Markets “In a Nutshell” for March 26, 2019

Investment Week at a Glance

Stocks dropped last week. The Dow Jones Industrial average dropped 1.3% while the S&P 500 was down 0.8%. The New York Stock Exchange Composite (2,000 stocks) lost 1.4%. The “average investor’s index” (Value Line index) fell 1.9%. Foreign stocks (DJ Global ex U.S.) were down 0.4%. Bond yields dropped (bond prices up) as the 10 year Treasury ended at 2.44%. (Data sources: Barron’s Financial, Wall Street Journal)

Interest rates diving again

For the first time since 2007, the interest rate the U.S. government pays on a three month Treasury bill is higher than the annual rate paid on a 10 year Treasury. With the 10 year rate dipping to 2.44% (the annualized rate of interest) and the 3 month at an annualized 2.46%, the bond market is going through an unusual time where investors gets paid less to tie their money up for a longer time period. The “inversion” of shorter and longer rates has often led to fear of an economic recession. Perhaps a good time to make sure you are taking appropriate risk with your investment portfolio.

Inversion of rates favors stocks

As we wrote above, short term interest rates have risen above longer term rates, a condition known as “inversion.” While the inversion has sparked fears of an economic slowdown, past inversions have meant stock price increases. Historically, stocks have risen an average 15% in the 18 months following an inversion (according to Credit Suisse analysts).

“Will your kids ruin your retirement?”

The question above comes from the cover story in this week’s Barron’s Financial. The article points out that more and more adult children are relying on their parents for financial support. Since 2010 the amount of student debt owed by those 60 or older has risen from $33 billion to $86 billion as parents go on the hook for their kid’s student debt. And nearly 80% of parents give financial support to their adult children totaling about $500 billion on an annual basis. Read on…

“Kids ruin retirement?” part II

While certainly there are circumstances in which parental financial aid is needed, there is also many times where financial support is given because parents have a hard time saying “no” to their adult children. The author of the article suggests parents have candid discussions with children on what is can be afforded to head off potential financial and family problems.

Quiz:

According to the IRS, to rank in the top 25% of taxpayers in 2016, adjusted growth income had to be at least $80,921. Where did that same amount rank in 1980?

a. top 1% of tax payer’s 

b. top 10%

c. top 25%

d. top 50%

Answer is below…

 

Have a good week!

 

Answer to quiz:

a. top 1%