As expected, the U.S. Federal Reserve left rates unchanged last week and markets celebrated. Across the globe, national stock market indices finished the week higher. In the United States, the Standard & Poor's 500 Index and NASDAQ gained more than 1 percent.
Not everyone was thrilled with the decision, however. Three Federal Reserve presidents cast dissenting votes. All believed interest rates should move higher.
Proceeding with caution is the right approach, according to Barron's:
"A rate hike is usually aimed at preventing an economy from overheating, and there's no sign of that - not even close. Housing activity has been disappointing, wholesale inflation is weak, retail sales are declining, and manufacturing activity is slowing. Such a confluence of negative data has never stopped the Fed from tightening rates - the central bank did so in December, even though the economic data looked even worse than it does now - but it isn't exactly screaming for immediate action."
While that may be true, Financial Times suggested markets are coming to the conclusion the influence of central banks may be limited, and those limits may be near.
We'll find out eventually. In the United States, the new consensus is we'll have a rate hike for the holidays, according to CNBC.com.
IT'S AN ELECTION YEAR! The influence of elections on markets, investors, and economies has been examined and re-examined over time. Theories have been developed. Ideas have been promoted. Some may be accurate; some may not be. Here are a few things to keep in mind especially if markets get volatile before the election:
Stock markets don't care who is elected: You may have read markets perform best when Democrats win, or you may have read markets outperform when Republicans are elected. The numbers just don't prove out either way, according to a white paper from BlackRock:
"...while many investors connect political alignment with equity market returns, very few of these patterns hold up to scrutiny. Historically, whether a Republican or Democrat occupies the White House has had no statistically significant impact on U.S. equity markets."
Change tends to happen slowly, especially with divided government: We've all become familiar with the term, 'gridlock.' There are issues - taxes, immigration, energy - that have been debated for years. In general, policy changes have been relatively small. Sometimes, changes have been reversed. Morgan Stanley concluded, "Hence, election outcomes where one party controls both the White House and Congress are most conducive to expeditiously putting transformative policies into practice."
The strength of the economy influences voters. According to Oppenheimer Funds:
"Decades of history prove that the state of the economy determines the president, not the other way around. In fact, the economy's impact on elections can be stated in a fairly simple equation: Strong economy (declining [un]employment and inflation) = a win for the incumbent party candidate."
If that's the case, it will be pretty difficult to guess a likely winner. A Gallup poll found just as many Americans viewed the economy positively as those who viewed it negatively in early September. On the other hand, more Americans said the economy was getting worse than those who thought it was getting better.
Quote of the Week
"Whether you think you can or you think you can't - you're right."
Golf Tip of the Week
Introducing a New Golfer to the Sport
If you're a passionate golfer, it's natural to want to bring new people to the golf course. However, it's important to start slowly and respect a new player's interest and ability. Here are some tips for playing with someone new:
- Help them choose rental clubs that are the right size (and hopefully, not too beat up).
- Start simply by explaining the rules - leave the details and advanced strategies for future days on the course.
- Teach golf etiquette and help new players clean up after themselves on each hole.
- Make sure new golfers understand the course's dress code.
- Don't lean over new players as they get into their stance. Save helpful tips for after the shot.
- If your group is moving slowly, be polite and let other golfers play through.
Financial Question of the Week
How can I maximize retirement savings?
If you are an employee with an employer sponsored retirement plan, the simplest step is to maximize your contributions to this plan. The maximum contribution for 2015 has increased to $18,000 with a $6,000 catch-up provision for those age 50 and over.
Once you have maximized your retirement plan, you can look toward either a Traditional or Roth IRA for further savings. Depending on eligibility, each allow for contributions up to $5,500 and a $1,000 catch-up.
If you have self-employment income, you may be able to establish a SEP IRA account or Individual 401(k) which have maximum contribution amounts of $53,000 in 2016.
Small business owners have even more options to develop custom retirement plans depending on the structure of their business, their age and goals. By coordinating custom plans, it is possible for owners to save a significantly higher amount of tax deferred money to fund their retirement and reduce taxes by many thousands of dollars annually.
Maximizing savings in accounts that provide income tax benefits (tax-qualified accounts) can be complicated and plans must comply with numerous IRS regulations. Please contact my office If you would like help ensuring that you are saving as much money as possible and minimizing your overall income tax liabilities.