what happens to a particular account--and the information in it--after you are gone, it’s a good idea to find out what the terms of service are for that account and, if they are not in line with your wishes, consider changing providers now. 

Tips for digital estate planning:
  • First, make a list that includes each account, including login and password information. When making this list, don’t forget to include password protected files and documents. You will also want to list every device or computer that your information can be accessed from: phones, laptops, tablets, desktops, etc. Remember to include flash drives, compact discs, and other storage devices.

If you have a lot of online accounts and the idea of making a comprehensive list overwhelms you, just concentrate on the critical accounts--the utility payment accounts, the accounts with important documents, the paid subscriptions, and anything else that will require someone else’s attention. 

  • Decide how the information in each account should be handled, and who, if anyone, should be given access to it. 
  • Find a safe place to keep this information. You don’t want to make yourself vulnerable to identity theft or other types of cybercrime. 
  • Choose someone you trust to act as “Digital Executor” upon your death, and make sure he or she knows where to find this information when you die, even if you don’t make the information readily available to that person now (and for security’s sake, you shouldn’t). 
  • If you have any online assets with financial value, such as a monetized YouTube channel, an eBay store, or one of the myriad other income streams available on the internet, make sure to talk to your estate planning attorney to determine what, if anything, needs to be included in your will. 

Once you’ve made a digital estate plan, it’s a good idea to review it regularly--at least once a year--and make sure the information is current. You may also want to ensure that the terms of service haven’t changed in cases where it’s important to you how an account is handled after your death.


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

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Carlin Cares

Carlin Cares Helps the Homeless

Carlin Financial fills gallon-sized bags full of goodies for the homeless, and we make these bags available to clients who want to help the homeless but have qualms about handing them cash. These bags are full of snacks and small items that a homeless person might find useful. A new batch of bags is now available to pick up and stash in your back seat so it’s handy when you pass one of these unfortunates. 

We are always accepting donated items for the next batch of bags. Good sources for items include the free samples provided by hotels, dental care kits your dentist gives you, and travel-sized BOGO items.

We accept: 

  • Hygiene items — shampoo, soap, toothpaste, lotion, sunscreen, etc.
  • Grooming items — toothbrushes, combs, washcloths, etc.
  • Non-perishable snacks — granola bars, nuts, hard candies, chips, crackers, etc.
  • Small drink bottles — water, Gatorade, etc.

We all have so very much.  Let’s put a little food in someone’s belly and a smile on their newly scrubbed face!

Chris


This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.

Carlin Cares

We’re committed to lending a hand to those less fortunate. Maybe you’d care to help us.