What Will Your Mortgage Look Like in Retirement?

Anyone who has gone through the process of mapping out their retirement knows there can be a lot to keep in mind. Saving, investing, anticipating medical costs, and making sure you have enough tucked away for years to come is just the start. One question many people overlook is: “Should I pay off my mortgage before I retire?” The answer is more complicated than you may think.

Maintaining a Mortgage in Retirement

Imagine you have $300,000 set aside to pay off your mortgage. But rather than using those funds to pay off your mortgage, you instead invest that money. Sure it’s tempting to stop making a monthly payment, but what if that $300,000 earned a hypothetical 6% for the next five years. You would have a little more than $400,000. Yes, your house may appreciate in value over the same period of time, but you should consider all your choices for that lump-sum of money.

Eradicate (Other) Debt

Before you pay down your mortgage, any extra cash might be better suited to paying off other kinds of debt that carry higher interest rates, especially non-deductible debt, such as credit card balances.

Make Your Mortgage Work

Many homeowners benefit from a mortgage interest deduction on their taxes. Here’s how it works: the amount you pay in mortgage interest is deducted from your gross income, which reduces your federal income tax burden. But remember, the further along you are toward paying off your mortgage, the less interest you’re paying. If you’re unsure if you’ll be able to take advantage of this mortgage benefit, it’s best to consult your financial professional.

Retire Your Mortgage

Your monthly mortgage payment may be a large part of your available capital, especially in retirement. Eliminating unnecessary subsidies can significantly reduce the amount of cash you need to meet monthly expenses.

Uninteresting Interest

Depending on the length of your mortgage term and the size of your debt, you may be paying a substantial amount in interest. Paying off your mortgage early can free up money for other uses. True, you may lose the mortgage interest tax deduction, but remember as you get closer to paying off your loan: more of each monthly payment goes to principal and less to interest. In other words, the amount you can deduct from taxes decreases.

Home Is Where the Heart Is

There’s a value to your home beyond money. It’s where you raised your children, made fond memories, and you may want it to remain in the family. Paying off the mortgage may help make your home part of your legacy. After all, some things you just can’t put a price on.

 

 

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.

Money Management 101 for Single Parents Going it Alone

1. Determine What You Owe

As the head of the household, it’s up to you to make sure that your entire family’s needs are being met. In order to do that, you need to be extremely diligent when it comes to money management basics. This is not something that will happen by accident. Instead, you must plan for it and work toward it.

The first step is to set up your “office.” Gather all of your bills, a calculator, a pencil, and your checkbook.

I would also recommend that you grab an old binder that you can use to keep track of your financial data and a shoebox for storing paid bills.

Now you’re ready to begin:

  • Go through all of your bills, and pay anything that is due within the next week.
  • If you have bills coming due that you cannot pay, notify the company and ask them to set up a payment plan with you.
  • Print a copy of the chart “Paying Down My Debts” or make your own.
  • On the chart, list all of your debts, including any car loans, student loans, and credit card debt.
  • In addition, list the total balance left to be paid on all of these debts, and the percentage rate you are paying.
  • For now, leave the fourth column of the chart blank, and store it in your “Financial Data” binder.

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2. Eliminate Joint Debt

Before we create a plan for paying down your debt, it’s important to consider some special circumstances that may apply to you as a single parent. I asked LaToya Irby, Credit/Debt Management Expert, to share her expertise on handling joint debt:

Wolf: Let’s say a single mom still shares a credit card with her ex. What should she do?

Irby: Ideally, she would want her ex to transfer his portion of any joint balances onto his own credit card. That way, everyone is paying for their own debt.

Wolf: What about leaving both names on the account, and agreeing to pay part of the amount due? Is that ever advisable?

Irby: No. If you’ve made an agreement with your ex to split the debt payments on accounts that include your name, and your ex-misses a payment, it’s going to hurt your credit. If the ex-fails to pay altogether, the creditors and collectors will come after you. Not even a divorce decree can change the terms of a joint credit card agreement. In the credit card issuer’s eyes, you’re just as much responsible for post-divorce accounts as before.

Wolf: What about situations when a couple’s divorce decree mandates that one individual must pay off the joint credit card debt, but that person fails to do it?

Irby: You can always file contempt of court papers against him/her, but in the meantime, your credit score suffers. So I suggest paying off the debt to save your credit. If you can’t afford to pay the debt, at least make minimum payments to keep a positive payment history on your credit report.

Wolf: What about other accounts, such as utilities and cell phones?

Irby: The safest thing to do, if you have a service in your ex’s name, is to turn off the account and reestablish service in your name.

 

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3. Find Money to Pay Down Debt

Another thing we have to do before creating a plan to pay down your existing debt is to find money in your budget each month. To assist in this step, I contacted Erin Huffstetler, Frugal Living Expert.

Wolf: How much money do you think the average person can uncover just by being more intentional about spending and budgeting?

Huffstetler: The average person could easily uncover an extra $250 a month—and probably much more.

Wolf: What are the top 5 areas that you think people should look to first when they’re trying to cut their expenses?

Huffstetler:

  • Food spending (both groceries and eating out)
  • TV-related expenses (cable/satellite services, certainly; but also movie subscriptions and rentals)
  • Phone services (particularly extras like call waiting, caller id, long distance, and cell phones)
  • Insurance premiums
  • Miscellaneous spending (all those small amounts spent on coffee, vending machine snacks, and other indulgences)

Wolf: How can single parents, specifically, stretch their child support dollars and reduce child-related expenses?

Huffstetler: For single parents looking to stretch their child support dollars, creativity is the key. Look to children’s consignment shops and thrift stores to buy your kids’ clothes instead of department stores; sign them up for Parks and Rec-run activities instead of privately-run activities (which will always cost more); and don’t feel like you have to make up for being a single parent by buying them extra things—it’s you they need, not stuff.

 

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4. Pay Off Your Debt

The next step is creating a schedule for paying down your debt:

  1. Pay off the debts that charge you the highest interest first.Bob Hammond, author of Life Without Debt, recommends that you pay off the debts that are charging you the highest interest first since borrowing from those creditors is costing you the most money. “Concentrate on paying off the high-cost debts as soon as possible,” Hammond advises. LaToya Irby, Credit/Debt Management Expert, agrees. “Highest interest rate debts cost the most money, especially when those debts have high balances. So you’ll save money on interest charges when you pay off those high-interest rate debts first.”However, there are exceptions to this general rule. Irby notes, “If you’re likely to get discouraged because it’s taking a long time to pay off that high-interest rate debt, you can start with the lowest balance debt. Getting some small debts paid off will motivate you to keep going.”
  2. Pay more than the minimum payment. Aim for paying more than the suggested minimum payment, in order to pay off your debts as quickly as possible.Miriam Caldwell, Money in Your 20’s Expert, shares this advice:
    • Choose one debt to focus on.
    • Increase your payment on that debt by as much as you can.
    • Once you have paid off that debt, move all that you are paying on it to the next debt you want to pay off.
    • You’ll be surprised at how quickly you can get out of debt with this plan!
  3. Meanwhile, continue to pay the minimum balance due on all of your other debts.Record what you intend to pay toward each debt on the debt chart you made in Step 1.

 

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5. Budget Your Monthly Expenses

Now that you know where you stand financially, and you’ve created a plan for paying down your debts, it’s time to make sure that you’re making any other necessary adjustments so that you can keep up with your plan. And this means creating a budget.

I know this can be intimidating, but I’m going to make a suggestion for you: Sign up for Mint.com. It’s a free financial software program available on the Internet, and it will basically do your budgeting for you. It will create a visual pie chart showing how much you’re spending each month on housing, gas, food, entertainment, and more. This way, if it turns out that you’re spending a lot more on food than you really should, you can begin to make the necessary adjustments to get your spending under control.

If you would prefer to create your budget the traditional way, allotting a certain amount of money to each spending category, I’ve created an online budget calculator you can use, which includes categories for child support and other details specific to your life as a single parent.

Finally, in taking a look at where your money really goes each month, it’s important to know approximately how much money you “should” be spending in each category. Generally speaking, your net spendable income (after taxes) should be allocated as follows*:

  • Housing: 30%
  • Food: 12%
  • Auto: 14%
  • Insurance: 5%
  • Debt: 5%
  • Entertainment: 7%
  • Clothing: 6%
  • Savings: 5%
  • Medical/Dental: 4%
  • Miscellaneous: 7%
  • Child Care: 5%
  • Investments: 5%

 

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6. Set Financial Goals

Now that you’ve worked out a plan to pay down your debt, and you’ve created a budget, it’s time to determine your needs moving forward.

Specifically, as a single parent, you need to ask yourself some questions, such as:

  • Do you need to file for child support?
  • Do you need to get a higher-paying job?
  • Is it time to think about going back to school?
  • Do you need to consider moving into a home/rental that would reduce your overall monthly payments?
  • Are there alternatives, such as taking on another job or splitting expenses with another single parent family, that you need to consider at this point?

One of the things that I want you to know is that the ball is in your court. You determine where this goes from here on out. But unfortunately, you can’t do that if you’re ignoring your financial health, right?

So the fact that you’ve come this far in the process of getting a handle on your finances tells me that you’re determined to make the changes you need to make in order to provide for your family’s future.

So go ahead and ask yourself these questions. So much of single parenting is learning to roll with the punches and be creative in the face of adversity. If, indeed, you need to make some pretty major changes, now is the time to do it. Don’t incur any more debt where you are. Be resourceful, follow through, and do what you need to do to turn your financial situation around.

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7. Increase Your Net Worth

The next step is to determine your net worth and begin adding to it.

Determine Your Net Worth:

Your net worth is what you own minus what you owe. Programs such as Mint.com, Quicken, and Microsoft Money will calculate your net worth for you, automatically.

You can also determine your net worth simply by adding up all that you own, including all of your investments, the equity you may have paid into your home, the value of your car, and any other assets you possess; and subtracting what you owe in remaining debts.

Set Up a Savings Account:

Once you know where you stand, you’ll be ready to set up a savings account. You can do this through your regular bank, or begin investing in a mutual fund that pays interest.

Even if you can only afford to set aside $25 or $50 per month, it will begin to add up.

Before you know it, you’ll have an emergency savings plan in place, to protect you in the event that your car breaks down, or your home needs a major repair.

In addition, this regular savings will help you increase your net worth over time.

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8. Become Even More Frugal

Unfortunately, all of the work you’ve already done in steps 1-7 will have little lasting value if you don’t change your attitude toward money. Now is the time to become even more frugal and learn to live within your means.

Practice Discipline:

Stop imagining that more money is going to pour in tomorrow—through finally collecting on unpaid child support, winning the lottery, or getting a promotion. If those things happen, great! You’ll be even better off. But living as if they’re going to happen is causing you to spend money you don’t have.

Instead, force yourself to make purchases with cash only. Do not continue to pay outrageous interest payments toward credit cards for purchases you don’t absolutely need. You can get by without that new furniture, right? What else could you skip, in the interest of spending only what you have right now in the bank?

Try These Ideas:

  • Check Freecycle before you make another major purchase. Someone else may be giving away the very thing you’d like to buy!
  • When you’re getting ready to buy something specific, look for it on eBay first. I buy a lot of my clothes, new-with-tags, through online auctions!
  • Forget trying to keep up with “The Jones’s.” You already know your value; don’t get caught up trying to “prove” your worth to others by having “just the right” house, car, or appearance.
  • Do not use shopping, ever, to appease your emotions.
  • Finally, when you do go to make a big purchase, step back and give yourself a few days–or even a week–to think about it. There’s no reason to suffer through buyer’s remorse and try to justify to yourself purchases that you really can’t afford. Think it over carefully and make those purchases, when necessary, with cash.

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9. Schedule Your Own Weekly Financial Check-In

Grab your calendar and schedule a weekly financial update meeting with yourself. This is an extremely important step in managing your personal finances, and it’s one that you need to continue each and every week. During your “meeting” time:

  • Pay any bills that are due.
  • If your bank statement has arrived, take the time to balance your checkbook.
  • Check the balances of your checking and savings accounts.
  • Update your debt list to incorporate any recent payments.
  • This is also a good time to write out your grocery shopping list and check what’s on sale at your local grocery store this week (either using the store’s Web site or the sales circular that comes in the newspaper).
  • Finally, also make note of any upcoming expenses you need to anticipate and plan for.

An attitude of gratitude and finances.

 

 

References:
Irby, LaToya. Email interview. 24 Oct. 2008, 
Huffstetler, Erin. Email interview. 24 Oct. 2008. 
Sources:
Caldwell, Miriam. Email interview. 27 Oct. 2008, Hammond, Bob. “Debt Free Key: 10 Steps for Coping With Credit Problems.” Life Without Debt. Franklin Lakes, NJ: Career Press, 1995. 31-32, Irby, LaToya. Email interview. 24 Oct. 2008. 
“Spending Plan Online Calculator.” Crown Financial Ministries. 11 Oct. 2008.

Written By: Jennifer Wolf

Source: thebalance

 

 

 

Market Update: July 3, 2017

MarketUpdate_header

Last Week’s Market Activity

  • Stocks end first half with down week. Nasdaq lost ~2% on tech weakness, Dow -0.2%, S&P 500 Index -0.6%; Russell 2000 ended flat. Market weakness partly attributed to hawkish global central bank comments, which pushed yield on 10-year Treasuries up 15 basis points (0.15% to 2.30%), pressured the dollar. Favorable bank stress test results boosted financials, renewed focus on reflation trade into banks, energy.
  • Oil bounce continued, WTI crude oil +7%, bringing session winning streak to seven and price back above $46/bbl. Friday brought first weekly drop in rig count since January.
  • Strong first half despite recent choppiness. Nasdaq rallied 14%, its best first half since 2009, S&P 500 (+8%) produced its best first half since 2013 (Dow matched S&P’s first half gain).

Overnight & This Morning

  • S&P 500 higher by ~0.3%, following gains in Europe. Quiet session likely with early holiday close (1 p.m. ET).
  • Solid gains in Europe overnight– Euro Stoxx 50 +0.9%, German DAX 0.6%, France CAC 40 +1.0%. Solid purchasing managers’ survey data (June Markit PMI 57.4).
  • Asian markets closed mostly higher, but with minimal gains.
  • Crude oil up 0.4%, poised for eighth straight gain.
  • Treasuries little changed. 10-year yield at 2.29%. Early bond market close at 2 p.m. ET.
  • Japanese Tankan survey of business conditions suggested Japanese economy may have increased in the second quarter, manufacturing activity is at multi-year highs.
  • China’s Caixin manufacturing PMI, generally considered more reliable than official Chinese PMI, exceeded expectations with a 50.4 reading in June, up from 49.6 in May.
  • Today’s economic calendar includes key ISM manufacturing index, construction spending.

MacroView_header

Key Insights

  • Several key data points this week, despite the holiday-shortened week. Today brings the important Institute for Supply Management (ISM) Purchasing Managers’ Index (PMI), followed by minutes from the June 13-14 Federal Reserve (Fed) policy meeting on Wednesday and Friday’s employment report. Key overseas data includes services PMI surveys in Europe, China’s manufacturing PMI, and the Japanese Tankan sentiment survey (see below). Market participants will scrutinize this week’s data for clues as to the path of the Fed’s rate hike and balance sheet normalization timetables. Views are diverging again, though not as dramatically as in late 2015/early 2016.

Macro Notes

  • The first six months in the books. It was a solid start to the year, with the S&P 500 up 8.2%, the best start to a year since 2013. Yet, this year is going down in history as one of the least volatile starts to a year ever. For instance, the largest pullback has been only 2.8%–which is the second smallest first-half of the year pullback ever. Also, only four days have closed up or down 1% or more–the last time that happened was in 1972. Today, we will take a closer look at the first half of the year and what it could mean for the second half of the year.

MonitoringWeek_header

Monday

  • Markit Mfg. PMI (Jun)
  • ISM Mfg. (Jun)
  • Construction Spending (May)
  • Italy: Markit Italy Mfg. PMI (Jun)
  • France: Markit France Mfg. PMI (Jun)
  • Germany: Markit Germany Mfg. PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. PMI (Jun)
  • UK: Markit UK Mfg. PMI (Jun)
  • Eurozone: Unemployment Rate (May)
  • Russia: GDP (Q1)
  • Japan: Vehicle Sales (Jun)

Tuesday

  • Happy July 4th Holiday!
  • Japan: Nikkei Japan Services PMI (Jun)
  • China: Caixin China Services PMI (Jun)

Wednesday

  • Factory Orders (May)
  • Durable Goods Orders (May)
  • Capital Goods Shipments and Orders (May)
  • FOMC Meeting Minutes for Jun 14
  • Italy: Markit Italy Services PMI (Jun)
  • France: Markit France Services PMI (Jun)
  • Germany: Markit Germany Services PMI (Jun)
  • Eurozone: Markit Eurozone Services PMI (Jun)
  • UK: Markit UK Services PMI (Jun)
  • Eurozone: Retail Sales (May)

Thursday

  • ADP Employment (Jun)
  • Initial Jobless Claims (Jul 1)
  • Trade Balance (May)
  • Germany: Factory Orders (May)
  • ECB: Account of the Monetary Policy Meeting
  • Mexico: Central Bank Monetary Policy Minutes
  • Japan: Labor Cash Earnings (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (Jun)
  • Unemployment Rate (Jun)
  • Average Hourly Earnings (Jun)
  • Average Weekly Hours (Jun)
  • Labor Force Participation & Underemployment Rates(Jun)
  • Germany: Industrial Production (May)
  • France: Industrial Production (May)
  • Italy: Retail Sales (May)
  • UK: Industrial Production (May)
  • UK: Trade Balance (May)

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: May 30, 2017

MarketUpdate_header

Last Week’s Market Activity

  • S&P 500 Index and the Nasdaq closed at new record highs last Friday; seventh consecutive gain for S&P 500 and 20th record close year to date.
  • The combination of positive sentiment and low volatility suggests stocks may continue to absorb challenging headlines.  Investors weathered potential risks from last week’s news, including: fallout from Comey firing, growing investigation into Administration/Russia ties, White House’s 2018 budget proposal, terrorist bombing in Manchester, Moody’s China debt downgrade, CBO’s score for AHCA, and minutes from last Federal Open Market Committee (FOMC) meeting suggesting higher interest rates ahead.
  • Markets also handled disappointing economic reports, specifically weakness in new home sales, durable goods orders; instead focusing on longer-term trends such as positive global data (Germany, Japan), upward revision to U.S. gross domestic product (GDP) in the 1st quarter.
  • Orders for durable goods fell in April, but good news in the details. Drop (-0.7%) in orders bested expectations (-1.0%) and March revision was strong (details below).
  • Orders ex-transportation showed a similar pattern. Nondefense capital goods shipments ex-air, a proxy for business spending, fell slightly (-0.1%) but better than forecast, following four consecutive monthly gains.
  • For the week, stocks rose +1.5% to +2.0%, powered higher by the unusual combination of utilities and technology sectors, each up >2.0%.  Investors likely hedging their bets, counting on growth prospects of technology, but not necessarily buying into Fed’s rate outlook as “bond proxy” utilities sector rose.
  • Weakness in energy (-2.0%) as markets appeared to have already priced in extension to OPEC production cuts, but investors wanted deeper cuts and pushed WTI crude oil down by >1.5% last week (after rising for three weeks) to ~$49.00/bbl.
  • Action in U.S. Treasury market also points toward less Fed activity after expected June hike, with 10-Year Treasury yield hovering in the 2.25% range, on track for fourth straight monthly gain.
  • U.S. dollar firmed slightly (+0.1%) on the heels of solid GDP revision.
  • Stocks in Europe basically flat Friday; euro & pound sterling weakened as Conservatives’ lead over Labour has narrowed considerably in recent weeks.
    Emerging markets stocks +2.0% on the week, maintaining year to date leadership globally.

Overnight & This Morning

  • Stocks in Asia little changed amid shortage of overseas leads.
  • Yen strengthened for a third day against the U.S. dollar (USD/JPY -0.3% to 110.9)
  • In Europe, shares down fractionally (Euro Stoxx 600 -0.1%); bank stocks, weakness in business & consumer confidence weighing
  • European Central Bank (ECB) Head Draghi was critical of U.S. trade proposals in speech to European Parliament yesterday.  He also reaffirmed commitment to maintaining ECB stimulus, placing pressure on the euro.
  • Euro down -0.1% to $1.11
  • Commodities – Mostly lower, led by weakness in precious metals and agriculture, with WTI oil holding below $50.00/bbl. COMEX gold (-0.2%) to $1265 and copper (-0.6%).
  • U.S. stock, Treasury yields down slightly in muted, post-holiday trading.
  • U.S. dollar weak vs. yen but stronger vs. euro and other major currencies
  • U.S. Personal Income and Spending for April met expectations after two consecutive shortfalls. Inflation metrics in this report are. Its preferred measure of price growth, the Core PCE deflator, key inflation metric for the Federal Reserve, at 1.7% from 1.6%.

MacroView_header

Key Insights

  • The trend for business spending/capital investment is improving.  After years of hoarding cash, paying yield, and buying back shares, the business cycle has returned with upward shifts in pricing and U.S. monetary policy.  Businesses can no longer simply attempt to maintain market share, but rather, they must grow market share as the recovery/expansion enters its ninth year.
  • While personal consumption is still the primary driver of U.S. economic growth, we believe the rate of growth in the coming quarters/years will be driven by capital investment, which is taking up a larger portion of GDP contribution (details below).
  • 1Q earnings per share (EPS) (+15% year over year) faced the easiest comparisons and we look for remainder of 2017 quarterly EPS gains to hover in the mid-high single digit range. These are smaller percentage gains than what we’ve become accustomed to these past couple of quarters, but still indicative of sustained, late cycle growth accompanied by still low interest rates and inflation (details below).
  • We recognize current trading range is of concern. Despite the flattening yield curve, which could partly be the result of global sovereign credit valuations, there appears to be little stress evident in the credit markets (details below).

Fixed Income Notes

  • Despite equity markets at/near record levels, bond market continues to hang in there.  Constant maturity 10-year Treasury note up four consecutive months, Barclays Aggregate (+2.0%) and Barclays High Yield (+4.0%) providing positive returns year to date.
  • After 1.35% low last June, 10-year Treasury yield surged to 2.65% in late February/early March of this year. Since then, several factors have conspired to push yields lower, despite Fed’s plans to raise interest rates (see below). First, failure of the first vote on ACA repeal placed a great deal of uncertainty on likelihood of President Trump’s pro-growth policy agenda being fully enacted. Second, weak Q1 GDP enabled flattening of the yield curve. Third, some are projecting higher short-term borrowing costs will curb lending and growth, making it tougher for Fed to sustain 2.0% inflation target. Fourth (less sinister) reason has to do with relative valuation.  With Fed moving in a different direction from ECB and BOJ, those sovereign bonds trading at very expensive valuations, increasing attractiveness of U.S. government bonds.
  • This can be a blessing and a curse: curse is that a bid for U.S. Treasuries from global investors helps mask our spending profligacy. The blessing is global investors appear confident slow growth with low inflation likely to be sustained in U.S., without signs of excessive upside, or downside risks.
  • As a result, we continue to look for the U.S. benchmark Treasury yield to trade within the 2.25% to 2.75% range in the second half of 2017.
  • Corporate credit spreads (high yield & investment grade) remain narrow, credit default swaps (CDS) also held steady. If these critical market signposts (10-year Treasury yield, credit spreads, CDS) hold steady, financial markets likely to continue narrow trading range
  • Geopolitics may periodically cause near term uncertainty, but like equity markets, next catalyst likely move the bond market will be clarity on U.S. fiscal policy

Macro Notes

  • S&P 500 currently at another record level, 2415, but technicals suggest move to 2450-2475 within reach in coming months.
  • Bullish catalyst is necessary, could come in the form of: sustainable EPS growth, > expected GDP in Q2/Q3, less aggressive Fed in 2H17, corporate tax cuts, tax reform, global GDP etc.
  • Unfortunately, move of this magnitude highly dependent on fiscal policy changes, where uncertainty narrows trading ranges until clarity emerges.
  • Fundamentally, move toward this level can be justified, but anything above it would need more clarity on 2018 EPS increases, largely due to combination of repatriation tax holiday/reduction in corporate tax rate.
  • Assuming $130.00 in S&P 500 operating EPS this year, stocks currently trading ~18.5x calendar 2017; a move >2450 would take market price-to-earnings ratio (P/E) >19x.
  • Tax reform may be too big to achieve in current political environment, but corporate tax cuts still possible; if implemented, 2018 EPS could be >$140.00, which would bring target ranges for index 2500 to 2550 in 12 to 18 months
  • U.S. Q1 Real GDP revised higher from +0.7% to +1.2%, helped by a more positive picture of business investment, which had already posted a strong quarter, and a slightly better picture of consumer spending. The improvement alleviates some concerns of Q1 weakness and increases the likelihood of a Fed rate hike in June. Looking at Q2 GDP, prospects are for much stronger growth, and could be in the +3.0%, as pent up demand in cap-ex, housing, and an inventory rebuild from Q1 weakness propels GDP higher.
  • Though components of the durable goods report (airlines, transportation) can be volatile, the trend over the past year for orders (business investment) is still up approximately +5.0% year over year, despite last month’s weakness
  • A host of European economic data was released overnight, generally showing that the economic recovery continues, but at a somewhat slower pace than expected. The highlighted number was German inflation, running at 1.4%, below forecast and previous readings of 2%, which is also the ECB target rate. This data reduces some pressure on the ECB to alter its current monetary policy.
  • Politics continue to foil plans for European certainty. Just three weeks ago, the election of a Conservative government in the U.K. was seen as both a certainty and a boost for Prime Minister Theresa May. In the past few weeks, a Conservative victory, while still likely according to the polls, is now less certain. The British pound has also weakened, not coincidentally. In addition, there have been renewed calls for an early election, as soon as September 2017, as opposed to the 2018 election now expected. An early election would likely focus directly on the EU and the euro.
  • Corporate Beige Book supports strong earnings outlook. Much like first quarter earnings results and management guidance, our measure of corporate sentiment based on our analysis of earnings conference call transcripts was better than we expected. We saw a sharp increase in strong and positive words over the prior quarter, with no change in weak and negative words. Wwe believe the positive tone from management teams supports a favorable earnings outlook in the quarters ahead.
  • New highs and no volatility, more of the same. The S&P 500 Index closed at another new high on Friday, making it seven consecutive higher closes. It hasn’t been up eight days in a row since July 2013 and the previous two seven day win streaks ended at seven days. It also gained 1.4% for the week, avoiding its first three week losing streak since before Brexit. Last, the incredible lack of volatility continued, as the S&P 500 Index traded in a range of only 0.19% on Friday, the smallest daily range since March 1996 and the smallest daily range while also closing at a new all-time high since August 1991.
  • June is a busy month for central banks. Summer is nearly here and historically that has meant lower volume, but potential market volatility. As we turn the calendar to June, the three big events this month are all from central banks: as the Fed, the ECB, and the BOJ all have meetings to decide interest rate policy. These events, along with a few others, could make for an eventful month in June.

MonitoringWeek_header

Monday

  • Memorial Day Holiday
  • Eurozone: Money Supply (Apr)
  • Japan: Jobless Rate (Apr)

Tuesday

  • PCE (Apr)
  • Conference Board Consumer Confidence (May)
  • France: GDP (Q1)
  • Germany: CPI (May)
  • Eurozone: Consumer Confidence (May)
  • Japan: Industrial Production (Apr)
  • China: Mfg. & Non-Mfg. PMI (May)

Wednesday

  • Chicago Area PMI (May)
  • Beige Book
  • France: CPI (May)
  • Germany: Unemployment Change (May)
  • Eurozone: Unemployment Rate (Apr)
  • Italy: CPI (May)
  • Eurozone: CPI (May)
  • India: GDP (Q1)
  • Canada: GDP (Mar)
  • Japan: Nikkei Japan Mfg. PMI (May)
  • China: Caixin China Mfg. PMI (May)
  • Japan: Capital Spending (Q1)

Thursday

  • ADP Employment (May)
  • Non-Farm Productivity (Q1)
  • Initial Jobless Claims (May 27)
  • Markit Mfg. PMI (May)
  • ISM (May)
  • Eurozone: Markit Eurozone Mfg. PMI (May)
  • Italy: GDP (Q1)
  • Brazil: GDP (Q1)
  • South Korea: GDP (Q1)
  • Canada: Markit Canada Mfg. PMI (May)
  • Japan: Vehicle Sales (May)

Friday

  • Change in Nonfarm, Private & Mfg. Payrolls (May)
  • Unemployment Rate (May)
  • Trade Balance (Apr)
  • Eurozone: PPI (Apr)

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: March 13, 2017

MarketUpdate_header

  • Traders cautious ahead of Fed decision. The S&P 500 is modestly lower this morning after advancing Friday, led by utilities (+0.8%) and telecom (+0.7), but snapping a six-week winning streak. Energy (-0.1%) lagged, but held up well given the 1.6% drop in the price of oil. Investors are trading cautiously ahead of the Federal Open Market Committee (FOMC) meeting, which begins tomorrow; the market has priced in a 25 basis point (0.25%) rate hike. Overnight, Asian markets were led higher by the Hang Seng (+1.1%) and Shanghai Composite (+0.8%); Korea’s KOSPI (+1.0%) continued to climb after the country’s president was removed from office on Friday. European exchanges are mostly higher in afternoon trading, with the STOXX Europe 600 up 0.4%. Meanwhile, WTI crude oil ($48.30/barrel) is higher after last week’s slide, COMEX gold ($1203/oz.) is up modestly, and the yield on the 10-year Treasury note is up 0.01% to 2.59%.

MacroView_header

  • Busy week ahead in a very busy month. March is an unusually busy month for global markets. This week, the FOMC meeting, along with Bank of Japan and Bank of England meetings, are accompanied by an election in the Netherlands, a press conference by Chinese Premier Li, and a ton of key U.S. economic data (retail sales, CPI, housing starts, leading indicators). President Trump will release his fiscal year 2018 budget document, the G-20 finance ministers meet in Germany, and the U.S. will hit its debt ceiling.
  • FOMC preview. This week, we ask and answer key questions that investors may have about the Fed and monetary policy ahead of the Federal Open Market Committee (FOMC) meeting. With a 0.25% rate hike fully priced in, markets will want to gauge the pace and timing of rate hikes over the rest of 2017 and into 2018, as well as Fed Chair Yellen’s thoughts on fiscal policy and the impact on monetary policy.
  • How much does the current bull market have left in the tank? The bull market celebrated its eighth birthday last Thursday, March 9. During that eight-year period, the S&P 500 rose 250% in price and more than tripled in value (including dividends), leaving many to ask the question: How much does this bull run have left? We try to help answer that question by looking at some of our favorite leading indicators. Although valuations are rich and policy risks are high, none of our favorite leading indicators are sending signals suggesting the bull market is nearing its end.
  • The weekly win streak is over. The S&P 500 ended with a slight gain on Friday to close the week down 0.4% – just missing out on the first seven-week win streak since late 2014 and ending a six-week win streak in the process. The big move last week came in crude oil, as it sank more than 9% for the week – the largest weekly loss since right before the election. Small caps, as measured by the Russell 2000, fell 2.1% and high yield also saw a big drop. Many have noted that weakness in energy, small caps, and high yield could be a warning sign for large caps. We will continue to monitor these developments.

MonitoringWeek_header

Monday

  • ECB’s Mario Draghi Speaks in Frankfut
  • China: Retail Sales (Feb)
  • China: Fixed Asset Investment (Feb)
  • China: Industrial Production (Feb)

 Tuesday

  • Small Business Optimism Index (Feb)
  • Germany: ZEW (Mar)

 Wednesday

  • Empire State Mfg. Report (Mar)
  • CPI (Mar)
  • Retail Sales (Mar)
  • FOMC Decision (Rate Hike Expected)
  • FOMC Economic Forecasts and “Dot Plots”
  • Yellen Press Conference
  • General Election in the Netherlands
  • China’s Premier Li Holds Annual Press Conference

 Thursday

  • Philadelphia Fed Mfg. Report (Mar)
  • US Debt Ceiling Reinstated
  • President Trump to Release His FY 2018 Budget
  • UK: Bank of England Meeting (No Change Expected)
  • Japan: Bank of Japan Meeting (No Change Expected)

 Friday

  • Index of Leading Indicators (Feb)
  • G20 Finance Ministers Meeting in Germany

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

Market Update: March 6, 2017

MarketUpdate_header

  • Equities move lower to begin week. U.S. stocks are moving lower in early trading, following their European counterparts on little news. The major averages all managed to squeak out slight gains on Friday; the S&P 500’s 0.1% gain was led by financials and healthcare, which both closed up 0.4%. Overnight in Asia, stocks finished mostly higher with the exception of Japan’s Nikkei (-0.5%) as the yen strengthened; the STOXX Europe 600 is lower by 0.5% in afternoon trading. Meanwhile, the yield on the 10-year Treasury is near flat at 2.48% as market-implied expectations of a Fed rate hike in March are near 86%, WTI crude oil ($53.25/barrel) is slightly lower, and COMEX gold ($1231/oz.) is climbing 0.4%.

MacroView_header

  • Brexit, EU summit, China forecasts, Fed “quiet period”, and February jobs report highlight week ahead. Other than the February employment report (due out this Friday, March 10)  it’s a relatively quiet week for U.S. economic data. It’s also the unofficial quiet period for the Federal Reserve ahead of the March 14-15 FOMC meeting. The overseas calendar is chock full of potentially market-moving events, including the EU leaders summit, a potential House of Lords vote on Brexit, the European Central Bank meeting, and a few key reports on China’s economy in February.
  • Beige Book. This week, we’ll examine the Fed’s latest Beige Book, looking for signs of any impact from the new Trump administration, an overheating labor market, rising wages, and inflation ahead of next week’s FOMC meeting.
  • Corporate sentiment improved again in our latest Corporate Beige Book. Sentiment improved among corporate executives based on our analysis of fourth quarter earnings conference call transcripts. Not surprisingly, policy was a popular topic, as corporate tax reform, infrastructure and regulation saw big jumps in the number of mentions. Currency and China also continued to garner a lot of attention, while energy and Brexit faded. The solid fourth quarter results coupled with improved sentiment from corporate executives support our expectation of mid-to-high single digit earnings growth for the S&P 500 in 2017.
  • The Chinese National People’s Congress began its annual meeting on Sunday. Nothing shocking has come out of the meeting so far, though little was expected. Official economic growth forecasts have been cut to 6.5%. The focus of the meeting has been on economic stability, including a reduction in monetary growth targets and efforts to reduce China’s bad debt problem. The most notable change in language related to calls for further currency liberalization. A more market-oriented currency policy suggests potential weakening of the yuan, which would run counter to China’s long-term political goals, as well as increase the likelihood of China being labeled a “currency manipulator” by the Trump administration.
  • Make that six in a row. The S&P 500 was up 0.7% for the second consecutive week, and managed to close at a new weekly all-time high. In the process, it closed higher for the sixth consecutive week for the first time since a six-week win streak off of the February 2016 lows. The last time it was up seven weeks in a row was late 2014. Here’s the catch, the S&P 500 was up only 4.9% the past six weeks – making this one of the weakest six-week win streaks ever. Given the historically small daily trading ranges recently, this shouldn’t come as a big surprise. You have to go back to late 2013 for the last time there was a smaller return during a six-week win streak.

MonitoringWeek_header

Monday

  • Kashkari (Dove)

 Tuesday

  • China: Imports and Exports (Feb)
  • Japan: Economy Watchers Survey

 Wednesday

  • ADP Employment (Feb)
  • China: CPI (Feb)

Thursday

  • Initial Claims (3/5)
  • Challenger Job Cut Announcements (Feb)
  • Household Net Worth and Flow of Funds (Q4)
  • European Union leaders Summit in Brussels Begins
  • Eurozone: European Central Bank Meeting (No Change Expected)

Friday

  • Employment Report (Feb)
  • European Union leaders Summit in Brussels Continues

 

 

 

 

 

Important Disclosures: Past performance is no guarantee of future results. The economic forecasts set forth in the presentation may not develop as predicted. The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Stock investing involves risk including loss of principal. Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better. Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk. Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies. Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments. Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate. Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards. High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors. Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply. Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained. Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. This research material has been prepared by LPL Financial LLC.

5 Things Everyone Should Know About Dow 20,000

Dow 20,000 – an incredible milestone! The Dow Jones industrial average is nearing the 20,000 mark for the first time, and when the barrier is broken, Americans watching the evening news, tuning in to the radio or aimlessly browsing the internet will see the headline, whether they care about it or not.

Should investors really care? Should anyone? And the answer is: yes and no.

Regardless of what importance level you assign to Dow 20,000, here are five things everyone should know about Dow 20k.

1. The Economy is Improving and so are Expectations

This one may be obvious, but with the Dow and other stock market indices at all-time highs, things are getting better. Over the last 81 months the private sector has added an impressive 15.6 million jobs, and in November the unemployment rate hit 4.6 percent for the first time since August 2007.

On top of that, when the Federal Reserve raised interest rates interest rates on Dec. 14, Chair Janet Yellen said the hike was “a reflection of the confidence we have in the progress the economy has made and our judgment that progress will continue … the economy has proven to be remarkably resilient.”

Consumer confidence also improved in November, reaching pre-recession levels once again. As expectations improve, you can generally expect to see the stock market rise as well.

2. The Dow Actually Isn’t a Great Reflection of the Business Landscape

If the first point was a little straightforward, this one may be the most misunderstood: The Dow is definitely not the best measure of how American businesses are performing. That 20,000 figure? That’s only based on the share prices of 30 of the largest companies in the U.S.

“The Dow represents 30 large stocks. The S&P 500 represents nearly 17 times that number,” says Kevin Barr, head of investment management at SEI, an investment management firm headquartered in Oaks, Pennsylvania. “Both the Dow and S&P leave out the mid- and small-cap companies that form much of the stock market, which comprises thousands of stocks. While the Dow is commonly cited as a benchmark, investors need to keep its size and scope in mind.”

On top of that, the Dow is a price-weighted average, which means that stocks with higher share prices carry more influence. Nevermind that this is an entirely arbitrary way to do things. Currently, Goldman Sachs Group (GS) carries the heaviest weight in the blue-chip index at 8.38 percent, while Cisco Systems (CSCO) has the lowest weight at 1.06 percent.

Thus, if CSCO jumps 10 percent after a great earnings report, but GS falls just 1.3 percent, the two cancel each other out as far as the Dow is concerned. This despite the fact that at $153 billion, Cisco is actually worth about $56 billion more than Goldman Sachs.

While the S&P 500 is a better measure of how corporate America is doing, a better measure still is the Russell 3000 and Wilshire 5000, which track thousands of smaller stocks and represent essentially the entire U.S. stock market.

Unlike the Dow, the S&P 500, Russell 3000 and Wilshire 5000 are all market capitalization-weighted.

3. Put Dow 20,000 in Perspective

Due to the power of compound interest, 100-point – or even 1,000-point – swings in the Dow don’t mean what they used to.

Think about it this way: The Dow first crossed the 1,000 mark in November 1972. It would take more than 14 years for the Dow to gain the next 1,000 points, which it accomplished when it first broke 2,000 in 1987. In contrast, the Dow hit 19,000 on Nov. 22, and is approaching 20,000 less than a month later.

So if you hear that the Dow went up or down 100 points in a day, don’t put too much stock into it. In 1972, that was a 10 percent move. Today, it’s a half-percent.

4. A Few Minor Changes in the Index’s Constituents Make a Huge Difference

Further adding to the arbitrary nature of the Dow, the index’s 30 constituents aren’t set in stone like many people might think.

Every few years or so, if it’s necessary, the index committee will add some new member(s) to the index; the incoming stocks will often replace stocks or companies that have been faring poorly or are losing influence.

Sometimes, those decisions can seriously hamper the index’s returns.

The Dow, for instance, added Intel Corp. (INTC) and Microsoft Corp. (MSFT) in late 1999, near the height of the dot-com bubble, only to see both crater over the subsequent year. It would take until 2014 for MSFT and INTC to regain their debut Dow levels.

The most recent Dow addition is Apple (AAPL), which replaced AT&T (T) in March of 2015. Since then, Apple is down 6 percent and AT&T shares are up 24 percent.

David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, says companies aren’t added to the index because their stock looks attractive. “We’re not picking stocks that we think are definitely going to go up. I know one guy who can’t pick stocks, and that’s me,” Blitzer says.

“With the Dow we’re looking for large, solid, stable companies,” he says. “Most of them if not all of them are household names, people know who they are, and it’s traditionally blue-chip companies.”

5. Just a Psychological Level

Finally: traders just like to see big, round numbers with lots of zeros after them, and investors do too. Crossing a level like Dow 20,000 has no fundamental importance, but technical and short-term traders, as well as trading algorithms, may put some stock in it.

Over time, we’ll be hitting a lot of these psychological marks, says Jon Ulin, a certified financial planner and managing principal of Ulin & Co. Wealth Management, a branch office of LPL Financial in Boca Raton, Florida.

“Since World War II, the Dow Jones index has averaged about 9 percent per year and will continue to do so hitting new highs over time. Just with a meager 7.2 percent annualized return, we should be ringing in a 40,000 Dow by 2027,” Ulin says.

It’s been 44 years since the Dow first hit 1,000 in 1972. If it takes 44 years for the next Dow 20-bagger, we’ll be ringing in Dow 400,000 in 2060 (which will be another election year).

 

 

 

 

Written by John Divine of U.S. News & World Report

Source: U.S. News & World Report

The Salary You Must Earn to Buy a Home in 27 Metros

© Getty Images
© Getty Images

How much salary do you need to earn in order to afford the principal and interest payments on a median-priced home in your metro area?

To find out, HSH.com took the National Association of Realtors’ 2015 first-quarter data for median-home prices and HSH.com’s 2015 first-quarter average interest rate for 30-year, fixed-rate mortgages to determine how much of your salary it would take to afford the base cost of owning a home — the principal, interest, taxes and insurance — in 27 metro areas.

We used standard 28 percent “front-end” debt ratios and a 20 percent down payment subtracted from the NAR’s median-home-price data to arrive at our figures. We’ve incorporated available information on property taxes and homeowner’s insurance costs to more accurately reflect the income needed in a given market. Read more about the methodology and inputs on the final slide of this slideshow.

The first quarter was a soft period for the economy which helped mortgage rates fall in all 27 metros. While home prices rose sharply in the majority of metro areas across the country due to high demand and low inventory, there was an even split on our list of the metros that experienced price increases and price declines.

“Sales activity to start the year was notably higher than a year ago, as steady hiring and low interest rates encouraged more buyers to enter the market,” said Lawrence Yun, NAR chief economist. “However, stronger demand without increasing supply led to faster price growth in many markets.”

On a national scale, with 20 percent down, a buyer would need to earn a salary of $47,253.07 to afford the median-priced home. However, it’s possible to buy a home with less than a 20 percent down payment. Of course, the larger loan amount when financing 90 percent of the property price, plus the need for Private Mortgage Insurance (PMI), raises the income needed considerably. In the national example above, a purchase of a median-priced home with only a 10 percent down payment (and including the cost of PMI) increases the income needed to $54,341.84 – just over $7,000 more.

Here’s a current look at how much salary you would need to earn in order to afford the principal, interest, taxes and insurance payments on a median-priced home in your metro area.

CLEVELAND: $29,393.54

Mortgage rate: 3.82 percent

  • Quarterly change: -0.23 percent

Home price: $105,900

  • Quarterly change: -12.62 percent
  • YOY change: +3.72 percent

Monthly payment: $685.85

Salary: $29,393.54

  • Quarterly change: -$2,616.87

Cleveland retakes the crown as the most affordable metro area on our list. The largest quarterly price decline on our list was more than enough to make Cleveland No. 1 in terms of affordability. Cleveland saw the second-largest salary reduction at $2,617.

PITTSBURGH: $30,786.94

Mortgage rate: 3.75 percent

  • Quarterly change: -0.23 percent

Home price: $131,000

  • Quarterly change: -2.96 percent
  • YOY change: +9.17 percent

Monthly payment: $718.36

Salary: $30,786.94

  • Quarterly change: -$929.38

Pittsburgh lost its top spot as the most-affordable metro area, requiring a salary nearly $1,400 higher than Cleveland. But affordable conditions haven’t gone anywhere in the Steel City. With the lowest mortgage rates on our list, you can still afford the principal, interest, taxes and insurance payments on a median-priced home and make less than $31,000.

ST. LOUIS: $32,606.92

Mortgage rate: 3.82 percent

  • Quarterly change: -0.21 percent

Home price: $134,800

  • Quarterly change: -2.60 percent
  • YOY change: +11.87 percent

Monthly payment: $760.83

Salary: $32,606.92

  • Quarterly change: -$716.17

St. Louis maintains its position at No. 3 on our list. Price and rate declines in the St. Louis metro during the first quarter were middle-of-the –pack as far as our list goes, reducing the required salary by a rather stable figure of $716.

CINCINNATI: $32,741.64

Mortgage rate: 3.86 percent

  • Quarterly change: -0.23 percent

Home price: $135,000

  • Quarterly change: -2.24 percent
  • YOY change: +10.93 percent

Monthly payment: $763.97

Salary: $32,741.64

  • Quarterly change: -$743.59

Again, the Cincinnati metro and the St. Louis metro remain near mirror images of one another. Nearly every aspect of these two metros is identical: mortgage rates, rate changes, home prices, quarterly and yearly price changes, monthly payment, required salary, and salary changes.

DETROIT: $34,902.43

Mortgage rate: 3.92 percent

  • Quarterly change: -0.26 percent

Home price: $135,000

  • Quarterly change: -0.59 percent
  • YOY change: +21.90 percent

Monthly payment: $814.39

Salary: $34,902.43

  • Quarterly change: -$619.04

Detroit-area home buyers and homeowners both have to be happy with what’s happening to home prices in the Motor City metro. In an area that suffered so dramatically from the Great Recession, home prices continue to show short-term stability and long-term growth.

ATLANTA: $35,577.84

Mortgage rate: 3.84 percent

  • Quarterly change: -0.25 percent

Home price: $158,000

  • Quarterly change: +0.19 percent
  • YOY change: +11.35 percent

Monthly payment: $830.15

Salary: $35,577.84

  • Quarterly change: -$222.26

Atlanta is the first metro so far on our list to have experienced both quarterly and yearly price increases. Balancing out the modest quarterly increase was a rate decline of one-quarter percent, reducing the required salary by $222, the lowest salary decline so far.

TAMPA: $38,316.50

Mortgage rate: 3.91 percent

  • Quarterly change: -0.22 percent

Home price: $156,000

  • Quarterly change: -2.50 percent
  • YOY change: +7.59 percent

Monthly payment: $894.05

Salary: $38,316.50

  • Quarterly change: +$584.30

It may seem odd that Tampa had both a rate and price decline during the first quarter of 2015 but still saw the required salary increase. The reason is that insurance costs were higher in Tampa. Homebuyers must remember that principal and interest payments aren’t the only monthly costs they will incur — tax and insurance costs also play a role in home affordability.

PHOENIX: $40,729.60

Mortgage rate: 3.82 percent

  • Quarterly change: -0.24 percent

Home price: $206,100

  • Quarterly change: +2.90 percent
  • YOY change: +6.07 percent

Monthly payment: $950.36

Salary: $40,729.60

  • Quarterly change: +71.52

Phoenix is the first metro area on this list to crack the $200,000-home-price mark, and the second metro so far to experience both quarterly and yearly home-price growth. That price growth was just strong enough to cancel out the mortgage-rate declines, edging the required salary higher by $72.

ORLANDO: $44,291.94

Mortgage rate: 3.86 percent

  • Quarterly change: -0.21 percent

Home price: $186,000

  • Quarterly change: +3.33 percent
  • YOY change: +4.49 percent

Monthly payment: $1,033.48

Salary: $44,291.94

  • Quarterly change: +$2,148.63

The Orlando metro went from a near-$500 salary decline in the fourth quarter of 2014 to an increase of over $2,100 — the second-highest salary increase on our list – in the first quarter. Affordability took a step back in this metro area during the first three months of 2015.

SAN ANTONIO: $45,018.15

Mortgage rate: 3.93 percent

  • Quarterly change: -0.16 percent

Home price: $184,700

  • Quarterly change: -0.43 percent
  • YOY change: +9.10 percent

Monthly payment: $1,050.42

Salary: $45,018.15

  • Quarterly change: -$356.15

San Antonio continues to be the most affordable Texas metro on our list. The rate and price declines of 0.16 percent and 0.43 percent, respectively, helped increase affordability to the tune of $356 during the first quarter.

MINNEAPOLIS: $47,105.09

Mortgage rate: 3.83 percent

  • Quarterly change: -0.24 percent

Home price: $209,400

  • Quarterly change: -0.29 percent
  • YOY change: +11.26 percent

Monthly payment: $1,099.12

Salary: $47,105.09

  • Quarterly change: -$521.44

For the first time in a long time, the Minneapolis was not the first metro to crack the $200,000-home-price mark; Phoenix beat them to the punch. While year-over-year price gains persist in the Twin Cities metro, back-to-back quarterly declines in rates and prices continue to improve affordability.

DALLAS: $48,715.63

Mortgage rate: 3.85 percent

  • Quarterly change: -0.24 percent

Home price: $192,500

  • Quarterly change: +1.53 percent
  • YOY change: +10.13 percent

Monthly payment: $1,136.70

Salary: $48,715.63

  • Quarterly change: -$70.90

After salary increases in the first three quarters of 2014, the Dallas metro continues on a path of increased affordability thanks to a moderate median-price increase and a rate decline of nearly one-quarter percent.

PHILADELPHIA: $48,776.36

Mortgage rate: 3.88 percent

  • Quarterly change: -0.26 percent

Home price: $204,900

  • Quarterly change: -3.94 percent
  • YOY change: +1.54 percent

Monthly payment: $1,138.11

Salary: $48,776.36

  • Quarterly change: -$2,137.68

Home prices continue to trend downward in the Philadelphia metro. While this trend is coming at the expense of home sellers, buyers are certainly rejoicing over the increased levels of affordability. The required salary to purchase a home in the City of Brotherly Love fell by $2,138 during the first quarter, the fourth-largest decline on our list.

HOUSTON: $49,639.64

Mortgage rate: 3.87 percent

  • Quarterly change: -0.22 percent

Home price: $200,300

  • Quarterly change: +0.50 percent
  • YOY change: +8.50 percent

Monthly payment: $1,158.26

Salary: $49,639.64

  • Quarterly change: -$343.74

The Houston metro swapped places with the Philly metro for the first quarter, further extending the title of the most expensive Texas metro on our list. Affordability conditions are eroding a bit in the Houston area as home prices continue to rise.

BALTIMORE: $50,270.32

Mortgage rate: 3.82 percent

  • Quarterly change: -0.21 percent

Home price: $223,100

  • Quarterly change: -4.33 percent
  • YOY change: -0.62 percent

Monthly payment: $1,172.97

Salary: $50,270.32

  • Quarterly change: -$2,391.64

The price and salary declines look very similar in the Charm City metro in the first quarter of 2015 as they did in the fourth quarter of 2014, just to a lesser extent. Home prices, both quarterly and YOY, continued to weaken as did the required salary. Last time the required salary in the Baltimore metro fell by over $4,000; this time was about half that.

CHICAGO: $53,470.17

Mortgage rate: 3.89 percent

  • Quarterly change: -0.20 percent

Home price: $192,500

  • Quarterly change: -1.33 percent
  • YOY change: +8.82 percent

Monthly payment: $1,247.64

Salary: $53,470.17

  • Quarterly change: -$876.45

Chicago’s home prices have leveled off a bit. The quarterly decline in the Chicago metro went from 12.04 percent in the fourth quarter to just 1.33 percent during the first quarter. The end result is still the same: a lower required salary to afford a home in the Windy City metro.

SACRAMENTO: $58,488.22

Mortgage rate: 3.96 percent

  • Quarterly change: -0.23 percent

Home price: $275,800

  • Quarterly change: +2.64 percent
  • YOY change: +7.82 percent

Monthly payment: $1,364.72

Salary: $58,488.22

  • Quarterly change: +$75.73

With the highest mortgage rate on our list, and with both quarterly and yearly price gains, it’s little wonder that Sacramento’s affordability decreased slightly in the first quarter. What’s interesting about the Sacramento metro is that the yearly price gains are almost exactly the same as they were in the previous quarter, and the quarterly price increase in the fourth quarter cancels out the quarterly decline in the fourth quarter. That’s why affordability has been so consistent in the River City metro.

PORTLAND, OREGON: $59,428.71

Mortgage rate: 3.87 percent

  • Quarterly change: -0.24 percent

Home price: $289,400

  • Quarterly change: +0.17 percent
  • YOY change: +6.44 percent

Monthly payment: $1,386.67

Salary: $59,428.71

  • Quarterly change: -$1,174.79

Portland moved up one spot on our list this time around as meager price growth and interest rate declines made the metro area more affordable. A borrower could have earned $1,175 less in the first quarter and still been able to afford the median-priced home in the Portland area.

MIAMI: $59,869.76

Mortgage rate: 3.87 percent

  • Quarterly change: -0.22 percent

Home price: $269,100

  • Quarterly change: +1.55 percent
  • YOY change: +3.90 percent

Monthly payment: $1,396.96

Salary: $59,869.76

  • Quarterly change: +$1,438.27

While Miami’s YOY price growth remains moderate, the metro area broke out of its quarterly pattern of price declines. Despite falling mortgage rates during the first three months of 2015, affordability declined as the required salary increased by nearly $1,500.

DENVER: $64,558.05

Mortgage rate: 3.88 percent

  • Quarterly change: -0.20 percent

Home price: $338,100

  • Quarterly change: +7.40 percent
  • YOY change: +17.23 percent

Monthly payment: $1,506.35

Salary: $64,558.05

  • Quarterly change: +$2,915.90

Substantial price gains in the Denver metro area sent the required salary higher by nearly $3,000 in the first quarter. Higher home prices are a result of inadequate inventory in relation to strong buyer demand. A 20-basis-point decline in mortgage rates kept the salary figure from rising even higher.

SEATTLE: $71,702.81

Mortgage rate: 3.95 percent

  • Quarterly change: -0.20 percent

Home price: $352,400

  • Quarterly change: +0.11 percent
  • YOY change: +3.68 percent

Monthly payment: $1,673.07

Salary: $71,702.81

  • Quarterly change: -$1,141.50

Home prices have been pretty stable in the Seattle metro area since the second quarter of 2014. Flat home prices and falling rates continued to reduce the amount of salary a Seattle-area homebuyer needs to afford a median-priced home.

WASHINGTON, D.C.: $75,978.18

Mortgage rate: 3.78 percent

  • Quarterly change: -0.20 percent

Home price: $367,800

  • Quarterly change: -1.34 percent
  • YOY change: +2.48 percent

Monthly payment: $1,772.82

Salary: $75,978.18

  • Quarterly change: -$1,416.64

Once again, mortgage rates in the D.C. metro area are amongst the lowest on our list. A modest quarterly decline in prices was enough to send the required salary lower by nearly $1,500 in the first quarter of 2015. Home prices have been falling in the nation’s capitol since the second quarter of 2014.

BOSTON: $77,148.48

Mortgage rate: 3.80 percent

  • Quarterly change: -0.25 percent

Home price: $374,600

  • Quarterly change: -2.24 percent
  • YOY change: +3.14 percent

Monthly payment: $1,800.13

Salary: $77,148.48

  • Quarterly change: -$2,901.45

The Boston and D.C. metro areas continue to be closely aligned in terms of affordability conditions: the mortgage rate, quarterly home price and required-salary declines are very similar. However, you will need to earn about $1,200 more a year to afford the median-priced home in the Boston metro versus D.C.

LOS ANGELES: $85,081.43

Mortgage rate: 3.83 percent

  • Quarterly change: -0.24 percent

Home price: $434,700

  • Quarterly change: -3.59 percent
  • YOY change: +7.02 percent

Monthly payment: $1,985.23

Salary: $85,081.43

  • Quarterly change: -$4,583.43

The affordability battle between the Los Angeles and New York City metros continues, and in the first quarter LA edged NYC by a nose. Home prices have been steadily falling in the LA metro since the third quarter of 2014. Quarterly rate and price declines shaved over $4,500 off the required salary to afford a median-priced home in the Los Angeles metro.

NEW YORK: $85,240.35

Mortgage rate: 3.90 percent

  • Quarterly change: -0.32 percent

Home price: $388,600

  • Quarterly change: +0.65 percent
  • YOY change: +1.91 percent

Monthly payment: $1,988.94

Salary: $85,240.35

  • Quarterly change: -$1,639.80

The New York metro had the largest quarterly-mortgage-rate decline on our list at 0.32 percent, but the minute increase in quarterly prices didn’t affect the required salary as much as it did in the LA metro. You may be thinking, how can the NY metro be less affordable than LA when the Big Apple home price is so much lower. The answer is the taxes and insurance costs are a lot higher in the New York metro area.

SAN DIEGO: $96,404.80

Mortgage rate: 3.87 percent

  • Quarterly change: -0.20 percent

Home price: $510,300

  • Quarterly change: +3.49 percent
  • YOY change: +5.65 percent

Monthly payment: $2,249.45

Salary: $96,404.80

  • Quarterly change: +$972.13

Affordability eroded in the San Diego metro area during the first quarter as home-gains outstripped the mortgage-rate decline of 0.20 percent. Is San Diego finally making a run at San Francisco as the least-affordable metro on our list? Despite the salary increase, it’s still not even close.

SAN FRANCISCO: $141,416.54

Mortgage rate: 3.88 percent (jumbo rate)

  • Quarterly change: -0.14 percent

Home price: $748,300

  • Quarterly change: +0.59 percent
  • YOY change: +10.08 percent

Monthly payment: $3,299.72

Salary: $141,416.54

  • Quarterly change: -$1,342.30

San Francisco remains the king of inaffordability. The first-quarter rate decline of 0.14 percent was the smallest drop on our entire list. However, that subtle rate decline and relatively stable home prices was enough to lower the required salary by $1,342. Yet, when you need to earn $141,417 to simply purchase the median-priced home, does $1,400 really matter one way or the other?

How did we come up with these salaries?

To compile these results, HSH.com calculated the annual before-tax income required to cover the mortgage’s principal, interest, tax and insurance payment. We used standard 28 percent “front-end” debt ratios and a 20 percent down payment subtracted from the median-home-price data to arrive at our figures. Loans with less than a 20 percent down payment will incur mortgage insurance, which would in turn increase the required salary.

We utilized the NAR’s 2015 first-quarter data for median home prices and our 2015 first-quarter average interest rate for a 30-year, fixed-rate mortgage to determine how much money homebuyers in 27 major metro areas would need to earn in order to purchase the median-priced home in their market.

The average mortgage rate information we used was for purchase-money mortgages made to borrowers with good to excellent credit.

We created metropolitan-area average property tax information using data made available from the Tax Foundation, a non-partisan research think tank, based in Washington, D.C.

We used statewide average homeowner insurance premium costs from the Insurance Information Institute, whose mission is to improve public understanding of insurance.

Note: Property taxes and insurance costs are specific to an individual property itself and will be different for any single property in which you may have an interest. Also, if other personal debts exceed 8 percent of one’s given monthly gross income, this will increase the salary needed to qualify.

Data for the Pittsburgh metro area was provided by RealSTATs, a locally owned and operated real estate information company. Home-price data for Detroit was provided by Realcomp II Ltd., Michigan’s largest Multiple Listing Service.

Written by Tim Manni of HSH.com

(Source: HSH)