Stock Market Commentary
For the week of June 23, 2008
The Federal Reserve meets this week, with many analysts expecting no resulting change in interest rates. Fed officials have indicated in various speeches the past few weeks that further rate declines are unlikely as the weak dollar continues. Investors will have plenty of economic data to digest this week, including reports on April home prices, May durable goods orders, May new and existing home sales and May personal income and spending. The Dow closed last week down 3.76 percent to 11,842.69. The S&P fell 3.07 percent to end the week at 1,317.93, and the NASDAQ lost 1.97 percent to finish the week at 2,406.09.
Do The Math – On July 1, the Department of Education will significantly decrease the interest rates on variable federal Stafford and PLUS Loans issued between July 1, 1998, and July 1, 2006. The rate for Stafford Loans in repayment status will drop to 4.21 percent from 7.22 percent. The interest rate on Stafford Loans with a status of in-school, grace or deferment will drop to 3.61 percent from 6.62 percent. The rate on PLUS loans will drop to 5.01 percent from 8.02 percent. The rates, which are set annually based on the last three-month Treasury bill auction held in May, will be effective through June 30, 2009.
Fed Openings – The seven-member Federal Reserve board of governors, already short two people since March 2007, will be losing a third board member at the end of the summer. Frederic Mishkin, who has been on the job only since September 2006, is returning to his teaching career at Columbia University. The last time all seven Fed board members were present and voted at a Fed meeting was March 22, 2005 (Source: Federal Reserve, BTN Research).
Paper Or Email? – Three out of every five tax returns (i.e., Form 1040) are now filed electronically. Out of the 143 million returns filed this year, more than 86 million were filed electronically (Source: IRS, BTN Research).
On The Rebound – Small-cap stocks should be, by definition, more nimble than large-cap stocks, thus able to capitalize quicker when a weak U.S. economy improves. In the three years from Sept. 30, 2002, to Sept. 30, 2005 (note that the start date of this three-year period was nine days before the bottom of the 2000-02 bear market), the small-cap Russell 2000 beat the large-cap S&P 500 by 7.4 percent per year (Source: BTN Research).
WEEKLY FOCUS – Dust Off Your Estate Plan
You’ve heard before the importance of reviewing your estate plan when you have an important life event like the birth of a child or grandchild, death of a spouse or child, or divorce. Thanks to the peculiarities of Congress, you should be reviewing your estate plan periodically even if you don’t have a big change.
In 2001, Congress passed a bill that phased in a series of changes in the estate tax law. For 2008, the estate tax kicks in on estates over $2 million at a rate of 45 percent. In 2009, the exemption increases to $3.5 million. In the magical year of 2010, if left unchanged, the law will completely eliminate the estate tax tables – but only for that year. In 2011 it will be back with a vengeance, hitting estates over just $1 million at a 55 percent rate.
That idiosyncrasy has led to some gallows humor about making sure you die in 2010 so your heirs pay no estate tax. Congress seemed to be progressing toward total repeal last year but with the power shift following the election, that seems highly unlikely now. Many financial professionals and estate attorneys believe Congress will act to avoid the “preferred death year” in 2010, some cynics point to the 2008 elections as a major obstacle.
Your estate attorney can use any number of trust tools to help mitigate the tax burden on your estate. Trusts can also protect the assets in your estate from creditors, provide structure for managing the assets and establish some control mechanisms for trust beneficiaries accessing the money. The complexity of trusts and their impact, particularly on the surviving spouse’s access to assets, make it important to get help from an experienced professional.
While we’d all just as soon get through the estate planning process and revisit it only when absolutely necessary, the uncertainties in the tax law make it necessary to do more regular reviews, particularly after legislation has been passed and the IRS has issued its guidelines for complying. We can work with you, your attorney and your accountant to help ensure your current estate plans take into consideration your personal situation and current tax laws. Call our office to schedule an appointment with us and your other advisors.
* 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# 281051