Market Commentary (Key items you need to know):
- Market Outlook by Ronald E. Lang
- Fun Links (always popular)
- Additional Commentary by Allen B. Lang
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Key items you need to know –
First Quarter is now over, personal taxes are due by April 17th and most investors are still concerned about the economy for the balance of 2019. If you have been an avid reader of this newsletter you know that we believe the 2019 year should be flat to up, pending domestic political fervor. Even with a Trade Deal with China, which will get an immediate pop in the markets, most of that anticipated deal is baked into the current prices. The U.S. markets are the best performing compared to international markets which is a mixed sign of good things to come. The EU is teetering on a recession and considering economic stimulus. China’s market is struggling with the tariffs and the balance of the world markets are flat and not showing any significant growth. Throwing stimulus into an economy doesn’t solve economic woe’s, it just puts it off for a period of time. By essentially, “kicking the can down the road”, the eventual downturn will be worse then letting a “flush out” of the market and economy and re-building a solid credit market from there.
As we predicted, we are looking at a recession either starting end of 2019 or by second half of 2020 the latest. No reason to be worried or panic, as long as you are prepared and make select portfolio moves based upon your “Life Stage and Risk”. Age is relative when determining your portfolio changes, but if you are under 40 and can sustain some level of risk, you may not be so concerned with income-related stocks and a majority of your portfolio being conservative. Over 40 you may be more conservative and determine a select percentage of your portfolio to be conservative. If you are over 55 and looking to retire in the next 5 – 10 years, then your portfolio should include some Fixed-Indexed Annuities or Short-Term Fixed-Interest Annuities (3,4,5 year choices) to park cash at a fixed rate for a short-period of time. Both are 100% Principal-Protected. The “non-dividend” stocks during a recession will be the most volatile and the “dividend paying” stocks with a better 2.5% dividend yield will have a rush of investors to scoop them up as a perceived safe haven while the storm passes. Its important to know that everyone is different, but you need to be smart about your moves and don’t make tweaks on a monthly basis. Review quarterly leading up to and during the recession for select moves to either more conservative or to growth assets as the market bottoms out and is trending back to the upside. We have a ways to go, but save this newsletter edition for future reference.
Between now and the eventual recession, look at the following sectors for growth; Technology, Consumer Discretionary , Consumer Staples, Utilities (power and water) and some healthcare (dividend paying companies). Typically the cyclical companies are hit the hardest with any significant pullback in the market or recession. If you are worried, truly upset and possibly losing sleep by the possibility of a major pullback or recession in the next 18+ months, then you need to rethink your portfolio. No reason short or long-term plans should make you feel panicky at all by daily or weekly gyrations in the market.
Remember, the global economy is “slowing down” and better than 50% of the S&P 500 companies are “multi-national” companies that are affected by global slowdowns. Many of these companies issued warnings in their recent Quarterly Corporate Earnings reports that their EPS (Earnings Per Share) will be affected by global revenue slowdown.
As we’ve mentioned, the Tax Reform, specifically Corporate Tax Reform are helping domestic-based companies the most as they will pay at least 14% less in taxes (Corporate Rate reduced from 35% – 21%). With other incentives it is like putting rocket fuel into your business engine versus regular gasoline. This means it may have an immediate affect and propel the company’s top and bottom line initially, but rocket fuel will burn significantly faster than gasoline and eventually the sugar high wears off. The smart companies will look for ways to sustain the growth, but many are increasing dividends, issuing Buy-Backs in their stocks or repatriating cash from outside the U.S. back to the states at a reduced tax rate. If we see continued investment in the company and Human Resources, they will thrive. If we see too much M&A (Mergers & Acquisitions), share Buy-Backs and increased dividends, it may not be truly building value in the company, only the shareholders.
Lastly, be wary of “headline news”. Remember most of the news outlets are really “entertainment” channels now. Like the Internet, many of their headlines are like “click bait” to get you to watch and react. Too often, most headlines may have a knee-jerk reaction on the markets (up or down), but mainly it will be the right combination of Fundamentals and Technicals of the company that will ultimately move markets in the direction they are destined. So smile, expect a few pullbacks here in the next few months, but we expect to be higher by year-end.
Ronald E. Lang, Principal
Atlas Wealth Management, LLC
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Remember, you still have until April 15th, 2019 to put in your 2018 contributions (or additional contributions) into your personal Traditional IRA or Roth IRA. You can put in up to $6,000 (plus an additional $1,000 over 50 years old). You need to check with your tax professional if you can make the additional contribution if you have a 401(k) or SIMPLE IRA at your workplace. Also, check with your tax professional if you meet the income guidelines for the Roth IRA contribution.
Please Note of Key Tax Changes starting in 2018
The text of the new tax law runs 186 pages, but if you don’t have time to read it, just be aware of the four biggest changes.
1. A reduction in tax rates. Most people (except in the 10% and 35% tax brackets) have had their rates reduced.
2. Changes to the tax bracket structure. The income criteria for all seven brackets have changed.
3. An increase in the standard deduction. It’s been doubled to $12,000 for singles and $24,000 for married filing jointly as noted above.
4. An increase in the child tax credit. The amount has increased and the number of people who can use it has been broadened.
Commentary by Allen B. Lang, Senior Portfolio Manager
“WELL, IT AINT OVER TIL IT’S OVER”
The upturn in the market over the last week or so is encouraging, but do not get too excited.
The fairly significant dip we encountered just prior to this “rally” is not to be taken lightly.
There are still too many unanswered questions, i.e., Deal with China, North Korea unwilling to make a deal with the U.S., Brexit, still up in the air, slowing European economies, etc..
As the old saying goes, “If you missed a bus, another will be along shortly”.
We remain cautious. No one can buy at the lows and sell at the highs on a consistent basis. It’s better to be a little late than too early, because while you’re waiting, you get concerned that nothing positive is happening. Our income securities, i.e., bank preferreds, dividend ETF’s and high quality industrials with excellent dividends, have all held up well since the beginning of the year. In some cases we have added to these positions as a conservative position until after tax season and we get 1st quarter corporate reports.
Generally I look for a higher market (security prices overall) this year, somewhere between 8-11%, this coupled with dividends will give us a very good return.
Allen B. Lang, Senior Portfolio Manager
Atlas Wealth Management, LLC
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