Staying Cool in Heated Times

  • Fed Interest-Rate Cut Remains in Focus

  • Economic Data Shows Slow-Growth Trends Persist 

  • Qualified Charitable Distributions: Use Your Retirement Assets for Good 

  • Looking Ahead to Mueller Testimony, Earnings and Economic Reports

As much of the nation braces for record temperatures this weekend, stocks are also hitting record highs.

While we welcome the gains, we’re also aware that risks remain. From slowing global growth, heightened Middle East tensions and Federal Reserve (in)action to presidential politics, the stock market’s records should come with a warning that, no matter what the pundits say, the future is unknowable.

One thing we do know is that when markets hit highs there are only two possibilities for what happens next—either they hit another high or prices drop from record levels.

Don’t view the stock market’s retreat from an all-time high as an inevitable sign that the end is nigh. The S&P 500 index has hit no fewer than 11 high-water marks this year alone… and 218 records since it finally recovered its Financial Crisis losses in 2013.

Remember the apocalyptic predictions we heard around Christmas as the stock market dropped to within bear-market territory? Yet, for the year through Thursday, the Dow Jones Industrial Average and broader S&P 500 have returned 18.2% and 20.8%, respectively, more than making up for the losses seen in December. The MSCI EAFE index, a measure of developed international stock markets, is up 13.1% for the year. As of Thursday, the yield on the Bloomberg Barclays U.S. Aggregate Bond index has dropped to 2.51% from 3.28% at 2018’s end. On a total return basis, the U.S. bond market has gained 6.2% for the year.

Any attempt to predict when the next market decline will occur, and how deep it will go, is doomed to failure.

Fed Interest-Rate Cut Remains in Focus

Despite markets near or at record levels, it’s hardly shocking that investors are focused on what Federal Reserve policymakers will do at the end of their two-day meeting on July 31. Fed-watchers are near certain that Chair Jerome Powell & Co. will cut the fed funds rate, but we think the data has yet to paint a clear picture of where our economy is headed. One could make a case for the central bank to stand pat given the strong retail sales and employment numbers we’ve seen over recent months.

That said, as apolitical as the central bank wants to be, there is pressure to cut interest rates given muted inflation, slowing economic growth (estimates point to a meager 1.7% second-quarter increase) and the White House’s desire for a form of stimulus to offset the impact of tariffs and goose growth.

We’re not in the prediction business. But between the Fed’s upcoming decision and the continuing trade tussle with China, Wall Street traders have plenty to keep them occupied. 

Economic Data Shows Slow-Growth Trends Persist

The week’s economic reports—regional and national manufacturing gauges, residential construction, retail sales and leading indicators—continued to signal a slow-growth economy overall, with some continued weakness in the housing sector.

The homebuying slowdown could be a canary in this late-cycle economy’s coal mine. It could also reflect that higher prices owing to lack of inventory are too much of a hurdle for buyers, especially first-timers. It may also reflect a peak level of buyers—less an issue of relative price and more indicative of a market where all of the people who can afford to (and want to) buy a home are currently looking. Time will tell.

If their ardor for home purchasing has cooled, in other respects U. S. consumers still seem ready to get out and spend.

Today’s read on sentiment suggests consumers have become a bit more optimistic in recent months. And the June retail sales report delivered another stout monthly increase after strong gains in April and May, indicative of a U.S. consumer who’s weathering the withering headlines better than the pundits would have you think.

And, don’t forget, while Amazon’s Prime Day extravaganza has come and gone with record sales, August triggers the back-to-school spending spree, and retailers are already making plans for the holiday shopping season.

Amply employed and deep-pocketed with near record-low household debt, the U.S. consumer seems equipped to continue propelling growth in the months ahead.

Using Retirement Assets for Good: Qualified Charitable Distributions

Many investors are unaware that you can use retirement assets to support the charities of your choice while avoiding taxes at the same time.

A qualified charitable distribution (QCD) is a direct transfer of money from an individual retirement account (IRA) to an eligible charitable organization.

Unlike regular withdrawals from your IRA, QCDs are excluded from taxable income. And unlike other charitable contributions, you don’t need to itemize them when filing your tax return. The 2017 tax law changes made it harder for many to use charitable giving as part of their tax strategy—the higher standard deduction means you need a higher dollar value in itemized deductions (charitable gifts among them) for an itemized return to offer any tax savings. If you are able to make them, the tax treatment of QCDs lets you enjoy the higher standard deduction while using the QCD to carry out your charitable giving.

Before making a QCD it’s important to understand the rules and restrictions:

1. Your Age. You must be at least 70½-years-old to make a qualified charitable distribution. Also, a QCD lowers the tax hit on your mandatory annual cash-out from an IRA after age 70½. (Pending legislation may hike the RMD age limit to 72-years-old; we’ll keep you posted.)

2. Direct Transfer. When making a QCD, the money needs to go directly from your IRA to your chosen, qualified charity. This can happen electronically, by mail or your IRA custodian can send a check payable to the charity to you so that you can personally deliver the donation.

3. Charity Eligibility. The charity must be approved by the IRS for you to get the tax benefit. Approved charities include 501(c)(3) organizations and houses of worship. Note: Donor-advised funds are not eligible to receive QCDs. The IRS provides a searchable QCD database.

4. Distribution Limits. For 2019, the maximum amount an individual can count as a QCD is $100,000. If you are married and file a joint tax return, each spouse can donate $100,000 so long as they have individual IRA accounts to draw from. This limit can be reached by donating to as many charities as you wish. 

5. IRA Rules. QCD rules apply to traditional IRAs and inherited IRAs. Active SEP and SIMPLE IRAs do not qualify. While you can make a QCD from a Roth IRA, it doesn’t come with any tax advantages. (Distributions from a Roth are already tax-free.)

Keep in mind that tax laws are amended from time-to-time so the rules are subject to change. 

Looking Ahead to Mueller Testimony, Earnings and Economic Reports

Next week: The big event is likely going to be former Special Counsel Mueller’s testimony before Congress on July 24. While the politicizing and electioneering of this moment could impact markets on the day and perhaps on either side of the day, cooler heads will have plenty of fundamental data (earnings, interest rates and economic) to focus on.

To wit: The second-quarter earnings report floodgate opens. If this week’s bellwethers and real-world indicators are the norm, we’ll see better-than-expected results from a number of companies who were cautious in their outlook last quarter. The overall trend looks to remain one that favors businesses catering to domestic consumer demand and tests those that sell their goods and services to other businesses and overseas markets.

Next week will also bring a handful of illuminating reads on existing-home sales, manufacturing and the service sector, durable goods and a first estimate of second-quarter economic growth (GDP).

If you’d like to learn more about our tactical or fundamental strategies, please contact Steve Johnson at 844-587-7393 or

Please note: This update was prepared on Friday, July 19, 2019, prior to the market’s close.

This material is distributed for informational purposes only. The investment ideas and expressions of opinion may contain certain forward-looking statements and should not be viewed as recommendations or personal investment advice, or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. The tax information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. We do not provide legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be seen as a recommendation to buy, sell or hold any of them.

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