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October showed investors plenty of red for returns, November kept this idea of volatility very much alive and yet it spared investors the negative returns October delivered. The end of volatility is not near.

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     Ninety days ago there was a great deal of talk by many of the financial talking heads pertaining to the constant supply of the "all time highs" (ATHs).  Since the current ninety cycle started, all the discussions and interviews of ATHs seems to have vanished quietly away and rightly so. We are now seeing "lower highs and lower lows" as it is characterized in our industry.  This simply means, the markets have weakness.  This will likely not abate very soon.

As of Late.


     If October primed investors pump for accepting new rounds of volatility, the likes we have not seen in basically more than two years, November was a great month to follow on the heels of October.  While today our lives are replete with mountains and mountains of data related to history, as humans one of the constants remains true of us; How soon we forget.

     The historical "normal" volatility of stock markets is now back and seems to be unwelcome by many.  The longer it stayed away, the more vicious it would seem when it returned.  It has returned without a doubt.  November was characterized by swinging more than 7% from highs to lows and as the month finished out, the broad indices all finishing quite close to 0% gains.  Some indices ended about +1% for the month while others were down about the same as well. All moved up and down approximately 7% during November.

 

     As we can see in the chart above, the first week of November led the month with great hope of the stock market getting "back on track" and stocks overall were up about 3% that week alone.  Then basically for the next two weeks it was a steady ride down, again with that fall amounting to basically a 7% downturn.  The last week of the month, stocks began to try to "heal" and rose back up to the break even range as the month ended.

     If we look back just a bit further, the last 90 days show us that November was really more like a condensed version of that 90 day cycle. Stocks generally falling and then, for short periods of time, trying to rise again but definitely not getting anywhere close to surpassing the mid September highs which many of the financial talking heads were so enthralled about.  This ebbing and flowing is quite typical of markets historically.  Markets seldom smoothly trend in either direction, up or down.  They may trend well but historically they bounce and bump and writhe along.  The last two years have been the exception to the historical gyrations.  Our view is the calmness of the past two years is now over, today a wishful desire of the past. 

 
 
 
     Getting back to the markets of November we will look briefly at this chart below.  It simply compares the price changes of the 20 Year U.S. Government Bond to the S&P 500.  As we see here, for the majority of the month of November, the U.S. Government Bond (shown in black) were higher for the majority of the month and really never faltered or bounced around very much.  Their strength is quite evident particularly when we compare that strength to the S&P 500 (shown in beige).  In times of stock market stress, there can be a fair amount of interpretation about stocks taken from how the government bond markets are acting.  For November, government bonds were smooth sailing in the face of a rocky month for stocks.
 
   
 A somewhat common question I get or hear is, "Stocks and bonds move the opposite of each other, right?"  While at times there is some truth to this, it is definitely not a statement of principle one can make with any certainty and also not a theme one can invest with for any lengthy period of time.

     As you can see below, over the last 18 years, U.S. Government Bonds have actually stayed well above stocks in their performance and also, at no time did U.S. Government Bonds fall below the value they started with in January of 2000.  I make this point again (this was pointed out in the May 2018 newsletter) to address the common question stated about about bonds and stocks moving opposite of each other.

 

     I have learned over the last 31 years, never underestimate the power of bonds: Never.  In 2008, they were the only asset class to make money and not deliver losses to investors if those investors were buy-and-hold investors.  Though many people seem to have some kind of love affair with stocks, bonds truly rule the investment and finance world in terms of dollars invested by more than 100 fold.  Yes, the bond markets truly dwarf the stock markets.

     So, in keeping our eyes focused on the personal targets that each investor should have for themselves individually (a plan), using bonds at certain strategic times can help improve the chart above as well as the personal accounts of investors.     

 

We remain watchful. 


Ken Graves, Chief Investment Officer
Capital Research Advisors, LLC


 

 We currently have holdings based on the following in the six models we use most;  

Small Cap Index/Russell 2000  This has been sold and this model is 100% in money market.

S&P 500 Index
SMid Cap Growth Index This was sold in early October and is 100% in money market.


Electronics Sector Index  This has been sold and is 100% in money market.
Real Estate Sector Index This was sold in early October and is 100% in money market
Utilities - Our newest Position

Japan Nikkei 225 Index
Great Britain 
Long U.S. Dollar 

High Yield Bond Inverse Position
High Yield Bond Index

Long-Term U.S. Government Bond Index

Ultra Short Term Tax-Free Index
U. S. Government Long Term Bond Index

 

CaptialResearchAdvisors.com 

Capital Research Advisors, LLC, 
4185 B Silver Peak Parkway, 
Suwanee, GA 30024 
770-925-1000 
800 -767- 5364 
All rights reserved

 

 


Mortgages:

Mortgage rates seem to be dropping down just a little as of late.  Stay tuned.
 

Taxes are never fun.


Let's face it: Taxes are really not too fun. Will you really wake up the morning of Dec. 31 and finish all the year-end tax action items? Here are a few areas you might try to address this month before the 31st.
 
Switch hit years with your itemized deductions
Going forward, you will hear more about "alternating" or "bunching" expenses you have as a possible effective tax strategy. What the idea here comes down to is to incur more deductible expenses in one year then skip them the next, all going back and forth to save on taxes.

It works like this.  The tax changes of late 2017 give you a larger standard deduction each year but also makes it harder to reach higher limits for itemizing deductions if you think you can.  The strategy might be sensible if you won't normally have quite enough deductions to be able to itemize every year but if you could count two years into one year, you could get a bigger deduction.

The largest percentage of taxpayers will likely take the standard deduction ahead under the new code which is likely to be many more people than in the past according to Treasury Department projections. Some payers might be able to alternate between the two strategies year over year, itemizing and taking the standardized deduction.

With there being a $10,000 cap on state taxes and the elimination of the interest deduction on home equity loans sometimes, this makes itemizing harder to justify for many people, 

"By holding back on payment in one year or accelerating multiple years of payments into  one year, a taxpayer can alternate between itemizing and claiming the standard deduction, getting as much tax benefit for those actual expenses as possible.

Even though most deductible expenses in areas like state taxes and mortgage interest, aren't flexible enough to be switched from one year to the next, charitable contributions can be a perfect fit for this strategy."
 
Time works
A similar notion is the idea of corralling deductions can occur by either accelerating, or delaying, flexible expenses and even the receipt of income if you can.

Medical expenses are a great possibility. You might find that you can pay into your HSA the maximum one year and fund it to a lessor degree for certain medical costs either over the waning weeks of a current year or wait until the following year. Examples range from buying new glasses to taking elective procedures. Why try to get all of them in now? Because medical costs will be harder to write off next year. This is the last year medical expenses are deductible on federal returns to the extent they exceed 7.5 percent of adjusted gross income. In January of 2019 it rises to 10 percent, meaning it will be harder to meet the higher limit and possibly take you out of destructibility range next year. 

In other respects, timing deductible expenses won't work as well as it did in the past. For example, a common strategy in prior years was to accelerate state income-tax and property-tax payments before the year expired to lock in the tax benefit. With state taxes now capped at $10,000, there's less incentive to do that, or none at all.
 
Find deductible investment losses
"Tax loss harvesting" is another informal tax term that might gain in popularity, thanks to the stock market's recent sell-off.  Investors who realize or lock in trading gains or losses first need to sort through the pile, as short-term losses offset short-term gains, while long-term losses offset long-term gains. (Short-term gains and losses are those held one year or less.)

Then, if total losses exceed gains, up to $3,000 of the remaining loss can be used to offset other income, meaning they can be deducted, Losses above $3,000 can be carried forward to offset gains in the following year. Tax reform didn't change this format.

Amid the stock market swoon, a lot more investors now have losses that looked like gains just a few weeks ago, potentially bringing this strategy into play. Just note that it works only with investments held in taxable accounts — IRAs, workplace 401(k), 403(b) plans and other tax-sheltered vehicles.
 
Avoid 50-percent penalty
One of the nastiest tax penalties awaits people who fail to take required minimum distributions or RMDs from Individual Retirement Accounts before year-end. The penalty of 50 percent applies to the amount that was supposed to be withdrawn but wasn't. It pertains to people older than 70½. RMDs apply to traditional IRAs (including rollovers, Simple IRAs and SEPs or Simplified Employee Pensions) but not to Roths (while the owner is still alive).

People still working past 70½ can delay an RMD on a 401(k) account until  April 1 of the year after they retire, for those plans that allow this option. 
 
Give your withdrawals to charity
Last year's tax-reform legislation permanently preserved the option of donating RMDs to charity. Up to $100,000 a year can be transferred directly from an IRA account to one or more eligible charities.  Why consider this? Because the amount is excluded from taxable income and taxpayers don't need to itemize to do this, but you obviously would need other money to live on.

By using the charity-donation strategy on RMDs, taxpayers not only reduce their taxable income by the amount of the donation but also could shave or eliminate capital gains taxes they might incur if the IRA withdrawal had pushed them into a higher tax bracket
.
Tax reform retained the zero-percent tax on long-term gains for lower-income people — singles with taxable income below $38,600 and married couples below $77,200.  Some affluent seniors could find themselves in this group.

Happy deducting!!

 


      


     

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This report/summary is to be considered general in nature, reflects our opinions and is based on our best judgment at the time of writing. All information is deemed to be from reliable sources but we cannot guarantee its accuracy. No warranties are given or implied as to their promise of occurrence in the future or their accuracy. It is the readers’ responsibility to decide if any of our opinions are suitable for their own individual situation, and in what manner to use the information. No specific decisions should be made based on this report. These opinions should not be construed as a solicitation for any service. Past performance does not guarantee future results. The opinions expressed in this piece are those of the author and do not necessarily reflect the opinions of Ceros Financial Services, Inc.

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IMPORTANT DISCLOSURES

All the information in our newsletter is believed to be reliable and much of it is based on the proprietary research of Capital Research Advisors, LLC itself. However, because of the volume of information we review and the frequency with which it changes the information can only be provided as is on a best efforts basis. The information is not intended to be actionable investment research and therefore should not be used as such. Sources for this information include, but are not limited to, CBS MarketWatch, Big Charts, Bloomberg, Streetscape, Money/CNN, Futuresource, Stock Chart, Yahoo Finance, AmiBroker and http://www.newyorkfed.org/

CaptialResearchAdvisors.com

Capital Research Advisors, LLC,
4185 B Silver Peak Parkway,
Suwanee, GA 30024
770-925-1000
800 -767- 5364
All rights reserved







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