WEEKLY STOCK MARKET COMMENTARY
For the Week of November 19, 2007
After posting losses six out of the seven prior sessions, the major markets bounced back Friday to end the week on a positive note. A sharp rally on Tuesday may have been the savings grace, as mixed corporate earnings reports, historically high oil prices and ongoing concern about the credit industry continued to concern investors. The Dow ended the week up 1.21 percent to 13,176.79. The S&P gained 0.41 percent to close at 1,458.74, and the NASDAQ added 0.35 percent to finish at 2,637.24. Markets will be closed Thursday and have a shortened trading day on Friday due to the Thanksgiving holiday.
Source: Morningstar.com. * Past performance is no guarantee of future results. Indexes are unmanaged and cannot be invested into directly. Three and five-yearreturns 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.
Up-Beat Unemployment – The Labor Department last week reported fewer than expected unemployment rate claims in October, despite increases in benefits enrollment in California due to the wildfires. The 317,000 applications filed last month was a drop of 13,000 from the previous week and was the lowest number of new claims in a one-week period since Oct. 9.
Working Harder – Worker productivity reached its highest rate in four years during the third quarter. According to the Labor Department, the amount of output per hour of work rose to an annualized 4.9 percent, double the second quarter increase of 2.2 percent and the largest surge in productivity since 2003.
Pension Lives On – The maximum annual amount paid out by the Pension Benefit Guaranty Corporation (PBGC) for defined benefit pension plans that fail in 2008 will be $51,750 to an individual retiring at age 65. In spite of the maximum benefit limitations imposed by the agency, over 90 percent of the 1.3 million Americans that had their plans taken over by the PBGC have not experienced any reduction to their monthly pension (Source: PBGC, BTN Research).
Better Than Average – The growth in the nation’s economy (i.e., Gross Domestic Product, or GDP) during the third quarter 2007 was 3.9 percent (i.e., quarter-over-quarter increase stated as an annualized total). Over the past 50 years (1957-2007), the average growth rate for the economy has been 3.3 percent. GDP is the annual market value of all goods and services produced domestically by the U.S. (Source: Commerce Department, BTN Research).
Inflation Here, Deflation There – Consumer prices in Japan have not increased but rather have fallen for 10 consecutive years (i.e., deflation rather than inflation). The last time the U.S. experienced a deflation of prices in a single calendar year was 1949 (Source: Financial Times, Department of Labor, BTN Research).
WEEKLY FOCUS – IRS Rolls Over on Inherited Retirement Accounts
The IRS regifted a perk that Congress gave a year ago tononspousal beneficiaries of qualified retirement accounts, 403(b) plans and governmental 457(b) plans. In the Pension Protection Act of 2006, Congress granted nonspousal heirs the same option as spouses who inherit a retirement account – the ability to withdraw money over their expected lifetime, minimizing up-front taxes.
In May, the IRS interpreted that provision to be at thediscretion of the plan sponsor, not mandatory, in effect reinstating the rules as they stood before the Pension Protection Act. Those rules required a nonspouse beneficiary to take either a lump sum distribution or
periodic distributions over a specified period, typically either five years or the life expectancy of the original account owner or – best case scenario – over the life expectancy of the beneficiary. That meant the beneficiary must immediately pay taxes on the distributions.
Thanks to the Pension Protection Technical Corrections Act of 2007, introduced in the House and Senate in August, all beneficiaries, whether or not they were legally married to the account holder, can roll over the inherited funds into an IRA set up to receive the inherited funds and delay distributions until they (what is a beneficiary) reaches age 70½. The effect is to delay payment of taxes by the beneficiary.
If your qualified retirement accounts – including 401(k), 403(b) and 457(b) plans – name nonspouse beneficiaries, you may want to revisit your estate plan in light of these changes. Although the new IRS ruling gives your heirs the option of rolling the inherited account into an IRA, other strategies may be more suitable to your situation and that of your heirs. Call our office to review your beneficiaries on all of your accounts and how those accounts fit into your overall retirement planning and estate planning.
* 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. WMCSAI# 261652