Quote of the Week

“Blessed are the young, for they shall inherit the national debt.” ― Herbert Hoover

Technical Corner  

Stocks reversed last week’s losses, with most major global markets participating.

Birthed from the financial crisis in March 2009, this bull market grew quickly at first but stumbled early amid the aftermath of the Great Recession. It then hit its stride through much of its middle years, strengthened by the Fed’s medicine of increased money supply and lower interest rates. If the money supply increases, it has to go somewhere. Consumers used it to buy things which caused the companies to increase profits, thus higher stock prices.  Remember about 70% of our GDP is due to consumer spending. The increased money supply was also used to buy financial assets such as real estate and stocks causing them to rise in value.

The years of cheap money also contributed via the ability of corporations to borrow at low rates, to buy back their stocks. When corporations buy back their stock the number of shares outstanding decreases which means the profits per share goes up because there are fewer shares.

The economy is clearly slowing as evidenced by falling GDP numbers. The 10-yr Treasury yield has been down for 14 of the last 19 weeks. Meanwhile, the Russell 2000 is down 10% in the previous six months.

The Russell 2000 is the index for small-cap stocks. If the Russell 2000 is down that means that the risk appetite for smaller growth companies is waning. This is the “canary in the coal mine” for stocks.

To be clear, the outlook remains that U.S. growth is slowing, based on both fundamental research and what the market is telling us (i.e., Treasury yields falling and Russell 2000 underperformance).

The big event of this week is the Fed meeting on Wednesday. Will the Fed be dovish meaning not raising interest rates or hawkish by raising interest rates. The Fed has 500 economists on its staff. They are smart people so we should get a good picture as to the health of the economy.

Name Wkly %Chg YTD %Chg 12-mo %Chg
Dow Jones Industrials  +02.25 +10.81 +3.62
Nasdaq Composite  +03.12 +15.87 +2.76
S&P 500  +02.46 +12.59 +2.56
MSCI EAFE*  +01.93 +09.00
10-yr Treasury Yield  -00.03 -00.10
*5-day performance ending Friday

Larry’s Thoughts

 Nuts and Bolts: How to Roll Over Your Employer Retirement Plan Assets


1 There are two major disadvantages to indirect rollovers. First, your plan is required to withhold 20% of the taxable portion of your payment for federal income taxes. You’ll get credit for that amount when you file your federal income tax return, but if you want to roll over the entire distribution, you’ll have to come up with the 20% that was withheld from other sources. Second, you run the risk of missing the 60-day deadline, which would make your distribution taxable. On the plus side, you’ll have use of the funds for up to 60 days. In general, direct rollovers are the safer choice.

2 You cannot roll over hardship withdrawals, required minimum distributions, substantially equal periodic payments, corrective distributions, and certain other payments. Nonspousal death benefits can be rolled over only to an inherited IRA, and only in a direct rollover or trustee-to-trustee transfer. You may have the option of leaving your funds in your employer’s plan — consult your plan’s terms.

3 You do not need to set up a special “Rollover IRA” account (sometimes called a “conduit IRA”) to receive your rollover, although some financial firms may require that you do so at least initially. (You can always transfer the funds to a different IRA account later.) While not required, in some cases a separate rollover IRA may be helpful if: (a) you think you may want to roll the taxable portion of your distribution back to an employer plan at some future date, or (b) you’re concerned about protection from creditors, as funds rolled over from an employer plan (and any earnings on those funds) generally receive unlimited protection under federal law if you declare bankruptcy.

4 The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. There are three ways to obtain a waiver of the 60-day rollover requirement: (a) you qualify for an automatic waiver, (b) you self-certify that you met the requirements of a waiver, or (c) you request and receive a private letter ruling granting a waiver. Consult a tax professional.

Note: If you receive employer stock or other securities as part of your distribution be sure to understand the tax consequences before making a rollover to an IRA. Your distribution may be entitled to favorable net unrealized appreciation (NUA) tax rules. Consult a tax professional.

©2019 Broadridge Investor Communications Solutions, Inc

By the Numbers

THREE BILLION SHORT – President Trump’s fiscal year 2020 budget plan that was released on 3/11/19 calls for $3.645 trillion of tax revenue, $4.746 trillion of outlays, resulting in a $1.101 trillion deficit for the 12 months ending 9/30/20. That’s equal to $10 billion of daily tax revenue vs.$13 billion of daily outlays (source: White House).-  Michael A. Higley, BTN 03-18-2019

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These are the opinions of Larry Lof and Stephanie Mayoral and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Past performance is not indicative of future results. Due to our compliance review process, delayed dissemination of this commentary occurs.

The S&P 500 is an index of stocks compiled by Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. The index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. Indices mentioned are unmanaged and cannot be invested into directly.

Technical analysis represents an observation of past performance and trend, and past performance and trend are no guarantee of future performance, price, or trend. The price movements within capital markets cannot be guaranteed and always remain uncertain. The allocation discussed herein is not designed based on the individual needs of any one specific client or investor. In other words, it is not a customized strategy designed on the specific financial circumstances of the client. Please consult an advisor to discuss your individual situation before making any investments decision. Investing in securities involves risk of loss. Further, depending on the different types of investments, there may be varying degrees of risk including loss of original principal.

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