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Market Pulse: May 2019 Economic Highlights
What’s happening: highlights from the NP Investment Team

“Sell in May and Go Away” is a well-known financial world adage, based on the historical underperformance of some stocks in the six-month period commencing in May. Unfortunately, the sell-off in the equity markets this May has not been driven by warmer weather and investors out on vacation but rather on concerns about a global growth slowdown due to the trade war.

The S&P 500 is down over 5% for the month of May with tensions between the U.S. and China heating up over trade issues. News of a jump in tariffs on Mexico is certainly not helping the global growth sentiment, which is already sagging. The odds of two rate cuts in the next year are now almost fully priced into the markets, but there is still time to work out a deal before a cut becomes necessary and the U.S. economy is still on solid footing. Unemployment remains at historically low levels; wage growth is accelerating, which will support the consumer; and the recent drop in mortgage rates is boosting the housing market.

Leaders and Laggards: What’s Up and Down in the Stock Market?

Economic Sectors

May 2019 (through 5/30/19)

Year-to-date
2019 (through 5/30/19)

Energy

-10.26%

3.57%

Health Care

-1.78%

1.37%

Consumer Discretionary

-6.39%

14.05%

Information Technology

-7.43%

17.53%

S&P 500

-5.33%

11.25%

Industrials

-6.72%

13.21%

Consumer Staples

-2.62%

10.76%


With concerns surrounding slowing global growth in the month of May picking up, sectors that have led the market year to date have pulled back the most led by the energy sector and information technology sectors. The health care sector has been a relative outperformer this month but for the year remains under pressure due to regulatory concerns surrounding drug prices as we head into the election season, but we remain positive on this group over the long term.

Click here for more information about NP’s investment capabilities.
Charitable giving
There are numerous ways you can choose to benefit a charity. Writing a check. Donating an item in-kind. Making a bequest. Establishing a charitable entity. As you determine what charity or charities you would like to benefit, here are a few options as to how you might achieve your goals.

Giving items in-kind

Whether you are simply cleaning out a loved one’s house, your own closet or planning for an item of interest to you but not your loved ones, you have several options available.

Donating a vehicle to charity
Estate planning for your wine cellar
Handling a woodworker’s tools and equipment after death
What to do with unwanted household items

Giving from retirement assets

The IRS allows taxpayers to donate required IRA distributions to charity during their lifetime as well as to designate a charity as the beneficiary of the balance in an IRA upon the IRA owner’s death.

Giving your required IRA distributions to charity

Giving through an estate plan

For generations, charities have benefited under the terms of estate plans. Some give an outright donation. Some establish a trust for the charity’s benefit.

Specific bequest in a will or trust
Charitable trust option for concentrated equity positions
Valuation of interests in early termination of CRUT

Giving through funds and foundations

Charitable giving of vehicles can be an important financial tool for gift, estate and income tax planning.

Donor advised funds and private foundations

Charitable deductions

Whether the decision to make a donation to a charity is out of the goodness of one’s heart or motivated by tax deduction, the donation must meet the IRS regulations to qualify for tax deduction purposes.

Deducting your charitable donations
Substantiating and reporting charitable contributions
Deducting charity-related travel expenses
Market Pulse: April 2019 Economic Highlights
What’s happening: highlights from the NP Investment Team

This past March we marked the 10-year anniversary of the current bull market. The market reached a low on March 9, 2009 after a punishing bear market triggered by the global financial crisis. This has led to the longest equity market expansion in the last 100 years, extending beyond the prior record, which was set during the 1990–2000 technology boom.

This bull market is now in its 121st month with the S&P 500 returning over 400% during this time period. The average bull market going back to 1928 has been 62 months in duration with an average return of 175%. This bull market stands out due to the outperformance of the U.S. market relative to global indices and for the slower pace of economic growth when compared to prior cycles. While the real economic growth has lagged equity markets and the U.S. has far outpaced the rest of the world, it does not mean the bull market is set to end anytime soon. The U.S. labor market remains strong; solid payroll growth and low unemployment have given households the confidence to spend. Wage growth was slow to improve earlier in the cycle but that has picked up as of late, though it still is not at levels that typically cause the economy to overheat. Business investment was also slow for much of this cycle but that too has picked up in recent years. A combination of higher business and consumer spending should lead to continued positive economic growth here in the U.S.

Leaders and Laggards: What’s Up and Down in the Stock Market?

Economic Sectors

March 2019

Year-to-date
2019 (through 3/31/19)

Energy

2.11%

16.43%

Health Care

0.49%

6.59%

Consumer Discretionary

4.11%

15.73%

Information Technology

4.83%

19.86%

S&P 500

1.94%

13.65%

Industrials

-1.14%

17.20%

Consumer Staples

4.09%

12.01%


Stock market leadership year to date has been led by the technology, energy and industrial sectors as concerns around slowing global growth and trade wars have eased through the first three months of the year. The health care sector has come under pressure due to regulatory concerns surrounding drug prices as we head into the election season, but we remain positive on this group over the long-term.

Click here for more information about NP’s investment capabilities.

Unclaimed funds — What are they and how do I collect?
Unclaimed assets are funds in an individual’s name such as bank accounts, stocks, federal or state income tax refunds, uncashed dividends, insurance premium refunds, etc. that have not been accessed or collected [a year or more after issuance] that will eventually escheat to the state as “Abandoned Property.”

We commonly see the following types of Abandoned Property: uncollected dividends, forgotten bank accounts, uncashed checks and contents of safe deposit boxes.

If unclaimed funds are located in your name, only you, your spouse (or other family member if none) or your estate is entitled to collect the money from your state’s unclaimed funds depository.

There is no central federal source to research unclaimed funds specific to you. However, the National Association of Unclaimed Property Administrators website has helpful information on each state and provides instructions on how to search for unclaimed money in your name and corresponding state.

We recommend you search the Abandoned Property website of each state in which you have resided annually. The collection process is relatively simple and most times can be done online through the National Association of Unclaimed Property Administrators, Office of the New York State Comptroller Unclaimed Funds, Massachusetts Unclaimed Property Division and Illinois State Treasurer’s Unclaimed Property websites.
Retirement saving strategies by age
Retirement saving strategies are likely to evolve throughout your life, with an early focus on putting away whatever you can, followed by protecting and perhaps catching up on your savings, and then sensibly drawing down assets in retirement. How much to save depends on when you want to retire, and your level of current income. Regardless of these variables, implementing a few savings habits at each stage of life can help increase your retirement security.

In your 20s. It may be tempting not to prioritize saving for retirement in your 20s because it feels far away. Saving for retirement can also be difficult in this age group because pay checks can be small, and student debt and rent payments can be large. However, this age is also the best time of your life to save for retirement because even the smallest amount of savings has many decades to grow. Putting money aside early also creates a habit of doing so. At the very least, saving as much as your company will match avoids leaving “free money” on the table.

In your 30s. You will hopefully find yourself with more income during this decade, but are also likely to have new expenses, such as childcare and home maintenance. Having created good savings habits in your 20s may help ensure that you not lose sight of the long-term savings goal. This is a good time to develop a budget. It is also a time where you do not have to be too conservative in your investment choices because you are young enough to withstand market downturns.

In your 40s. This decade usually means less student debt and a profitable time in your career, but you may also be behind in your savings. At this age, you can make more specific retirement plans in order to stay motivated, such as at least maxing out your 401K contributions each year. It is a good time to recalibrate your saving plan as necessary and increase or decrease your contributions accordingly. Failure to continue saving in your 40s compresses the time that you have to achieve your retirement plans.

In your 50s. At this age, you are eligible to make catch-up contributions worth an extra $6,000 to 401Ks, and an additional $1,000 to IRAs. Also, if your retirement account balance is significant, this is a good time to consider shifting some of it to more conservative investments to avoid substantial losses leading up to retirement.

In your 60s. You should view this time as a final chance to get money into retirement accounts before retirement. This is also a good time to consider whether you are financially prepared to leave your job, or whether a part-time or consulting job may be important for you to maintain your lifestyle.

In your 70s. By this time, you likely will have stopped making new contributions to retirement accounts and have started to take withdrawals, while also enjoying investment growth. People who are 70½ years and older are no longer able to claim a tax deduction on traditional IRA contributions, and annual distributions from traditional IRAs are required after age 70½.

Although it may be tempting to put off, or burdensome to stick with, saving for retirement early and consistently will be well worth the effort as you enjoy a long and comfortable retirement.
Market Pulse: January 2019 Economic Highlights
What’s happening: highlights from the NP Investment Team

What is behind the global slowdown and is the worst behind us? At this point last year only one major economy had a PMI below 50 (representing a contraction) but that number has now grown to ten. In most cases, the reasons are mainly domestic, with China experiencing weaker credit growth in response to past policy tightening, Germany being affected by new car emission standards and Brexit weighing on the UK. Importantly, the main headwinds in the two largest economies, the U.S. and China, are starting to fade.

China and the U.S. were last year’s big global headwinds but with Beijing easing and the Federal Reserve dialing back its tightening, signs of a global pick-up are appearing in the markets. China has made 60 easing moves since last June and fiscal stimulus is now on track to exceed 2016’s levels. The president’s hawkish commentary in October raised fears of a U.S. recession but his most recent statements have put those fears to rest for now. The U.S. economy remains healthy, with domestic corporate profits before tax expected to increase by 10% in the first half of this year and unemployment claims hitting their lowest level in 50 years. This is important because it is domestic profits that drive U.S. employment and capital spending.

Leaders and laggards: What’s up and down in the U.S. stock market?

Economic Sectors

January through 1/29/19

Calendar Year
2018

Energy

9.55%

-18.10%

Health Care

2.49%

6.47%

Consumer Discretionary

8.19%

0.83%

Information Technology

5.60%

-0.29%

S&P 500

6.06%

-4.38%

Industrials

9.95%

-13.29%

Consumer Staples

2.70%

-8.38%


The stock market is experiencing a significant rebound to start the year as concerns about the Federal Reserve overtightening and a slowdown in corporate earnings easing. Following the pullback in the 4th quarter of 2018, stock valuations are more attractive and the Nixon Peabody investment team is initiating new positions in companies that we believe will generate positive returns over the coming years. 

Click here for more information about NP’s investment capabilities.
Market Pulse: December Economic Highlights
What’s happening: highlights from the NP Investment Team

After 2018 started with a bang, recent uncertainty on many different fronts has left investors skittish about the outlook for financial markets in 2019. Despite the surge market in volatility, though, underlying economic and corporate earnings trends for next year, while decelerating, still look positive. 

Entering 2018, markets were ebullient as economic and corporate data points both supported an overwhelmingly positive backdrop for financial assets. Specifically, U.S. GDP growth had broken out, positively, of its long-entrenched 1.5–2.5% channel, U.S. corporate sales and earnings growth inflected to the upside with 2017 sales growth of 6.5% (vs. an average of 1% for the previous five years) and earnings growth of 11% (vs. an average of 3% for the previous five years), and non-U.S. economic growth had begun to accelerate after years of stagnation.

With this tailwind, investors grew more confident about 2018 as a late-cycle fiscal stimulus (in the form of lower taxes and greater deregulation), still relatively accommodative monetary policy (low interest rates, both in the U.S. and overseas), strong employment, increasing wages and low inflation all led to increasing consumer confidence and, in turn, increased consumer spending. All of these factors helped generate continued sales and earnings growth, with S&P 500 companies averaging 9.5% and 25% growth, respectively, for the first three quarters of 2018. This translated into low double-digit stock market returns in the U.S. through September while non-U.S. markets trailed.

However, since financial markets are always forward-looking, investors began to contemplate the sustainability of this positive backdrop as they entered the back half of 2018, and what fundamental economic and corporate trends might look like in 2019. Naturally, the aforementioned strength in economic and corporate growth concurrently ushered in investor discussions about a possible peak in GDP and earnings growth. In other words, how much better could things possibly get? This is a fair question, especially in the context of an economy and financial markets that arguably aged from a business cycle perspective (almost 10 years since last recession vs. average of expansion cycle of five to six years), coupled with a charged and fractious political environment.

What has investor attention of late and headed into 2019? The issues receiving the most attention are related to increased political risks that are adding to uncertainty. These include the ongoing trade/tariff discussions between the U.S. and China, now more tangible and definable by investors as opposed to more of a threat previously; continued concerns about Brexit in the UK/EU; and recurring uncertainty from populist parties (budget concerns in Italy, protests in France, etc.), among others. The lagged effects from previous interest rate hikes (eight hikes since December 2015) by the Federal Reserve, albeit from historically low levels, also are beginning to work their way through the economic system, along with a less-certain interest rate path looking forward (how many more hikes?).

Dovetailing from these first two are concerns about global economic growth rates in 2019 and beyond. Investors are facing an environment where U.S. growth is decelerating (after being very strong, as noted above), tepid Eurozone growth and slowing Chinese economic growth due to trade/tariff concerns. These issues, in turn, have led investors to question the rate for corporate earnings growth in 2019. Each of these risk factors has contributed to the S&P 500 being on pace to close out 2018 with its worst return in a decade and non-U.S. stock markets on the brink of recording double-digit losses.

As we look toward 2019, we cannot deny the reality of these factors and their potential impact on financial markets. However, as we pull apart the issues, coupled with a more attractively valued stock market (based on recent declines), we envision a mid- to single-digit return environment in 2019.

There is reason to be relatively more constructive regarding U.S./China trade relations, given recent commentary (directionally positive) combined with a lot of negativity already priced into stocks related to this issue (we understand there is significant risk in this issue). In addition, the Federal Reserve is certainly nearer to the end of its tightening cycle than the beginning, which will mitigate uncertainty about this issue. At the same time, China continues to attempt to stimulate its economy (via lower interest rates, reduced exchange rate, increased government spending, etc.) to offset recent weakness. Domestically, a healthy private sector, strong consumer demand and still positive benefits from the 2017 tax cut stimulus should provide a solid corporate backdrop in the U.S.

Our expectation is for mid to high single-digit earnings growth (slower than recent growth but, importantly, not negative) which, when coupled with a forward-looking P/E valuation of ~15x (roughly in line with the 10-year average), provides a reasonable return environment (mid- to single-digit) for stock investors.

Leaders and laggards: What’s up and down in the U.S. stock market?

S&P 500 Economic Sectors

December 1, 2018
through December 27, 2018

Year-to-date
2018 (through December 27, 2018)

Utilities

-4.4%

0.4%

Communication Services

-7.5%

-16.5%

Materials

-7.7%

-16.9%

S&P 500

-9.5%

-6.8%

Industrials

-11.3%

-15.5%

Financials

-11.9%

-15.2%

Energy

-13.1%

-20.8%

 
Click here for more information about NP’s investment capabilities.
Market Pulse: November Economic Highlights
What’s happening: highlights from the NP Investment Team

The equity markets continued on their wild ride in November with the S&P 500 climbing 3.5% in the first week of the month which was quickly followed by a 7% pullback.  The chart below breaks down the key drivers of the market’s action over the past few months.  Please let us know if you have any questions and if you would like to discuss these issues in further detail.

Drivers

Commentary

Fed Rate Hikes

Fed Chairman Powell delivered hawkish commentary in October raising fears that the Fed will overshoot and prematurely end the current business cycle. Consensus hikes for 2019 increased from 2 to 3–4.

Weak Housing Data

Data over the last few months indicate a deceleration and NAHB Housing Index showed sharp decline in November—decline was broad based, evidence that rake hikes are starting to hurt.

Oil

WTI Oil down 30% from peak in October—while good for consumer, a headwind to energy companies and their capex budgets.

Credit Spreads

Credit spreads have widened—again increased rates are starting to hurt.

Peak corporate margins

2nd derivative concerns more in focus despite strong 3Q earnings season. Increased uncertainty around trade impacts exacerbating concerns. 2019 EPS estimates now being revised slightly lower.

Negative Corporate headlines

Apple and Facebook are big and important names that drive sentiment in the ever important FAANG sub-sector. Increased concern around Apple’s iPhone sales/saturation as well as change in disclosures and Facebook’s tensions with regulators have weighed on the market.

Weaker Global Macro data

German and Japan GDP declined in 3Q. China GDP slowed to 6.5% (expected). Yes, a few one-off hits, but the direction is slower, which only intensifies anxiety around U.S./China trade tensions.


Leaders and laggards: What’s up and down in the U.S. stock market?

Economic Sectors

November through 11/28/18

Year-to-date
2018 (through 11/28/18)

Energy

-2.54%

-9.12%

Health Care

5.37%

13.12%

Consumer Discretionary

2.33%

8.41%

Information Technology

-2.22%

7.46%

S&P 500

1.18%

2.62%

Industrials

2.43%

-5.65%

Consumer Staples

0.83%

-2.73%


Stock market leadership has shifted since the September 20, 2018, high with defensive and communication services sectors outperforming while the commodity sectors, industrials, financials and technology have lagged.  This is similar to the sector reaction experienced in 2015–2016 market correction as investor confidence became more fragile.

Click here for more information about NP’s investment capabilities.
Executors: avoid making these mistakes
Even the best-laid estate plan can leave an executor overwhelmed by the amount of work involved in administering an estate. An informed executor is better able to navigate this process. Listed below are common mistakes executors make.

Not keeping accurate accounting records. An estate becomes its own entity, with its own tax ID, upon the decedent’s death, and should have its own bank account for financial purposes. Executors should not comingle personal funds with the estate. The executor has a duty to account for the estate’s cash flow. Consider using a computer spreadsheet or bookkeeping software for larger estates as a checkbook register may not be sufficient.

Not picking up the mail. Have the post office hold the mail (or have it forwarded) so you don’t miss important pieces of mail. A growing stack of mail at the decedent’s residence may be an invitation to criminals and vandals that the premises are vacant and unattended.

Losing track of tangible assets. As soon as possible, take an inventory of the deceased person’s assets and personal belongings to get an account of the entire estate. Having a record of these assets can help ensure that valuable items don’t disappear.

Paying bills too quickly. Understand the priority of payments that need to be made. A spousal or child award, if warranted, takes priority over creditors. Paying creditors too soon, or in the wrong order, may leave insufficient resources to pay taxes, for which the executor may be liable.

Making distributions too early. Paying the beneficiaries before paying the taxes and settling with creditors may leave insufficient resources should unexpected claims arise.

Mishandling real estate. Real estate must be secured, insured and properly maintained. If the property is to be sold, obtain an appraisal and estimates for any needed repairs or improvements as quickly as possible so the property can be brought to market promptly.

Underestimating the time commitment and fiduciary responsibilities. Filing life insurance claims, opening bank accounts, picking up and sorting through the mail, overseeing the preparation and filing of income and estate tax returns and contacting beneficiaries all takes time.

Expecting the (probate) process to be quick. In Illinois, for example, a probate estate typically takes a minimum of one to two years to complete its administration. Each jurisdiction has its own set of rules so understanding your jurisdiction’s probate procedures will leave few, if any, surprises.

Not managing beneficiary expectations. Executors must avoid making promises they can’t keep. Understanding the administration process, overall timeframe and keeping open communications with the beneficiaries puts everyone on the same page.

Not asking for help. Seek counsel from knowledgeable professionals (i.e., estate and trust attorneys, tax accountants, real estate brokers) who are experienced in estate administration and tax matters and can provide the executor with proper guidance. The last undertaking an executor wants or needs is lawsuit.
2019 contribution limits for 401(k) and IRAs
The Internal Revenue Service released the annual limits for contributions to retirement plans in 2019.

401(k), 403(b), most 457s and Thrift Savings plans

The annual contribution limit for 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings plan increased to $19,000 for 2019.

Individuals aged 50 and over can contribute an additional $6,000 to their 401(k), 403(b), most 457 plans or the federal government’s Thrift Savings plan as a catch-up payment.

IRAs

The annual contribution limit for IRAs increased to $6,000 for 2019, which is the first increase since 2013.

The additional catch-up contribution amount for individuals aged 50 and over, however, remains at $1,000 for 2019.
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