I hope each of you is enjoying this holiday season and is looking forward to 2020.
The Nasdaq closed with a gain on Christmas Eve. (Other major indexes declined.) That’s the 10th consecutive higher close for the Nasdaq. There have been two other streaks of 10 straight higher closes since the financial crisis. But there hasn’t been a streak longer than 10 days since July 2009. We’ll see if that record changes today.
More New Tax Legislation
Congress passed a bunch of legislation last week before departing for its year-end break. The legislation was bundled into two large spending bills that had to be enacted to avoid a government shutdown.
Last week, I discussed the SECURE Act, and I’ll address that more in the February issue of Retirement Watch.
This week, I direct your attention to a change in the deduction for medical expenses that was buried in the defense funding bill.
For some time, medical expenses have been deductible only by taxpayers who itemize expenses instead of taking the standard deduction. In addition, only the medical expenses that exceeded a percentage of adjusted gross income, known as the floor, were deductible.
In the Affordable Care Act of 2008, the floor was increased to 10% of adjusted gross income from 7.5% for most taxpayers, except senior taxpayers. Senior taxpayers became subject to the 10% floor a couple of years ago.
The defense funding bill moves all taxpayers back to the 7.5% floor for 2019 and 2020. For tax years 2021 and later years, the 10% floor is scheduled to return.
This change applies to your tax return for 2019. Some of you who thought you wouldn’t be able to deduct medical expenses will be able to, and others will be able to deduct more medical expenses than they thought on this year’s tax returns.
This move puts the medical expense deduction floor on the list of expiring tax breaks. Every year or two years, Congress reviews the list of expiring and recently expired tax breaks and decides which ones to extend. In the recent legislation, it extended most, but not all, of those breaks.
One of the problems is that you never know when a tax break is going to be extended. Usually Congress doesn’t act until the last minute, as it did this year. And sometimes a tax break expires and is extended retroactively the next year, which happened to some tax breaks this year.
We’ll have to watch what happens to the medical expense deduction floor in coming years.
Special Spotlight Series
If you haven’t signed up for my Spotlight Series of online seminars you should consider doing so now. The December 2020 episode is a special edition of my semiannual Economic and Investment Review and Outlook. I discuss in detail the recent shift in monetary policy at the Federal Reserve and other key central banks and explain the importance of the shift. This is a pivotal change and one you should know about.
Gundlach’s Latest Webcast
It is also worth an hour or so of your time to review the latest webcast from Jeffrey Gundlach of DoubleLine Funds. Gundlach, as usual, is entertaining, well-informed and provocative.
A key point Gundlach makes in this webcast is that corporate bonds are the main risk bond investors face at this point. Gundlach believes the creditworthiness of businesses is more of a concern for bond investors than rising interest rates. He said that credit rating firms have been too lax and many bonds rated investment grade should be rated much lower.
He also discusses negative interest rates, the unusual events in the bond “repo” market, the presidential election and the performance of DoubleLine Total Return Bond Fund. The “repo” market involves the Federal Reserve intervening in the nation’s money markets to fill a critical shortage of money by making emergency overnight cash loans, called “repos,” to deal with a growing liquidity crisis caused by the federal debt growing too quickly. Other topics Gundlach covers are the path of the dollar and why he believes there could be a good bond-buying opportunity soon.
This week’s data on manufacturing reversed recent reports that indicated manufacturing was stabilizing.
The Kansas City Fed Manufacturing Index tumbled to negative 8 from negative 3 in November. That is the sixth consecutive month of declines in manufacturing in the Kansas City region. Weakness in energy and agriculture is affecting manufacturers, according to the survey. Even so, expectations for future activity were positive.
The Richmond Fed Manufacturing Index for December also declined to negative 5 after registering negative 1 in November. The positive factors in the report were an increase in employment and optimism that conditions would improve in coming months. The average workweek fell to its lowest level since April 2009.
Durable Goods Orders for November were another indication manufacturing still is struggling. Orders declined 2.0% in November. Also, October’s orders were revised to a 0.2% increase instead of the first-reported 0.6% jump.
A lot of the shortfall in durable goods orders was in transportation. Excluding transportation, orders were unchanged. Core capital goods orders, a major indicator of business investment, increased only 0.1% in November, compared to a 1.1% increase in October.
There was good news and bad news in new home sales, but they generally supported the optimism we’ve seen in the House Price Index from NAHB.
New home sales in November were 1.3% above October’s revised sales and 16.9% higher than 12 months ago. The bad news is that the three previous months’ sales were revised down.
Even with that bad news, sales were above 700,000 for three consecutive months and five of the last six months. That’s the best six months since 2007. Also, 2019 is almost certain to be the best year for new home sales since 2007 after December’s data are released.
Consumer Sentiment, as measured by the University of Michigan, increased to 99.3 in December from 95.5 in November. That’s the highest level in seven months. Also, the index has been 95 or higher in 30 of the past 35 months. The only comparable streak was in 1998-2000 when the index was at 100 or higher for 34 of 36 months.
Household finances improved in November, according to the Personal Income and Outlays report. Personal income increased by 0.5% for the month, compared to 0.1% in October. Consumer spending increased 0.4%, following a 0.3% increase in October.
The Fed’s preferred measure of inflation, the PCE Price Index, increased 0.2% in November for a 1.5% rise over 12 months. Excluding food and energy, the PCE Price Index increased 0.1% for the month and 1.5% over 12 months.
The third estimate of third-quarter gross domestic product (GDP) was unchanged from the prior estimate at a 2.1% annualized growth rate.
New unemployment claims declined 13,000 to 222,000. We’ve now had two weeks of large declines that still don’t fully offset the 49,000 increase three weeks ago. That caused the four-week average to increase. As I’ve said before, the holiday periods often are volatile, so we shouldn’t draw conclusions from recent new claims data for a while.
The S&P 500 rose 1.01% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 0.94%. The Russell 2000 increased 1.01%. The All-Country World Index (excluding U.S. stocks) added 0.20%. Emerging market equities edged up 0.16%.
Long-term treasuries rose 0.43% for the week. Investment-grade bonds increased 0.22%. Treasury Inflation-Protected Securities (TIPS) added 0.06%, while high-yield bonds lost 0.07%.
In the currency arena, the U.S. dollar increased 0.28%.
Energy-based commodities increased 0.56%. Broader-based commodities rose 0.80% and gold gained 1.63%.
Bob’s News & Updates
Join me for the Orlando MoneyShow, February 6-8, 2020, at the Omni Orlando Resort at ChampionsGate. I will be speaking Thursday, Feb. 6, 11:30 a.m. about Important Changes in IRAs and Other Retirement Planning Strategies You Must Know. On Feb. 7, I will talk at 11:30 a.m. about 10 Questions You Must Answer Before and During Retirement. Other investment experts who will be speaking include Hilary Kramer, Bryan Perry and Mark Skousen. Register by clicking here or call 1-800-970-4355 and mention my priority code of 049320.
The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.
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