Broker Check

The RFG Weekly Wealth Report

October 10, 2016

Was it good news or wasn't it?

The U.S. unemployment rate ticked higher last week. The September jobs report showed the United States added 156,000 new jobs in September. That was 16,000 fewer than economists were expecting and 11,000 fewer than were added in August, according to Barron's.

That doesn't sound like good news, does it?

On the other hand, the report showed more people are working and looking for jobs. Also, wages increased so people are earning more. The Wall Street Journal wrote:

"The report - marked by a slight uptick in the unemployment rate to 5 percent - largely fit the narrative Fed Chairwoman Janet Yellen laid out for the labor market after the central bank's September policy meeting. People are rejoining the labor force in search of work. Many of them are finding jobs, but not all... Ms. Yellen sees the return of workers to the job search process as a healthy sign."

That sounds like good news, right?

The jobs report seemed to support the conclusion of The New York Times that there are two economic realities in the United States, "...healthy hiring and falling unemployment on the one hand, millions of economically sidelined Americans on the other..."

Uncertainty surrounding the jobs report caused U.S. stock markets to fall last week.

IS IT A CYCLICAL ROTATION? Economic growth may not be predictable, but it tends to follow a pattern that is known as a business or economic cycle. Periods of recession (when the economy contracts) are followed by periods of growth (when the economy expands).

Some companies and market sectors tend to perform better during economic expansions. They're known as cyclical companies, and they make goods or deliver services - entertainment, automobiles, vacations, and so on - that people want to buy when they're feeling prosperous. Generally, people feel prosperous during periods of economic expansion. Other companies are called 'defensive.' They offer goods or services - food, beverages, personal products, and so on - that people need regardless of their wealth or economic conditions.

In recent months, we've seen what may be a rotation from defensive market sectors into cyclical ones. Financial Times explained the shift in U.S. markets:

"The shift signals investors are worrying about high prices for the defensive, dividend-paying stocks that were in heavy demand in the first half as worries over the outlook for the global economy dominated... Indications of a potential rate increase this year and hopes that economic growth was improving were making unloved, cyclical parts of the market look more attractive."

If you look at returns for the first three quarters of the year, cyclical stocks and defensive stocks delivered almost the same performance. Through September 30, 2016, the MSCI ACWI Cyclical Sectors Index was up 4.8 percent and the MSCI ACWI Defensive Sectors Index was up 4.7 percent. The trend appears when you look at the numbers during the third quarter. During July, August, and September, cyclical sectors were up 8.2 percent and defensive sectors were down 0.7 percent!

It appears to be a cyclical rotation.

Quote of the Week

"We know what we are, but know not what we may be."

--William Shakespeare, British playwright

Golf Tip of the Week

Tee Up Toward Trouble

If you're faced with a hole with an obstacle or out of bounds area, always tee up on the side the trouble is on. For example, if you have an obstacle on the left side of the fairway, tee up as far to the left as possible so that you can aim right and make a more aggressive swing while safely avoiding the obstacle.

Financial Question of the Week

How can I reduce my taxable estate?

Their are many techniques available to reduce your taxable estate. Some of the most popular include:

  • Gifting assets: You are currently allowed to gift $14,000 annually to any number of individuals without reducing your estate tax exclusion. If you are married, your spouse is allowed to gift another $14,000 to the same individual.
  • Establish AB or QTIP Trusts: Although the federal estate tax exemption is now "portable" for married couples, the state of Illinois, carries a lesser exemption that does not include portability, which is the ability of the surviving spouse to utilize the unused estate tax exemption of a deceased spouse. Properly creating and funding these trust vehicles can allow you to maximize both federal and state estate tax exemptions.
  • Transfer ownership of life insurance policies: By utilizing an owner outside of your estate, typically an Irrevocable Life Insurance Trust (ILIT), life insurance proceeds can bypass estate taxes. You must also live for 3 years after transferring ownership. This strategy can be used to accomplish a multitude of goals, such as funding your children's inheritance while you use a greater portion of your taxable estate to make charitable bequests.

If you would like to explore options for minimizing your estate taxes in light of your specific financial goals, please contact us to schedule a review.