Weekly Stock Market Commentary 10 26 2009

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Stock Market Commentary
For the week of October 26, 2009

The Market
After reaching their highest levels in a year on Monday, the major stock markets bounced around the rest of the week, ending with losses on Friday as investors locked in profits. While more than half of the S&P-listed companies have yet to report third-quarter earnings, eight of the 10 that have reported have exceeded forecasts, according to Thomson Reuters. The National Association of Realtors report for September showed the largest increase in existing home sales in 26 years, but the Nov. 30 deadline for the first time home buyer tax credit may be temporarily fueling demand. For the week, the Dow ended down 0.17 percent to close at 9,972.18. The S&P fell 0.72 percent to finish the week at 1,079.60, while the NASDAQ dropped 0.11 percent to end the week at 2,154.47.

Weekly Stock Market Commentary 10 26 2009
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three and five-year returns are annualized. The S&P, excluding “1 Week” returns, is a reflection of return to an investor, by reinvesting dividends after the deduction of withholding tax.

Cost of Health Insurance – Premiums for employer-sponsored health insurance for a family have gone up 131 percent over the last decade, an increase of 8.7 percent per year (Source: Kaiser Family Foundation, BTN Research).

Receiving Benefits – Before 1960, the Social Security Administration would not approve disability benefits for any individual younger than age 50. The average age of the 7.4 million disabled American workers receiving Social Security disability benefits today is 52.6 (Source: Social Security, BTN Research).

Back To Higher Levels – The current U.S. recession began in December 2007. Just 29 percent of Americans anticipate that they will eventually return their spending and savings habits to their pre-recession levels (Source: Hart Research Associates, BTN Research).

Taxes – The last time the IRS raised its top marginal tax rate paid by individual taxpayers was in 1993. The top marginal tax bracket of 31 percent from 1992 was raised to 39.6 percent in 1993. The top bracket has been 35 percent since 2003 (Source: Internal Revenue Service, BTN Research).

Down Or Flat Since Then – The last time the Federal Reserve raised short-term interest rates was June 29, 2006 or more than three and a quarter years ago (Source: Federal Reserve, BTN Research).

WEEKLY FOCUS – More Affects of Flat Inflation

In our last issue, we discussed the impact of the U.S.’s flat inflation rate on the annual cost of living adjustment(COLA) for those receiving Social Security benefits. Many of the laws related to income tax – including deductions, credits and adjustments – key off inflation so lawmakers don’t have to continually amend the laws as the economy changes. Because the Federal Reserve has closely monitored inflation and acted to keep it in check during the recent economic downturn, U.S. prices for good and services have remained relatively flat overall. No inflation means no increases like the Social Security COLA.

The same factors led to the recent announcement by the Internal Revenue Service that there would be no changes for 2010 in nearly 40 tax benefits keyed to inflation. Among those items remaining at 2009 levels are the contribution and income limits on IRAs, Roth IRAs and 401(k) plans.

Traditional IRA: The maximum contribution limit for 2010 is $5,000 for those age 49 and under, with an extra $1,000 catch-up contribution for individuals age 50 or older.

Roth IRA: The maximum contribution for 2010 is the same as a traditional IRA – $5,000 for those age 49 and under, plus a $1,000 catch-up contribution for those 50 and older. The ability to contribute to a Roth IRA is subject to income limits, however. For those single tax filers, the contribution limit begins to decrease at $105,000 in income and phases out completely at $120,000. For married taxpayers filing jointly, the phase-out begins at $167,000 in income and disappears at $177,000. The exception to the income cap is for rollovers from a traditional IRA to a Roth IRA rule. Previously, only those with less than $100,000 in income were eligible for this type of rollover. That requirement has been removed completely for 2010.

401(k) Plan: The maximum contribution limit for 2010 is $16,500 for those age 49 and under, with an extra $5,500 catch-up contribution ($22,000 total) for individuals age 50 or older.

Although the retirement account contribution limits remain the same for 2010 as they were in 2009, that doesn’t mean your personal plan for retirement saving should remain the same. Individual factors – such as your current income, asset allocation and tax strategies – should be reviewed at least annually to ensure you are maximizing the benefits the IRS allows. We are happy to work with your tax professional to help review your situation and recommend a course of action for 2010. Call our office to schedule a joint appointment.


* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Barclays Capital Aggregate Bond Index is an unmanaged index comprised of U.S. investment grade, fixed rate bond market securities, including government, government agency, corporate and mortgage-backed securities between one and 10 years. Written by Securities America. SAI# 301023