Like an Acrobat, Markets Tumble but Recover

January
25

Written by: Jon McGraw

Investors breathed a sigh of relief last week when U.S. stock markets recovered from a tumble toward bear market territory with the grace of a Cirque du Soleil performer. Many stock markets around the world finished the week with gains, although national indexes in Europe and the United States fared better, generally, than those in Asia.

BloombergBusiness reported global stocks experienced their biggest gains in more than three years, while safe haven markets, including Treasuries, retreated.1 Stocks moved higher on speculation the European Central Bank (ECB) will expand stimulus measures, the U.S. Federal Reserve may revise its rate hike intentions, and Japan and Asia also may take steps to support their markets. According to the Financial Times:

“Sentiment turned in part because of dovish comments on Thursday from Mario Draghi, president of the European Central Bank, which many in the market viewed as signaling that further stimulus measures could be unveiled in March … The slide in U.S. equity markets and strengthening of the U.S. dollar have rapidly unraveled investor expectations that the Fed will be able to lift rates four times this year, as the central bank seeks to normalize policy. Instead, traders put the odds on just one rate rise this year.”

A late-week rally in oil prices also helped push stock markets higher. The Financial Times reported crude oil hit a 12-year low midweek and then bounced more than 18 percent. While improving oil prices proved heartening to investors, Barron’s pointed out prices have dropped because supply expanded ahead of demand. With growth in China slowing, it may take some time for supply and demand to balance.

Data as of 1/22/16 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 1.4% -6.7% -7.6% 6.2% 8.1% 4.2%
Dow Jones Global ex-U.S. 0.3 -9.0 -15.4 -4.1 -3.1 -0.7
10-year Treasury Note (Yield Only) 2.1 NA 1.9 1.8 3.4 4.4
Gold (per ounce) 0.2 3.2 -15.4 -13.4 -4.0 7.1
Bloomberg Commodity Index 2.4 -4.2 -25.9 -19.1 -14.1 -7.8
DJ Equity All REIT Total Return Index 1.3 -4.4 -9.1 7.4 10.4 6.4

Congress Expands Qualified Expenses for 529 Plans

It’s college time! What will the money in a 529 college savings plan cover? If you have a child or grandchild who will be heading to college soon and you have set up and contributed to a 529 college savings plan, it’s almost time to tap into those funds.

The reason many people start tucking money aside in college savings plans when their children are young is that any earnings in 529 plan accounts grow tax-deferred and are federally tax-free (and often state tax-free) when withdrawn, as long as they’re used for qualified education expenses for a designated beneficiary. Qualified expenses include tuition, fees, books, and room and board.

Recently, Congress passed legislation that made computers, Internet access, printers, scanners, education-related software (no games) and other peripheral equipment qualified expenses. Computers were qualified expenses previously as long as the college required computers for attendance. Now they qualify even if the school does not require them.

According to Kiplinger’s, 529 plan savings can be used for room and board even if the account beneficiary lives off campus, as long as he or she is attending college at least half-time. While you don’t have to document expenses for 529 plan administrators, it’s a good idea to keep a record of all education-related expenses.

529 plans are a smart way to save and invest for college.2 Contributions may be state-tax-free, and there is no limit to the amount you can contribute annually, according to SavingforCollege.com, but there are tax-related nuances to understand. During 2015, a parent or grandparent could contribute up to $14,000 per child or grandchild and qualify for annual gift tax exclusion ($28,000 if a spouse contributes, too.) If you prefer, you can make a lump-sum contribution of up to $70,000 per beneficiary, and spread it over five years for gift tax purposes.

To learn more about this college savings plan for your children or grandchildren, contact your financial professional.

Weekly Fun—Think About It

“Common sense is not so common.”

—Voltaire, French writer, historian and philosopher

Notes:

  1. U.S. treasuries may be considered “safe haven” investments but do carry some degree of risk, including interest-rate, credit and market risk.
  2. Please keep in mind, prior to investing in a 529 plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are available only for investments in such state’s qualified tuition program. Nonqualified withdrawals may result in federal income tax and a 10% federal tax penalty on earnings.