December 6, 2019
Markets ended the week on a high note as Friday’s blockbuster jobs report helped push the S&P 500 into the green for the week. It was a significant turnaround for the index which had faltered earlier in the week on the Trump White House’s announcement of more tariffs on global trading partners. Brazil and Argentina were added to the list of countries to suffer from tariffs as the administration sought to impose steel tariffs on the two in response to suspected currency manipulation. France was also put on notice that they could see tariffs placed on their goods in reaction to a new French digital services tax on U.S. tech firms. Also weighing on markets this week were concerns that a delay in a U.S.-China Phase 1 trade deal would result in new China tariffs on December 15th. The totality of the potential new tariffs risks further sapping demand for U.S. manufacturing and services which reported weaker month-over-month figures this week. All these concerns were brushed aside on Friday once the jobs number blew past expectations, signaling business confidence and the economic expansion remains intact. For the week, the S&P 500 added 0.16%.
Unemployment Hits 50 Year Low
This week’s monster jobs report snuffed doubts over whether the U.S. economy was still expanding. In November, businesses added 266,000 jobs. That crushed estimates for 187,000 new jobs. The unemployment rate ticked down to 3.50%, matching its lowest level since 1969. Gains were broad-based with manufacturing overcoming the drag from the trade wars. The sector added 54,000 to company payrolls. The figure was skewed, however, by the fact that the resolution of the GM strike brought 41,300 jobs back online. Strong job gains were also seen in education and health services +74,000, professional and business services +38,000, and transportation and warehousing +15,500. Wage growth remained strong, rising 3.10% from a year earlier. Overall, it was a very solid jobs and wages report.
Service Sector Holds While Manufacturing Seeks Bottom
The manufacturing sector remained in recession in November as the Institute for Supply Management (ISM) reported the ISM Manufacturing index hit 48.1. That was down slightly from 48.3 in October. November’s reading remained below 50 which is the dividing line between recession and expansion. The manufacturing sector has been mired in recession over the last four months as the trade war has continued to drag on. The ISM Services Index, which provides a better gauge of the health of the U.S. economy, fared a bit better in November. Although down from 54.7 in October, November’s 53.9 was still respectable. Bright spots in the services sector included new orders and employment, both of which rose during the month and signaled that the U.S. services sector has been able to weather the impact from the broader global slowdown. A Phase 1 U.S.-China trade deal, tentatively expected on December 15th, would go a long way to helping the beleaguered manufacturing sector stabilize and would create faster activity which would help the services sector as well.
Markets had a rocky start to December, but they were quick to recover once the jobs report reminded investors of the underlying resilience of U.S. businesses. Hopes for continued stock gains for the remainder of the year were reinforced by improvements seen elsewhere in global economic growth indicators. China reported that its manufacturing sector rose back into expansion territory in November, while its services sector also posted positive numbers. In the Eurozone, the economic bloc managed to sustain its expansion in its domestic services sector. It was one of those weeks that started negative and felt at times as if sentiment wanted to turn sustainably so, but the blockbuster jobs and wages numbers were well timed, managing to restore investors’ faith.
The Week Ahead
The Federal Reserve holds its last FOMC meeting of the year. We’ll also check holiday receipts as retailers release their November sales figures.
Countdown to 2020: Year End Financial Planning Tips
Here are six items to check off your to-do list before the end of the year to avoid paying extra taxes and to help get your finances in order. Please feel free to call our office at (214) 891-8131 if you have any questions about year end financial planning.
1. Make workplace retirement contributions. If your employer offers a 401(k), 403(b) or 457 plan, make additional contributions if you can in order to reach the maximum allowable contribution amount and be sure to take advantage of any matching contributions from your employer. The annual contribution limit for 2019 is $18,500 (plus an additional $6,000 catch-up contribution for anyone who is age 50 or over). Your contributions will benefit from tax-deferred compounded growth, and they can potentially lower your tax bill. Be sure to speak with your tax consultant or financial advisor about your individual circumstances.
2. Contribute to your personal IRA. You have until April 15, 2020 to make your IRA contributions for 2019. Traditional IRA limits are at $6,000 if you’re under 50. If you are older than 50, you can contribute an additional $1,000 as a catch up contribution.
3. Harvest losses to offset gains. Consider using any losses in your portfolio to offset any gains. By realizing, or “harvesting” an under-performing stock, you can use the loss to reduce your taxable capital gains and potentially offset up to $3,000 annually of your ordinary income.
4. Make a charitable donation. Charitable donations can help reduce your tax burden, but there are rules that must be met in order to take the deduction, such as making contributions to what the IRS deems as “qualified organizations.” Consider donating appreciated stock to charity which may allow you to avoid capital gains taxes.
5. Check your rainy day fund. The rule of thumb for how much to save in an emergency fund is typically six to nine months of living expenses. If you are getting a year-end bonus, it might be a good idea to put that away for any unexpected events or emergencies that may arise.
6. Reassess investment goals. Start the new year off on solid financial footing. Consider meeting with your advisor to review your short- and long-term investment goals, your overall contributions, and your portfolio allocations to verify that you’re on track.