November 8, 2016

The Markets

As the month of October came to a close the Dow index fell for the third month in a row. The Dow and the S&P posted their biggest monthly declines since January. The average US stock fund was -2.5% in October and international stock funds declined 2.3%. I would also report that the third quarter saw a decline in value across the board in the income producing stocks in most forms of bonds. One article indicated that the income sector of dividend producing stocks had declined about 5% when the market had declined 2 ½%. Real estate dividend producing stocks also had a difficult quarter of performance due to the same issue. All of this weakness is directly related to the publicity regarding a potential interest rate hike in December. I would point out to you that the fundamental values and businesses of these firms have not changed and if there is no increase in interest rates the same sectors will probably rally strongly on the news. If there is an increase in rates and it may probably be very modest like the last one which was 1/8 of 1%.

Last week, investors experienced another bout of election jitters, and the Standard & Poor’s 500 (S&P 500) Index fell for the ninth straight session.

The CBOE Volatility Index (VIX), a.k.a. the fear gauge, which measures the expected volatility of the S&P 500 during the next 30 days, was up more than 40 percent for the week. The shift in the VIX reflected investors’ concerns about stock market performance after the election.

All of the election hoopla and hyperbole has obscured some positive news. So far, the third quarter earnings season has been going well. According to FactSet, 85 percent of companies in the S&P 500 Index have reported earnings and the blended earnings growth rate for the Index is 2.7 percent. That means the S&P 500 Index is on track to experience its first quarter of earnings growth after five quarters of falling earnings.

Estate Taxes

Most Americans aren’t too concerned about federal estate taxes. After all, 99.8 percent won’t have estates large enough to be subject to the tax. For 2016, the estate tax threshold is $5.45 million (double that amount for a married couple) and it is expected to be $5.49 million in 2017 (barring any changes to the tax code).

At the state level, it’s a different story. Kiplinger’s explained:

“However, state estate taxes, which kick in for estates valued at only $1.5 million or less in several states, could take a big bite out of your legacy. Your home and retirement accounts will be counted when your estate is valued for tax purposes, and proceeds from your life insurance could be counted, too, depending on how the policy is owned and who gets the money.”

The Tax Foundation reports, in all, 15 states and the District of Columbia have estate taxes. They included:

  • Connecticut ($2 million exemption and 7.2 percent to 12 percent estate tax rates)
  • Delaware ($5.4 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Hawaii ($5.4 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Maine ($4 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Maine ($2 million exemption and 8 percent to 12 percent estate tax rates)
  • Maryland ($1.5 million exemption and 16 percent estate tax rate)
  • Massachusetts ($1 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Minnesota ($1.4 million exemption and 9 percent to 16 percent estate tax rates)
  • New Jersey ($675,000 exemption and 0.8 percent to 16 percent estate tax rates)
  • New York ($3.1 million exemption and 3.1 percent to 16 percent estate tax rates)
  • Oregon ($1 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Rhode Island ($1.5 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Tennessee ($5 million exemption and 5.5 percent to 9.5 percent estate tax rates)
  • Vermont ($2.75 million exemption and 0.8 percent to 16 percent estate tax rates)
  • Washington ($2.1 million exemption and 10 percent to 20 percent estate tax rates)
  • Washington DC ($1 million exemption and 0.8 percent to 16 percent estate tax rates)

While not all have estate taxes, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania all have inheritance taxes. If you haven’t given much thought to estate planning, contact your financial professional. They can possibly help you find ways to minimize the taxes your estate and your heirs may owe.

Decision 2016

Will the US Presidential election affect the markets? Elections often produce market volatility because markets hate uncertainty, and there is nothing certain about the outcome of the U.S. election. Election-induced volatility, however, often is relatively short-lived.

Remember, the downturn that followed the British vote to leave the European Union? Globally, markets lost about $3 trillion in two days following the late June vote. By the Fourth of July, many markets had recovered lost ground and made new gains.

Markets may get bouncy following the election. That doesn’t change your long-term financial goals. If a portfolio review would help settle your election jitters please give our office a call.

Weekly Focus

“The thing about democracy, beloveds, is that it is not neat, orderly, or quiet. It requires a certain relish for confusion.”
-Molly Ivins, American newspaper columnist

Image courtesy of Rama, used in accordance with the Creative Commons Attribution 2.0 ShareAlike – France license.

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