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Earnings Beat Expectations to Date and Deciphering the Fed (and More)

We attributed the strong January stock rally to a bounce back from the December over-selling that occurred in the equity markets and to the Fed declaring its intention to pause future rate hikes, a stock friendly re-messaging. Earnings season is on us and will be a key driver in near term stock market performance. To date, fourth quarter earnings reports have not been stellar but are largely beating expectations. We also want to revisit the Fed decision to pause rate hikes in the context of an astute question recently asked by a client.

  • Earnings Beating Expectations: We know that over time stock returns correlate closely with corporate earnings, adjusting for inflation. The current situation appears to be a period when exceeding expectations matters as much or more than objective earnings. It’s as if investors are exhaling, noting that earnings may not be great but are better than feared. This NYT article illustrates the dynamic.

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Inflation Moderated, Earnings Rolling In, and Solutions for Plastic

After the new year started with volatility, investors have been calmed by words from the Federal Reserve and hope surrounding U.S.-China trade discussions.  There is still plenty to worry about including the continued government shutdown, Brexit, and potential fallout from the Mueller investigation.  But for the last week, investors were embracing the positive.

Please share The Friday Buzz with anyone who may have interest.  Thank you for your time and enjoy the articles!

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Stocks Were Down and Then Up, GDP and Earnings are Up, and Time to Vote

Enjoy this week's edition of The Friday Buzz.  I hope it's worthy of a few minutes of your time to wrap up your week and kick off the weekend. 

  • Stocks Recover Mid-Week:  The volatility continued in stocks this week.  On Monday all three major stock indexes were up strongly before reversing and ending the day down.  During trading Monday, all three major indexes, the Dow, NASDAQ, and S&P were in correction territory, which is defined as being 10% below their peak.  By Wednesday the S&P had finished up two consecutive days in a row for the first time for October. 

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The Stock Market Takes a Hit, Bond Yields Move Up, and Inflation Moderates

There was significant financial news this week with the big drop in stocks on Wednesday, bond yields moving up, and the CPI reading coming in below expectations. In other news, once again, another major hurricane makes landfall. We hope everyone is safe in the Southeast, and our thoughts are with you. Enjoy this week's edition of The Friday Buzz. I hope it's worthy of a few minutes of your time to wrap up your week and kick off the weekend.

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Company Stock in a 401k?  Consider Net Unrealized Appreciation (NUA)

When leaving a job for whatever reason, one of the biggest decisions you will face is what to do with your 401(k).  If your plan includes shares of your company's stock, NUA is something to consider during this process.

The Basics of NUA:

  • Net Unrealized Appreciation (NUA) can provide a significant tax break for those holding low-basis employer stock in their retirement plan.
  • There are strict rules that must be followed to take advantage of the NUA option.
  • NUA can provide an additional level of planning flexibility.

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Earnings on Fire

There are a lot of factors when evaluating a company for purchase. Whether one buys a business or franchise, the cash flow and expected cash flow that the company generates will play a large role in the purchase price. While other factors play a role, the same holds true for purchasing stocks. The cash flow, or earnings, are evaluated to help determine the purchase price. Public companies are reporting 2018 first quarter earnings results and the numbers are looking great.

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Using an Exchange Fund to Diversify Concentrated Stock Risk

What is an exchange fund?

Exchange Funds or “Swap Funds,” are private placement limited partnerships or LLCs.  An Exchange Fund allows an investor to “exchange” an individual stock for shares in a fund of many pooled stocks. Here are some of the key benefits and drawbacks to an exchange fund:

Benefits:
  • Provide immediate diversification
  • Allow a larger investment amount to grow (stock owner avoids selling stock, paying taxes, and reinvesting lesser amount in diversified investments)
  • Potential increase in value if the Exchange Fund outperforms the original stock
  • May accept contributions for restricted securities

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Volatility is Back, as Stocks Drop

On Friday last week the Dow dropped 665 points. Monday, the market was down most of the day but come late afternoon the selling accelerated dramatically. At one point, the Dow was down 1600 points. It rallied back some and ended Monday down 1175 points. Many are wondering what happened and why did the markets fall so far, so fast?

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7 Strategies for Dealing With Your Concentrated Stock Position

This article was updated on April 10, 2019 to reflect current tax laws and limits.

There’s an old investment saying, “Concentrated wealth makes people wealthy, but diversified wealth keeps them wealthy.” One of the most common concentrations of wealth people have are large or concentrated stock holdings in a single company. Publicly traded companies often compensate employees with stock or stock options, especially upper-level executives. Others may have large holdings from investing early in an initial public offering (IPO) or inheriting a large holding. No matter how it was obtained, owning a large stock position creates investment and planning challenges.

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Why Are Stocks Still Going Up?

Stocks have been going up ever since the Presidential election last November. There have been no significant pullbacks along the way, and stock market highs are reported by the media on a weekly basis. Clients are asking “Why are stocks still going up?”

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