Weekly Economic Update 5/20

May 20, 2013

    

SUBDUED INFLATION IN APRIL

Consumer and producer prices retreated last month. The federal government’s Consumer Price Index fell 0.4%, a monthly descent unseen since December 2008; the Producer Price Index declined 0.7%, its biggest monthly drop in three years. Consumer prices also fell for a second straight month; the last time that happened was in late 2008. The core CPI did rise 0.1% in April; the yearly gain in the overall CPI was just 1.1%.1

THREE MORE POSITIVE SIGNS FOR THE ECONOMY

The University of Michigan’s initial May consumer sentiment survey came in at 83.7 – its highest level since July 2007, 7.3 points above the final April mark. After falling 0.2% for March, the Conference Board’s index of U.S. leading indicators rose 0.6% for April. Census Bureau data showed retail sales ticking up 0.1% in April and 3.7% in the past year.2,3

HOUSING STARTS PLUNGE, BUILDING PERMITS SOAR

While the year-over-year increase was 13.1%, housing starts plummeted 16.5% in April, largely due to a 37.8% drop in apartment starts. On the other hand,  last month brought a 14.3% rise in building permits … marked by a 40.6% jump in permits for apartment construction.4

BULLS KEEP RUNNING

The S&P 500 is now on a 4-week winning streak. It rose another 1.98% last week to settle at 1,666.12 Friday. Complementing that 5-day gain, the NASDAQ went +1.82% last week while the DJIA went +1.56%; at Friday’s closing bell, the NASDAQ settled at 3,498.97 and the Dow at 15,354.40. A truly impressive factoid: the NASDAQ and S&P have gained 1% or more in each of the past four weeks.5

THIS WEEK: Monday brings earnings from Campbell Soup, TiVo and Urban Outfitters. On Tuesday, Best Buy, Home Depot, Medtronic, Vodafone, Saks, TJX and NetApp announce quarterly results. Wednesday, NAR releases its report on April existing home sales, the Federal Reserve releases the May 1 FOMC minutes, and Fed chairman Ben Bernanke testifies before Congress; Staples, L Brands, PetSmart, Toll Brothers, Target, Lowe’s and Hewlett-Packard post earnings. The Census Bureau report on April new home sales appears Thursday, along with the March FHFA housing price index and earnings from Dollar Tree, Gamestop, Ralph Lauren, Sears Holdings, Gap, Ross Stores, Aeropostale and Pandora. Friday offers the April durable goods orders report and Q1 results from Abercrombie & Fitch.

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+17.17

+23.40

+3.65

+7.69

NASDAQ

+15.88

+24.36

+7.67

+12.74

S&P 500

+16.82

+27.69

+3.38

+7.64

REAL YIELD

5/17 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.31%

-0.35%

1.41%

1.84%

Sources: cnbc.com, bigcharts.com, treasury.gov – 5/17/135,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

«RepresentativeDisclosure»

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The 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 Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 – businessweek.com/news/2013-05-16/consumer-prices-in-u-dot-s-dot-dropped-more-than-forecast-in-april [5/16/13]

2 – bloomberg.com/news/2013-05-17/u-s-stock-futures-rise-before-leading-indicators-data.html [5/17/13]

3 – census.gov/retail/marts/www/marts_current.pdf [5/13/13]

4 – latimes.com/business/money/la-fi-mo-housing-starts-construction-building-permits-economy-20130516,0,7678305.story [5/16/13]

5 – cnbc.com/id/100746158 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F17%2F12&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F17%2F12&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F17%2F12&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F16%2F08&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F16%2F08&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F16%2F08&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F16%2F03&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F16%2F03&x=0&y=0 [5/17/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F16%2F03&x=0&y=0 [5/17/13]

7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [5/17/13]

8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/17/13]

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may be reached at http://www.theretirementgroup.com.

Net Unrealized Appreciation: An Untold Story

If you participate in a 401(k), ESOP, or other qualified retirement plan that lets you invest in your employer’s stock, you need to know about net unrealized appreciation–a simple tax deferral opportunity with an unfortunately complicated name.

When you receive a distribution from your employer’s retirement plan, the distribution is generally taxable to you at ordinary income tax rates. A common way of avoiding immediate taxation is to make a tax-free rollover to a traditional IRA. However, when you ultimately receive distributions from the IRA, they’ll also be taxed at ordinary income tax rates. (Special rules apply to Roth and other after-tax contributions that are generally tax free when distributed.)

But if your distribution includes employer stock (or other employer securities), you may have another option–you may be able to defer paying tax on the portion of your distribution that represents net unrealized appreciation (NUA). You won’t be taxed on the NUA until you sell the stock. What’s more, the NUA will be taxed at long-term capital gains rates–typically much lower than ordinary income tax rates. This strategy can often result in significant tax savings.

What is net unrealized appreciation?

A distribution of employer stock consists of two parts: (1) the cost basis (that is, the value of the stock when it was contributed to, or purchased by, your plan), and (2) any increase in value over the cost basis until the date the stock is distributed to you. This increase in value over basis, fixed at the time the stock is distributed in-kind to you, is the NUA.

For example, assume you retire and receive a distribution of employer stock worth $500,000 from your 401(k) plan, and that the cost basis in the stock is $50,000. The $450,000 gain is NUA.

How does it work?

At the time you receive a lump-sum distribution that includes employer stock, you’ll pay ordinary income tax only on the cost basis in the employer securities. You won’t pay any tax on the NUA until you sell the securities. At that time the NUA is taxed at long-term capital gain rates, no matter how long you’ve held the securities outside of the plan (even if only for a single day). Any appreciation at the time of sale in excess of your NUA is taxed as either short-term or long-term capital gain, depending on how long you’ve held the stock outside the plan.

Using the example above, you would pay ordinary income tax on $50,000, the cost basis, when you receive your distribution. (You may also be subject to a 10% early distribution penalty if you’re not age 55 or totally disabled.) Let’s say you sell the stock after ten years, when it’s worth $750,000. At that time, you’ll pay long-term capital gains tax on your NUA ($450,000). You’ll also pay long-term capital gains tax on the additional appreciation ($250,000), since you held the stock for more than one year. Note that since you’ve already paid tax on the $50,000 cost basis, you won’t pay tax on that amount again when you sell the stock.

If your distribution includes cash in addition to the stock, you can either roll the cash over to an IRA or take it as a taxable distribution. And you don’t have to use the NUA strategy for all of your employer stock–you can roll a portion over to an IRA and apply NUA tax treatment to the rest.

What is a lump-sum distribution?

In general, you’re allowed to use these favorable NUA tax rules only if you receive the employer securities as part of a lump-sum distribution. To qualify as a lump-sum distribution, both of the following conditions must be satisfied:

  • It must be a distribution of your entire balance, within a single tax year, from all of your employer’s qualified plans of the same type (that is, all pension plans, all profit-sharing plans, or all stock bonus plans)
  • The distribution must be paid after you reach age 59½, or as a result of your separation from service, or after your death

There is one exception: even if your distribution doesn’t qualify as a lump-sum distribution, any securities distributed from the plan that were purchased with your after-tax (non-Roth) contributions will be eligible for NUA tax treatment.

NUA at a glance
You receive a lump-sum distribution from your 401(k) plan consisting of $500,000 of employer stock. The cost basis is $50,000. You sell the stock 10 years later for $750,000.*
Tax payable at distribution–stock valued at $500,000
Cost basis–$50,000 Taxed at ordinary income rates; 10% early payment penalty tax if you’re not 55 or disabled
NUA–$450,000 Tax deferred until sale of stock
Tax payable at sale–stock valued at $750,000
Cost basis– $50,000 Already taxed at distribution; not taxed again at sale
NUA– $450,000 Taxed at long-term capital gains rates regardless of holding period
Additional appreciation– $250,000 Taxed as long- or short-term capital gain, depending on holding period outside plan (long-term in this example)
*Assumes stock is attributable to your pretax and employer contributions and not after-tax contributions

NUA is for beneficiaries, too

If you die while you still hold employer securities in your retirement plan, your plan beneficiary can also use the NUA tax strategy if he or she receives a lump-sum distribution from the plan. The taxation is generally the same as if you had received the distribution. (The stock doesn’t receive a step-up in basis, even though your beneficiary receives it as a result of your death.)

If you’ve already received a distribution of employer stock, elected NUA tax treatment, and die before you sell the stock, your heir will have to pay long-term capital gains tax on the NUA when he or she sells the stock. However, any appreciation as of the date of your death in excess of NUA will forever escape taxation because, in this case, the stock will receive a step-up in basis. Using our example, if you die when your employer stock is worth $750,000, your heir will receive a step-up in basis for the $250,000appreciation in excess of NUA at the time of your death. If your heir later sells the stock for $900,000, he or she will pay long-term capital gains tax on the $450,000 of NUA, as well as capital gains tax on any appreciation since your death ($150,000). The $250,000 of appreciation in excess of NUA as of your date of death will be tax free.

Some additional considerations

  • If you want to take advantage of NUA treatment, make sure you don’t roll the stock over to an IRA. That will be irrevocable, and you’ll forever lose the NUA tax opportunity.
  • You can elect not to use the NUA option. In this case, the NUA will be subject to ordinary income tax (and a potential 10% early distribution penalty) at the time you receive the distribution.
  • Stock held in an IRA or employer plan is entitled to significant protection from your creditors. You’ll lose that protection if you hold the stock in a taxable brokerage account.
  • Holding a significant amount of employer stock may not be appropriate for everyone. In some cases, it may make sense to diversify your investments.
  • Be sure to consider the impact of any applicable state tax laws.

When is it the best choice?

In general, the NUA strategy makes the most sense for individuals who have a large amount of NUA and a relatively small cost basis. However, whether it’s right for you depends on many variables, including your age, your estate planning goals, and anticipated tax rates. In some cases, rolling your distribution over to an IRA may be the better choice. And if you were born before 1936, other special tax rules might apply, making a taxable distribution your best option.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, Merck, Chevron, hewitt.com, ExxonMobil, ING Retirement, Hughes, Pfizer, access.att.com, Glaxosmithkline, Qwest, Raytheon, Bank of America, Verizon, AT&T, resources.hewitt.com, Northrop Grumman, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

Albert Aizin is a Representative with FSC Securities and may be reached at www.theretirementgroup.com.

Economic Update 5/6

UNEMPLOYMENT EDGES DOWN TO 7.5%

April brought a rebound in hiring. Employers added 165,000 jobs, and so the unemployment rate reached a four-year low. (The Labor Department also revised March’s job gains upward to 138,000.) Payrolls have now expanded by an average of 189,000 jobs a month during the last six months.1

CONSUMER SPENDING, OUTLOOK IMPROVE

Household spending increased 0.2% in March, the Commerce Department noted – part of a broader 3.2% advance for the first quarter. The Conference Board’s April consumer confidence index soared 6.2 points to 69.1, far exceeding the 61.0 consensus forecast of economists polled by Bloomberg.2

STRONG SIGNALS OF A HOUSING COMEBACK

Home equity is definitely being restored: the latest 20-city S&P/Case-Shiller Home Price Index (February) shows a 9.3% year-over-year increase, the largest annual gain recorded in six years. The National Association of Realtors reported a 1.5% March gain in its pending home sales index, with the yearly gain at 7.0%.2,3

IS MANUFACTURING COOLING DOWN?

The Institute for Supply Management’s April factory index came in at 50.7 last week, the weakest reading in nine months and down from 0.6 from March. ISM’s April service sector index also declined 1.3 points off the March reading of 53.1.4

S&P TOPS 1,600, FED REASSURES INVESTORS

Last week brought major gains for the Dow (+1.78% to 14,973.96), S&P 500 (+2.03% to 1,614.42) and NASDAQ (+3.03% to 3,378.63). On May 1, the Federal Reserve said it would keep buying $85 billion in bonds per month for the near future, noting that the pace of asset purchases could even increase if needed.5

THIS WEEK: Tyson Foods, Sysco, Anadarko and First Solar report quarterly results Monday. Tuesday, the market awaits earnings from WholeFoods, Walt Disney, Trip Advisor, HSBC, DirecTV, Electronic Arts, Marathon Oil, Symantec, Live Nation, WebMD and Zillow. Wednesday, earnings are in from Liberty Interactive, Green Mountain Coffee, Activision Blizzard, AOL, Sodastream, Wendy’s, Toyota, Liberty Media, Groupon, Monster Beverage, NewsCorp, Tesla Motors and Transocean. Thursday brings a report on March wholesale inventories, the latest initial jobless claims figures, and quarterly results from Sony, Nvidia, Dish Network, Priceline.com and Dean Foods. On Friday, Fed chairman Ben Bernanke speaks at a Chicago banking conference and ArcelorMittal and GoldFields announce earnings.

 

% CHANGE

Y-T-D

1-YR CHG

5-YR AVG

10-YR AVG

DJIA

+14.27

+13.38

+2.93

+7.45

NASDAQ

+11.89

+11.72

+7.28

+12.48

S&P 500

+13.20

+16.01

+2.84

+7.36

REAL YIELD

5/3 RATE

1 YR AGO

5 YRS AGO

10 YRS AGO

10 YR TIPS

-0.53%

-0.27%

1.53%

2.19%

 

Sources: cnbc.com, bigcharts.com, treasury.gov – 5/3/135,6,7,8

Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly.

These returns do not include dividends.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The 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 Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Past performance is no guarantee of future results.  Investments will fluctuate and when redeemed may be worth more or less than when originally invested. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. Market indices discussed are unmanaged. Investors cannot invest in unmanaged indices. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

 

Citations.

1 – bloomberg.com/news/2013-05-03/payrolls-in-u-s-rise-165-000-as-unemployment-drops-to-7-5-.html [5/3/13]

2 – bloomberg.com/news/2013-04-30/consumer-confidence-in-u-s-rose-more-than-forecast-in-april.html [4/30/13]

3 – csmonitor.com/Business/Paper-Economy/2013/0429/Pending-home-sales-climb-1.5-percent-in-March [4/29/13]

4 – ism.ws/ISMReport/NonMfgROB.cfm [5/3/13]

5 – cnbc.com/id/100704308 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F3%2F12&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F3%2F12&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F3%2F12&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F2%2F08&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F2%2F08&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F2%2F08&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=DJIA&closeDate=5%2F2%2F03&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=COMP&closeDate=5%2F2%2F03&x=0&y=0 [5/3/13]

6 – bigcharts.marketwatch.com/historical/default.asp?symb=SPX&closeDate=5%2F2%2F03&x=0&y=0 [5/3/13]

7 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyield [5/3/13]

8 – treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=realyieldAll [5/3/13]

 

This material was prepared by Peter Montoya Inc, and does not necessarily represent the views of Albert Aizin, and The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.


The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Hughes, Northrop Grumman, Qwest, Chevron, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

Albert Aizin is a Representative with FSC Securities and may
be reached at http://www.theretirementgroup.com.