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    Markets "In a Nutshell" for March 28, 2018

    Mar 28, 2018

    Investment Week at a Glance

    Stocks finished lower for the week.  The Dow Jones Industrial Average was down 5.67%, the S&P 500 fell 5.95%, the New York Stock Exchange Composite (2,000 stocks) was down 4.75% and the average investors index (Value Line Index) was down 4.69%.  Foreign stocks (DJ Global ex U.S.) were down 2.71%.  Bond prices were higher for the week, pushing the yield on the 10-year U.S. Treasury down 3 basis point to finish the week at 2.81%.  (Data sources: Barron’s Financial, Wall Street Journal)

     

    Trade War Fear Slams Stocks

    It was an ugly week for global stocks, and the worst weekly performance for U.S equities since January, 2016. For the week, the S&P 500 fell nearly 6% while international equities were down nearly 4%.

    Stocks sank after President Trump announced new tariffs on Chinese imports—fueling fears of an impending trade war that investors worry could hurt global economic growth. It’s possible that such fears may be overblown, however, as there are reports that the U.S. and China are already beginning the process of negotiating the situation.

    Still, the news entirely overshadowed positive economic news last week, including a large monthly gain in durable goods orders that exceeded expectations. In addition, the number of people collecting unemployment benefits hit a 45-year low. Overseas, however, a measure of business sentiment in Germany fell to its lowest level in nearly a year.

    The other major development last week was the decision by the Federal Reserve Board to raise a key short-term interest rate, noting that “the economic outlook has strengthened in recent months.” Statements from new Fed Chairman Powell following the rate hike suggest that, with him at the helm, the Fed is unlikely to raise rates continuously without signs that inflation is rising.

     

    Volatility Spikes

    As the markets tumbled last week, the technology sector performed the worst—down 7.9%, due largely to concerns that Facebook user data may have been used to influence political outcomes. Financials also underperformed, down 7.2%. In contrast, energy and utilities performed best (although both sectors were negative for the week).

    Despite the negative news, the market sold off in a mostly orderly manner—without signs of tremendous stress or panic selling.

    Volatility as measured by the CBOE Volatility Index (VIX) rose significantly during the week as markets sold off due to fears of a potential trade war between the U.S. and China. The VIX ended the week at around 24—higher than its long-term average.

     

    Quiz:

    Which of these statements about Roth 401(k) accounts is INCORRECT:

    a)      Roth 401(k) employee elective contributions are made with after-tax dollars.

    b)      Both Roth 401(k) and Roth IRA contributions are subject to income limits.

    c)   The maximum aggregate elective contribution to a Roth 401(k) and traditional 401(k) is limited to $18,500 in 2018, plus an additional $6,000 for employees age 50 or older by year-end.

    d)     Withdrawals of designated Roth contributions and earnings aren’t taxed provided it’s a qualified distribution. A distribution is qualified if the account is held for at least five years and made on account of disability, after death, or on or after 59½

     

    Have a good week!

     

     

     

     

    Answer to quiz:

    b)      Roth 401(k)s aren’t subject to any income limits, whereas Roth IRAs are. Higher-income individuals, such as those married filing jointly with modified adjusted gross income (MAGI) equal to or greater than $196,000, are precluded from making regular contributions to a Roth IRA. Those same restrictions don’t, however, apply to Roth 401(k) contributions.