A thousand-point drop just isn't what it used to be. When the Dow traded at 20,000 about three years ago, a 1000 point decline was a 5% loss. With the widely-watched index recently breaking 30,000, a 1,000-point decline is a 3.3% loss. A decade ago, the Dow traded at 10,000 and a 1000-point drop was equivalent to a 10% loss in value. So discount the frightening reports about point drops.
With tens of millions of Americans desperately seeking security in retirement, Uncle Sam should have been more careful about how he named the new tax law, known as the SECURE Act. Instead of co-opting the names of federal laws for marketing purposes, the U.S. government should be able to figure out how to name a new law that skirts the standards in federal truth-in-advertising regulations.
The coronavirus has focused renewed attention to the risk of investing in China, but China may pose a hidden risk to retirement investors holding emerging markets funds.
Whatever your views on income inequality, the trend toward a larger and wealthier middle class is good for consumer spending, which drives 70% of the economy. For investors, that's positively fundamental.
Yet another new tax reform law went into effect in 2020 under the SECURE Act. In addition to ultra-high-net-worth individuals, the many millions of mass affluent Americans are likely to be impacted by the 470-page SECURE Act's retirement income tax provisions. The SECURE Act is a sweeping and substantive effort to make retirement income tax more sensible, a rare legislative action to win bipartisan support in Congress and the president's signature.
The U.S. Tax Code has been reformed more and more over the past few decades. From 1940 to 1979, 24 major tax laws were enacted, compared with the 40 years from 1980 to 2019, when 63 major tax revisions were enacted.
Americans over age 65 are staying in the labor force more often than expected, brightening the U.S. economic forecast and the outlook for U.S. stocks.
Wall Street firms spend a great deal of time and money trying to forecast relative performance of stock sectors, styles, markets and asset classes, and on convincing investors to buy their advice. However, a comprehensive new study indicates Wall Street's tactical approach is unwise.
2% U.S. Growth & Low Rates. The latest indication of what to expect on interest rates and economic growth came on December 17th, 2019, in an interview with Robert S. Kaplan, President and Chief Executive Officer, Federal Reserve Bank of Dallas. "We expect, again, 2%-plus growth, 2% growth for next year, unemployment rate around 3½%.," Mr. Kaplan told the Council on Foreign Relations. "We'll have some firming in inflation gradually toward 2%. And I think with that profile, I think the right-at 1 ½-1 ¾ fed funds rate, I think the right thing for us to do is stay right where we are unless something changes materially on the upside or the downside." In addition, on December 11th, the Federal Reserve released its latest expectations for growth, inflation, and unemployment for 2020, which are highlighted in the chart.
We've warned about the SECURE Act's effects on retirement income planning in previous articles over the past nine months, and this is a final call to action. If you're in any of the following four retirement income planning situations, you have one last chance to reduce your tax bill by acting before January 1st, 2020:
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U.S. - China Trade War Coverage Distorts Economic Reality
The amount of coverage in the media of the U.S. - China trade war is far out of proportion with the potential impact that China - U.S. trade has on the U.S. economy.
U.S. exports to China comprise just 1% of U.S. GDP. In the $19-trillion-dollar U.S. economy, the 1% of activity with China is inconsequential. However, Chinese exports to the U.S. comprise 4.1% of China's GDP, which means China has much more at stake.
These facts seemed lost from the recent trade war coverage. Unfortunately, the alternate reality in the media misinforms, misleads and confuses investors. It's no conspiracy or bias, and it spans all political biases. Its journalists trying their best to explain the world. But it is a sign of the times, of a world in which the media's power to reach masses outstrips its understanding of our complex world. Consequently, coverage of the trade war with China was a grotesquely distorted reflection of economic and financial facts. It's no wonder so many investors have trouble adhering to a discipline.
Admittedly, there is much we do not know about the inner workings of the economy. Even Janet Yellen, former chair of the U.S. Federal Reserve Bank, the woman who led the U.S. out of The Great Recession into The Great Expansion, admitted live on CSPAN in September 2017 that the low inflation rate was a mystery to her. And, talk about mysteries, how about productivity? Surging in recent months, productivity caused a totally unexpected U.S. growth spike in the first quarter of 2019 and may be more important to U.S. growth than inflation for the rest of 2019 and 2020. And productivity growth is even more perplexing!
As a result, some people think investing is like gambling at a casino, or betting on a horse, and makes many think investing is not connected with facts. That's just untrue! We do know a few things about the economy that are important to investors:
Consumers drive 70% of economic growth in America
Economic growth drives S&P 500 profits
Profits drive stock prices
Stock prices don't always reflect fundamental economic trends, and past performance never guarantees future results. But economic fundamentals are the key determinant of corporate profits over the long-run, and economic fundamentals remained strong through the recent trade war scare. That's why stocks didn't come undone despite the media frenzy over the trade war with China.
While not everything about the economy is understood, facts matter. It's wise to stay focused on economic fundamentals. If you're investing for the long-run, lest you risk being influenced the media sometimes grotesquely distorted reflection of economic facts.
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