September 29, 2014 - Why Do These Fed Decisions Matter?
| September 29, 2014
Markets lost ground last week, though a Friday rally on positive economic data helped trim losses. For the week, the S&P 500 lost 1.37%, the Dow dropped 0.96%, and the Nasdaq fell 1.48%. Last week, a lot of market focus was on the Fed. Following the Federal Open Market Committee on September 16th -17th, multiple Fed officials gave speeches outlining their opinions about how the Fed should handle raising interest rates and returning to normal monetary operations. Unsurprisingly, there are some definite differences of opinion amongst the Fed's top experts. The hawks: Monetary hawks generally prefer high interest rates because they fear the effects of high inflation more than they worry about weak economic growth. Prominent members of this camp, like Dallas Fed President Richard Fisher, believe that the Fed should start raising rates as early as Spring 2015. The doves: Doves tend to favor lower interest rates in order to boost economic growth; they believe that the negative effects of inflation are negligible in comparison with the benefit of increased economic activity. Prominent doves include Chicago Fed President Charles Evans, who favor keeping rates low until they can be certain the economy has enough momentum behind it. Folks in this camp seem to favor keeping rates low for much longer, possibly until 2016. Keep in mind that such disagreements are healthy, because there is a lot of room for interpretation of economic data and debate about the effects of economic policy. However, these splits mean that Fed chairwoman Janet Yellen must craft a careful compromise at the October FOMC meeting or risk making financial markets nervous. Why do these Fed decisions matter? The Fed has held interest rates at rock bottom levels in order to encourage lending and stoke economic activity. Now that the economy is improving, the Fed is starting to think about inflation - which they like to keep below 2% (headline inflation). By slowly raising rates, the Fed plans to avoid the specter of high or unexpected inflation, which can negatively affect the economy by chipping away at buying power. If the Fed raises rates too soon, the economic recovery could falter. If rates are left low too long, inflation could spike. For bond investors, rising interest rates will affect the market prices of the bonds in their portfolios. As interest rates rise, bond prices fall as new bonds paying higher rates come on to the market. As financial professionals, we spend a lot of time managing these issues for our clients so that they are prepared for rising rates. Bottom line: We know higher interest rates are coming, we just don't know when. The good news is that the economy is doing reasonably well and the signs point to continued growth this year. The minor decline last week wasn't unexpected. Markets have been trading at record highs and concerns about slowing growth in China and other threats to the global economy caused investors to hit pause ahead of the end of the quarter. Will the decline continue or will investors buy the dip? Hard to say. Looking ahead at the last week of the quarter, a lot of attention will be on the release of the September jobs report, which will hopefully underscore the labor markets improvements. However, a positive jobs report could be the evidence the Fed needs to move away from monetary stimulus, which could cause some market volatility. We'll know more once we start to see a trickle of Q3 earnings reports and quarterly economic data. ECONOMIC CALENDAR: Monday: Personal Income and Outlays, Pending Home Sales Index, Dallas Fed Mfg. Survey Tuessday: S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence Wednesday: Motor Vehicle Sales, ADP Employment Report, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending, EIA Petroleum Status Report Thursday: Jobless Claims, Factory Orders Friday: Employment Situation, International Trade, PMI Services Index, ISM Non-Mfg. Index Gray Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. HEADLINES: Q2 GDP estimate rises to 4.6%. The third estimate of second quarter economic growth was revised upward again, largely driven by greater business and personal consumption. These are excellent indicators for greater growth this year. Durable goods orders fall. After July's surprise surge in aircraft orders, August orders for long-lasting manufactured goods fell. However, excluding the volatile transportation category, so-called core orders rebounded 0.7%, which is a healthy amount. Consumer sentiment measure reaches 14-month high. An index of consumer confidence reached the highest level seen since July 2013, also the second highest level in seven years. Americans feel more upbeat about economic growth and rising incomes, which could give consumer spending a needed boost. August new home sales swell. August sales of new single-family homes surged to their highest level in six years, supporting hopes that the housing market isn't done growing yet. However, low supply levels will likely continue to stunt sales activity. Gray Send to a Friend Visit My Site Email Me Quote Of The Week Fountain Pen "It is not enough to be busy; so are the ants. The question is: What are we busy about?" - Henry David Thoreau Recipe Of The Week Fork and Knife Broiled Salmon With Mustard and New Potato Salad Mustard and fennel pair beautifully in this healthful main course. Ingredients: Serves 8 1 1/2 pounds new potatoes kosher salt and black pepper 3/4 cup full-fat sour cream or crème fraîche 2 tablespoons fresh lemon juice 1 small fennel bulb, thinly sliced 4 6-ounce salmon fillets, skin removed 3 tablespoons Dijon mustard 1/4 cup fresh dill, chopped Directions: 1.Scrub the new potatoes. Add them to a pot and fill with cold water until the potatoes are just covered. Add a pinch of salt and bring the pot to a boil. Once the water is boiling, cover the pot and reduce the heat. Cook the potatoes for about 15 minutes until the potatoes can be pierced easily. 2.While the potatoes are cooking, mix the sour cream, 1 TB of lemon juice, with salt and pepper to taste. Remember that potatoes absorb a lot of salt. 3.Drain the potatoes into a colander and rinse with cold water. Slice them into quarters and add them to the sour cream mixture. Add the sliced fennel and combine thoroughly. 4.Move an oven rack to between 6 and 8 inches below the broiler. Turn on your broiler. 5.Drizzle the peaches with honey and toss to coat thoroughly. Mix the cream and powdered sugar until thoroughly combined. Using a spatula, gently spread the cream over the cooled tart crust. Arrange the peaches in a single layer on top. 6.Mix together the mustard and 1 TB lemon juice and spread over the salmon filets. Lay the salmon on a broiling tray or a lined baking sheet and broil until it is flaky and done. Depending on the thickness of your filets, this could be 6 to 8 minutes. 7.Plate each salmon filet with some salad, and garnish with the chopped dill. Recipe adapted from Sara Quessenberry | RealSimple.com Gray Tax Tips Document What To Do If You're Missing a W-2? If you lost your W-2 or never received it, here's what you should do: Contact your employer: Make sure that your employer or former employer sent your W-2 to your correct address. Contact the IRS: If you can't get your W-2 from your employer, give the IRS a call at 800-829-1040. You'll need the following when you call: •Your name, address, Social Security number, and phone number; •Your employer's name, address, and phone number; •The dates you worked for the employer; and •An estimate of the amount of wages you were paid and federal income tax withheld in the previous year. If possible, you can use your final pay stub to figure these amounts. Remember to file on time. Even if you don't have all the information you need, your taxes are still due on April 15, 2015. If you don't have your W-2, call a qualified tax expert or use Form 4852, Substitute for Form W-2, Wage and Tax Statement, to estimate your wages and withheld taxes. You can also apply for a six-month extension to file, though you will still owe your taxes by the original filing deadline. For more information on how to file without a W-2 or how to correct previously filed taxes, contact a qualified tax professional or visit IRS.gov. Tip courtesy of IRS.gov Golf Tip Golfer Keep Your Tempo Consistent Professional golfers know that keeping a consistent swing tempo is key to hitting consistent shots. Some golfers have a faster tempo than others, but, regardless of club length, the time it takes to swing a club from beginning to end should remain the same. Many amateur golfers fall into the habit of increasing the speed of their swing to hit longer shots. However, speed and distance come from longer club length, not swing tempo. If you fall into the habit of changing your speed with each club, you won't be able to hit consistently. To test your consistency and practice a steady tempo, try several practice swings with a mid-ranged club, like a 5- or 6-iron. Focus on swinging smoothly and finishing with good form. Tee up to a ball and try a practice shot with the same tempo. Then try a shot with a range of clubs to see if your pace remains consistent Tip courtesy of Lana Ortega, LPGA | Golf Tips Mag Healthy Lifestyle Medical Cross Healthful Fall Foods Enjoy the season's bounty and get some important health benefits along the way: •Apples are full of important fiber and the peel contains ursolic acid, which is linked to a lower risk of obesity. •Chestnuts are excellent sources of protein, Vitamin E, and Vitamin C, and have many fewer calories and fat than other nuts. •Brussels sprouts are an important superfood packed with Vitamin C and fiber. •Turnips are loaded with obesity-fighting nutrients, including fiber, Vitamin C, and calcium, and are much lower in calories than many other starches. Tip courtesy of AARP Green Living Leaf Protect Your Indoor Air Before turning on your furnace this year, protect your health and boost the efficiency of your heating system by following these steps: •Have your system serviced regularly to prevent leaks and ensure that the unit is operating efficiently. •Change out your air filter regularly. •Install a carbon monoxide detector near the furnace. •Check your basement or utility closet for mold or mildew, which can be blown into the rest of your house. Tip courtesy of Greenpeace Share the Wealth of Knowledge! Please share this market update with family, friends, or colleagues. If you would like us to add them to our list, simply click on the "Forward email" link below. We love being introduced! Gray Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ. The DJIA was invented by Charles Dow back in 1896. The Nasdaq Composite is an index of the common stocks and similar securities listed on the NASDAQ stock market and is considered a broad indicator of the performance of stocks of technology companies and growth companies. The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia. The Dow Jones Corporate Bond Index is a 96-bond index designed to represent the market performance, on a total-return basis, of investment-grade bonds issued by leading U.S. companies. Bonds are equally weighted by maturity cell, industry sector, and the overall index. The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate. The index is made up of measures of real estate prices in 20 cities and weighted to produce the index. The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market. Google Finance is the source for any reference to the performance of an index between two specific periods. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, Broker dealer or Investment Advisor, and should not be construed as investment advice. Neither the named representative nor the named Broker dealer or Investment Advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information. By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through this link. The link is provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site. 1 http://goo.gl/VFPJGW 2 http://blogs.wsj.com/economics/2014/09/25/fed-has-window-to-alter-guidance-at-next-meeting/ 3 http://blogs.wsj.com/economics/2014/09/25/fed-has-window-to-alter-guidance-at-next-meeting/ 4 http://www.forbes.com/sites/samanthasharf/2014/09/26/u-s-gdp-grew-4-6-in-second-quarter-2014-up-from-earlier-estimates/ 5 http://wsj-us.econoday.com/byshoweventfull.asp?fid=461110&cust=wsj-us&year=2014&lid=0&prev=/byweek.asp#top 6 http://abcnews.go.com/Business/wireStory/us-consumer-sentiment-index-reaches-14-month-high-25778086 7 http://www.usatoday.com/story/money/business/2014/09/24/august-new-home-sales/16143633/ 8 http://www.realsimple.com/food-recipes/browse-all-recipes/mustard-broiled-salmon-new-potato-salad 9 http://www.irs.gov/uac/Newsroom/Form-W2-Missing-IRS-Can-Help 10 http://www.golftipsmag.com/component/zine/article/96-dont-confuse-fast-with-long.html#.VCaJtymSxt8 11 http://www.aarp.org/health/healthy-living/info-2014/fat-busting-fall-foods-photo.html#slide1 12 http://www.greenpeace.org/usa/en/multimedia/goodies/green-guide/green-lifestyle/