2nd Quarter 2019 Investment Newsletter

Economic and Market Overview

The stock market has rallied on expectations of the Federal Reserve cutting interest rates in July, and possibly again in September, to stimulate a sluggish economy and offset repercussions from trade tariffs. While lower rates tend to boost the economy by spurring business investment, housing starts and consumer borrowing, a .25 – .5% cut may be less impactful than reaching a trade deal, and may not be able to offset slowing global growth.

It is yet to be determined whether the U.S. economy is simply slowing down or heading into a recession.

  • The yield curve has been flat to slightly inverted this year, with 3 month Treasury bills now paying slightly more than 10 year Treasury bonds.
  • While this has historically signaled a recession in the next 12-18 months, there have also been situations when a recession did not follow.
  • Other common recession predictors have not occurred, such as widening of credit spreads and a decline in the stock market.
  • Jumping out of stocks to avoid a potential decline may result in having to re-enter the stock market at a higher level.

With US large companies reaching new highs, it may be tempting to over allocate to these stocks. However, we encourage clients to maintain global diversification as market trends can quickly reverse. In the final week of June both U.S. small cap and emerging market stocks outperformed U.S. large cap stocks.

A Quick Take on Health Savings Accounts (HSAs)

With a Health Savings Account you can receive a tax deduction (tax savings now), tax-deferred growth and tax-free withdrawals in the future.  It’s a seemingly too good to be true scenario, but it’s available to anyone with a compatible high-deductible health plan (HDHP).  A few other caveats include:  You can’t be enrolled in Medicare, you aren’t covered by another health plan, and you can’t be claimed as a dependent on someone else’s tax return.

While many people have access to an HSA, relatively few people take full advantage of them.  Here are some things you can do to save taxes immediately and in the future:

  1. Make the maximum contribution to your HSA each year. For individual coverage, you can contribute $3,500 in 2019 ($7,000 for family coverage).  Moreover, you can contribute an additional $1,000 if you’re 55 or older.  These contributions avoid federal and state tax and if made directly through payroll, also avoid payroll taxes (Social Security & Medicare).
  2. Use other sources of funds to pay for current out-of-pocket medical expenses, and allow your HSA balance to grow tax-free for future qualified distributions. Some providers offer low cost investment options (e.g., index funds) for long-term growth.
  3. Save your HSA for qualified medical expenses late in retirement. These distributions are tax-free, and you’re not forced to take required minimum distributions like you are from a traditional IRA.

While a HDHP/HSA combination can be great for healthy individuals or families, it’s not right for everyone.  High annual deductibles can dissuade those with high anticipated medical bills.  It can also provide more control to consumers of health care to shop for the best price on things like imaging tests.  Do your research and get the most benefit for your dollar.

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We welcome and encourage your calls with questions, and sincerely appreciate both your business and referrals.

 

Market Index Returns QTR 2
S&P 500 (Large Cap)      4.3%
Russell 2000 (Small Cap)      2.1%
MSCI International Index      3.8%
MSCI Emerging Markets       0.7%
US REIT Index (Commercial Real Estate)       0.8%
DJ Commodity Index      -1.2%
BofA 1-3 Year Corproate & Gov’t Bond Index       1.5%
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