3rd Quarter Newsletter

Marilyn Brohm |


3rd Quarter 2019 Newsletter


July 25, 2019

Mid-Year Market Outlook – Alex, CFP®

As of July 19, 2019 YTD, the S&P 500 Index is up 20%, and international stocks (MSCI EAFE Index) are up about 13%. U.S. bonds (Barclays U.S. Aggregate Bond Index) are up a little over 6%. A great year indeed after a disappointing 2018. Unlike 2016 and 2017, as you can see from the chart, 2018 and 2019 have been bumpy years for U.S. stocks (S&P 500 Index), even though stocks made money. We expect the ride for all stocks to be bumpy going forward, even if the stock market pushes higher.

Unfortunately, though, we think it will be difficult for the markets to climb much higher this year unless some new, good news occurs. What could drive the market even higher in 2019? A resolution to the U.S. vs. China trade war and better than expected corporate earnings are probably the two biggest items on the stock market’s “wish list.”. See my article below for why a comprehensive resolution to the U.S. vs. China trade war currently seems unlikely.

We still believe the chance of a recession in the next 6-18 months is moderately low; however, given the uncertainty of global geopolitics, including the U.S. – China negotiations, this may increase. Vanguard recently raised its estimated chance of a recession in the next 12-18 months from 30% to 40%. However, a recession in 2020 is not its base scenario. It still thinks 2020 will be a year of slow U.S. growth (1-2% for the next year). Especially since global central banks, including our own U.S. Federal Reserve, have recently signaled they will do what they can to keep this economic expansion going. This should also be positive news for global stocks in the near-term.

We maintain our positive view on equities, especially in the U.S…. Equities (Stocks) have historically performed well in the latter stages of the economic cycle — generating returns above the full-cycle average. (Source: Blackrock, Global Investment Outlook, July 2019)

With that said, we are cautiously optimistic for stocks/equities and the global economy for the remainder of 2019 and 2020. Medium to longer-term, we still think a mild recession and bear market in stocks are possible. Stay tuned!

Cold War 2.0: China vs. the U.S.? – Alex, CFP®

The U.S. Administration is in continuing negotiations with China over tariffs and other trade-related issues.  Currently, trade talks are stalled. U.S. restrictions on telecom gear maker Huawei Technologies remain a sticking point, and the threat of more tariffs still looms. Because tariffs are not the only issue, reaching a deal that includes tariffs, U.S.  intellectual property protections, easier access to Chinese markets, and technology security will be difficult.

Most of the analysts we read believe the U.S. and China have firmly entered a new phase in our competitive relationship. What has changed? The U.S. and our global trading allies have long complained about China’s trade and intellectual property policies. Trump has made these complaints a centerpiece of his agenda; plus, these issues have united most U.S. politicians against China, which in our era of hyper-partisan politics is notable. This means that Trump, for now, has the latitude to play “hardball” with China by putting them on the defensive with tariffs and restrictions on two of its biggest tech companies, Huawei and ZTE. This potentially has serious ramifications for global trade, global security and technology. I found this Venn diagram during my reading that illustrates how trade is only one issue in our complex, competitive relationship with China.

Structural U.S.-China competition is at the center of geopolitical uncertainty. The U.S. and China have entered into a strategic competition that we see as structural and persistent. The tensions go beyond trade, extending to strategic concerns over domination of next-generation technologies and their implications for national security. The fallout is a potential rollback of decades-long globalization trends that gradually lowered inflation and expanded corporate profit margins. (Source: Blackrock, Global Investment Outlook, July 2019)

Our relationship with China is complex. Both the U.S. and China, and the rest of the world, have benefited from global trade. Much of the world’s growth over the past 20 years is due to China. China’s rise and advancement is based on moving up the value chain, restricting access to foreign companies so its domestic companies can catch up. In other words, China wants to design and make semiconductors and supercomputers, not cheap clothes and toys. This is how a country develops technological knowhow and becomes wealthier over time. Currently, we don’t see China substantially changing its economic development plan, and this will make it harder for China to agree to some U.S. demands.

Regarding the economic impact of a “no deal” between China and the U.S., economists have tried to assess the potential impact of high, sustained tariffs. The economic studies suggest this scenario will dent U.S. and global growth but not enough to push the U.S. or the world into a recession by itself.

A few studies in recent months have attempted to quantify the impact of new tariff actions from countries such as the U.S. and China. These studies have suggested an economic growth level reduction of around 0.3% in 2020 for both the U.S. and the pan- European economy compared to the previous status quo of no new tariff implementation. The suggested negative impact on Chinese economic growth levels is a little higher at over 0.5%, but in the wider scheme of things, this is a nudging down of economic growth rates, not an immediate precursor to economic recession. (Source for quote and chart: Chris Bailey, European Strategist, Raymond James, June 2019.)

So, what’s the bottom line? Though it appears a U.S. vs. China trade war won’t derail our global economy, business leaders, politicians and economists are already speculating how our competitive relationship will change our respective countries, as well as global supply chains, technology access and competition and globalization in general. While we hope Trump and Xi can find a compromise, we admit it may be difficult given the breadth of issues on the table.

Health Savings Accounts: The Best Bang for Your Buck? - Bryson Slater, CFP®


Even for many healthy individuals, medical expenses will be the single largest expense that they will pay in retirement. Some estimates show that the average American will pay close to $265,000 to cover out-of-pocket health care costs throughout his or her glory years. A Health Savings Account (HSA) is one of the few tax-advantaged options that can help combat these astronomical costs. It just takes a little bit of planning. An HSA is triple tax advantaged, which is more advantageous than any other type of account on the market. Triple tax advantaged means the amount you contribute to the HSA does not count as income, market gains are not taxed, and distributions are tax-free if the funds are used for a qualified medical expense. Because of this tax benefit, some financial professionals recommend maxing out an HSA before any unmatched 401(k) or IRA contributions are made.


In order to be eligible for an HSA, you must be enrolled in a High Deductible Health Plan. This means your deductible must be at least $1,350 for single coverage or $2,700 for family coverage. There are a few other qualifications your healthcare plan must meet to be eligible for an HSA so be sure to check with your insurer prior to making contributions.


Contributions are limited by the type of insurance coverage you have. For 2019, individuals with single coverage can contribute up to $3,500, while those with family coverage can contribute up to a total of $7,000. If you're 55 or older anytime in 2019, you'll be able to contribute an extra $1,000. These contribution limits are for a combination of both employee and employer contributions. Although you can open these accounts on an individual basis, many employers offer an HSA as an additional employee benefit. Contributions can be made to an HSA up until the time an individual enrolls in Medicare.


Many HSA accounts have a variety of investment options to choose from:  Cash, money markets, mutual funds and stocks. Generally, there is a low-interest cash account selected as the default option. Some plans have a minimum balance requirement that must be achieved before you are allowed to invest your funds in the market. After this threshold is met, you are free to choose any of the investments offered by the plan. These investment options will allow you to take full advantage of the market.


Distributions from an HSA must be spent on qualified medical expenses in order to receive a tax-free distribution. If the expense does not meet the requirements of a qualified medical expense, the distribution is taxed as ordinary income plus a 20% penalty. After the age of 65, non-qualified medical expense withdrawals are taxed as ordinary income but there is not an associated penalty; essentially turning the HSA into an IRA. Luckily, there are a large number of medical expenses that meet the qualified medical expense criteria (http://www.hsacenter.com/what-is-an-hsa/qualified-medical-expenses/). As long as you have proper documentation, a withdrawal from your HSA account can even be used to cover previous qualified medical expenses. HSA balances do not have to be spent each year. You can leave the funds in the account year after year allowing you to accrue a substantial balance. 


HSAs are a powerful investment vehicle that should be considered by anyone who meets the qualifications for opening an account. They offer a tax efficient way to pay for medical expenses that would otherwise be paid out of pocket. Although, paying for these qualified medical expenses out of pocket in your early years, instead of using HSA funds, may be a tax savvy move. This would allow your HSA more time to take full advantage of the tax benefits and compounding interest, which, according to Albert Einstein, is the most powerful force in the universe!


Fall Medicare Seminar - September 12th, 2019 – Marilyn Brohm


Image result for medicarePlease join us at our office as The Stonum Agency, Inc. gives us a broad picture of Medicare: The do's and don'ts - the options and pitfalls. There will be plenty of time for Q & A.


This seminar is for anyone nearing or at Medicare age, so feel free to invite friends and family. Several of our clients have chosen to work with Cindy and Amy with rave reviews!


Our session is Thursday, September 12th from 6:00 PM - 8:00 PM. We have a limit of 12, so if you think you’re at all interested, please email me to reserve your spot. You can always change your plans closer to the event:  [email protected]  


Let’s Do the Numbers: Jim Stoutenborough, CFP®

  • The U.S. stock market made up in June what it lost in May.  The S&P 500 had its best year in June since 1955 up 7.1%. You are looking at a time before I was born – you are looking at a long time. The Russell 2000 was up the same 7.1% with international markets up a solid 5.9%.  Bonds were also up 1.3% - another nice month for bonds on the anticipation of a Fed rate cut with the 10-year treasury dropping to around 2%.
  • The stock market had a great first half except for May.  Large U.S. companies, the S&P 500 Index, was up 18.5% and the Russell 2000 Index (small U.S. companies), was up 17% for the year.  The international index, the MSCI World ex USA, lagged the US indexes but still up 14.6%.  With bond yields dropping - the Barclays U.S. Aggregate Bond Index (quality U.S. corporate and gov’t bonds) was up 6.1%. 


Asset Class





Cash and cash alternatives

Average 1-yr CD Rate




U.S. Bonds

Barclays US Aggregate Bond Index




U.S. Large Companies

S&P 500 Index




U.S Small Companies

Russell 2000 Index




International Markets





Numbers come from Morningstar.com, *FDIC.gov and **Bankrate.com


Raymond James Implements Enhanced Authentication for Client Access – Ann Kloster


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Description automatically generatedAs we have seen over this past year, two factor or enhanced authentication is now the standard security measure for most financial institutions.   Many of you have probably experienced this when logging into your online accounts for your email, credit card, bank or mortgage company.  RJ has added this additional security measure when accessing your accounts through Client Access.  After logging in, a pop up will ask you to choose to receive a verification code by either text or phone call to the telephone numbers associated with your account.  You may also be asked to answer one of your security questions.   The set up should take less than a minute to complete.   If you have questions or need assistance, feel free to call either Ann or Jeannine at PFS, or contact ClientAccessSupport@Raymond James.com or by telephone at (877) RJAccess, Ext. 77600.     


While this extra security may seem like a hassle, it is an added layer of security to help deter an unauthorized person from accessing your personal account information.  

Safe Deposit Boxes Aren’t Safe - From the New York Times By Stacy Cowley, July 19, 2019

There are an estimated 25 million safe deposit boxes in America, and few protections for customers. No federal laws govern the boxes; no rules require banks to compensate customers if their property is stolen or destroyed. They operate in a legal gray zone within the highly regulated banking industry.

Every year, a few hundred customers report to the authorities that valuable items — art, memorabilia, diamonds, jewelry, rare coins, stacks of cash — have disappeared from their safe deposit boxes. Sometimes the fault lies with the customer. People remove items and then forget having done so. Others allow children or spouses access to their boxes, and don’t realize that they have been removing things. But even when a bank is clearly at fault, customers rarely recover more than a small fraction of what they’ve lost — if they recover anything at all. The combination of lax regulations and customers not paying attention to the fine print of their box-leasing agreements allows many banks to deflect responsibility when valuables are damaged or go missing.

If you have a safe deposit box or are considering one, please read the entire article: (https://www.nytimes.com/2019/07/19/business/safe-deposit-box-theft.html?searchResultPosition=1)

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