The bank stress test results were finally released last week, but did they really tell investors anything new? The market seemed to do a very good job at anticipating the results over the course of last week and moving accordingly. Of the nineteen financial institutions stress tested, nine came back showing that they were well capitalized and did not need to raise any more money. The nine included companies such as JP Morgan Chase, US Bancorp Goldman Sachs, and American Express to name a few. Ten large financial institutions, however, showed a need to raise capital, including companies such as Bank of American ($33.9 Billion), Wells Fargo ($13.7 Billion), GMAC ($11.5 Billion), and Citigroup ($5.5 Billion). Some of the capital-needs figures were quite large but, on the whole, not surprising. For example, Bank of America needing to bolster their capital by nearly $34 billion was expected with the amount of assets that have either been pushed on the bank or acquired by the bank during the economic downturn. We think that the results of the stress tests will ultimately be seen as a sigh of relief when investors stop and think about how bad the results could have been and the adverse affects that would have resulted in the financial markets. Now the government needs to figure out how to make the banks start lending to consumers more readily and we could really get rolling.
One damper in the news last week was the result of the treasury auction that took place toward the end of last week. The US treasury actually had a difficult time finding buyers for their 30 year bonds, and had to push up the yields in order to fill the auction. Part of the auction which was very intriguing was that indirect bidders, such as worldwide central banks, bought three percent less of the long term bonds than they have historically bought. This could signal what may occur in the future as far as foreign governments and central banks demanding higher interest rates in order to hold US debt, which could ultimately lead to inflationary pressures in the US. While one auction is not significant enough to indicate that anything has changed, the auction surely caught the eye of Wall Street, which promptly sold off on the news.
Over the course of last week, all of the major indexes increased in value. At the same time, the VIX reading for the S&P 500 decreased to its lowest level in 2009 and is now very close to the upper range it traded within during 2007 and 2008. The S&P 500 is close to breaking above the previous high for the year (set on January 9th), while the NASDAQ set a new high for this year during last week. The DJIA still needs about 600 more points in order to create a new high for 2009. Oil broke out of the range in which it had been trading since mid-March, finishing the week with a gain of more than 11 percent. Gold moved up marginally last week, gaining 3.5 percent as investors continued weighing the option of investing in gold, moving back into the equity markets, or moving into the fixed-income markets.
For the trading week ending 5/8/09, the returns in our portfolio models are as follows:
Last Week
Year to Date
Since 12/31/07
S&P 500 (benchmark)
5.96 %
4.09 %
-34.46 %
Aggressive Model
3.97 %
10.17 %
-3.05 %
Growth Model
2.93 %
7.76 %
-2.99 %
Moderate Model
1.37 %
3.61 %
-5.69%
Stable Model
2.50 %
7.15 %
-3.84 %
Over the course of last week we made a few tactical moves in the portfolio models. First, we moved completely out of our hedge (DXSSX), which we put on slowly over the last couple of weeks, on the renewed strength of the markets after the announcement about the bank stress test results. Second, we moved into a full position in Rydex Internet Fund (RYIIX) and Rydex Retail Fund (RYRIX). Both sectors have been leading the various sectors on a relative strength basis over the current uptrend, second and third to only the financial/banking sector, to which we already have exposure. Finally, we opened a new position in small-caps, using Direxion Funds (DXRLX). This comes on the heels of our moving out of the small-cap space a mere two weeks ago when it looked like it could start to move lower. Small-caps ended up continuing to move higher and moved high enough to where it looked like a good purchase point. We will be actively watching all of our positions for breakdown, with an especially close eye on DXRLX, and will make adjustments as necessary.
Economic Wrap Up: There were a few economic news releases over the course of the last week that gave fairly good signals about the current state of the economy and shed a little light on future possibilities. First, the pending home sales figures for the month of March were released last Monday and showed an increase of 3.2 percent, while most analysts and the street as a whole expected zero, and the previous months figure was 2 percent. Construction Spending, also released on Monday, showed an increase of .3 percent while the street expected a decrease of 1.6 percent and February’s figure was a negative 1 percent. Both of these indicators suggest that the bottom of the housing market could be forming (if sales continue to grow and financing for buyers becomes more readily available). If the housing market can turn around, it could really help US consumers gain confidence in the system and the stimulus from the government that has flooded the financial system. Initial jobless claims for the previous week also came in better than expected at 601,000, while the markets were expecting between 620,000 and 635,000, and the previous week’s reading was 635,000. The preliminary productivity figures for the first quarter of 2009 came in at expectation and had little impact on the broad markets, as did the unemployment rate for the month of April.
This coming week is moderately full for the economic news releases, with the US Trade balance and Treasury budget kicking things off on Tuesday. On Wednesday (5/13), retail sales figures for the month of April are released as well as business inventories for the month of March. Everyone will watch the business inventories very closely for any signs of recovery since many people blamed inventories for a large portion of the negative GDP growth for first quarter 2009. Hopefully the number released will surprise investors by coming in better than the expected one percent decline. On Thursday, the Producer Price Index for the month of April is released and on Friday the Consumer Price Index is released – both figures are expected to be almost flat but could show a shift in the inflationary pressures on the economy.
Financial Planning Tip: New Car Purchase Tax Incentives
Car dealers are heavily promoting new car sales and if you are considering buying a new car you should understand the available tax incentives. Purchasers of new cars, light trucks, recreational vehicles and motorcycles will be allowed to deduct sales, local and excise taxes on their 2009 income tax returns. This is an above-the-line deduction, so you don’t have to itemize to claim it. To qualify, the vehicle must be new and purchased between Feb. 17 and Dec. 31.
Taxes on the purchase price of up to $49,500 qualify for the special deduction. As an example, if you live in a state that charges 6% sales tax on the purchase of a new car and your car costs $40,000, you will be able to deduct $2,400 on Page 1 of your 2009 Internal Revenue Service Form 1040 when you file next year. This is a deduction and not a credit. Thus, the tax benefit will depend upon your tax bracket.
The deduction phases out for single taxpayers with an adjusted gross income of more than $125,000, and married taxpayers whose AGI exceeds $250,000. The deduction is not available for single individuals with AGI of $135,000 and married individuals with AGI of $265,000 or higher.
The IRS also offers tax credits for purchase of other distinct categories of motor vehicles, such as qualified hybrid vehicles. Hybrid vehicles use a combination of gasoline and electric engines. These vehicles have drive trains powered by an internal combustion engine and a rechargeable battery.
The credit is available only to the original purchaser of a new qualifying hybrid vehicle. If the qualifying vehicle is leased, the credit is available only to the leasing company. The credits available in 2009 range from approximately $2,000 to $3,000.
Once 60,000 hybrid or clean-technology vehicles from a particular manufacturer are sold, the tax credit is reduced and eventually eliminated. The full credit can be claimed up to the end of the third month after the quarter in which the manufacturer sells the 60,000th hybrid vehicle.
The credit for qualified Toyota and Lexus vehicles was eliminated for purchases on or after Oct. 1, 2007. The credit for qualified Honda vehicles was eliminated after December 31, 2008. To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, you can go to the IRS website and search for “qualified hybrid vehicles.”
The bank stress test results were finally released last week, but did they really tell investors anything new? The market seemed to do a very good job at anticipating the results over the course of last week and moving accordingly. Of the nineteen financial institutions stress tested, nine came back showing that they were well capitalized and did not need to raise any more money. The nine included companies such as JP Morgan Chase, US Bancorp Goldman Sachs, and American Express to name a few. Ten large financial institutions, however, showed a need to raise capital, including companies such as Bank of American ($33.9 Billion), Wells Fargo ($13.7 Billion), GMAC ($11.5 Billion), and Citigroup ($5.5 Billion). Some of the capital-needs figures were quite large but, on the whole, not surprising. For example, Bank of America needing to bolster their capital by nearly $34 billion was expected with the amount of assets that have either been pushed on the bank or acquired by the bank during the economic downturn. We think that the results of the stress tests will ultimately be seen as a sigh of relief when investors stop and think about how bad the results could have been and the adverse affects that would have resulted in the financial markets. Now the government needs to figure out how to make the banks start lending to consumers more readily and we could really get rolling.
One damper in the news last week was the result of the treasury auction that took place toward the end of last week. The US treasury actually had a difficult time finding buyers for their 30 year bonds, and had to push up the yields in order to fill the auction. Part of the auction which was very intriguing was that indirect bidders, such as worldwide central banks, bought three percent less of the long term bonds than they have historically bought. This could signal what may occur in the future as far as foreign governments and central banks demanding higher interest rates in order to hold US debt, which could ultimately lead to inflationary pressures in the US. While one auction is not significant enough to indicate that anything has changed, the auction surely caught the eye of Wall Street, which promptly sold off on the news.
Over the course of last week, all of the major indexes increased in value. At the same time, the VIX reading for the S&P 500 decreased to its lowest level in 2009 and is now very close to the upper range it traded within during 2007 and 2008. The S&P 500 is close to breaking above the previous high for the year (set on January 9th), while the NASDAQ set a new high for this year during last week. The DJIA still needs about 600 more points in order to create a new high for 2009. Oil broke out of the range in which it had been trading since mid-March, finishing the week with a gain of more than 11 percent. Gold moved up marginally last week, gaining 3.5 percent as investors continued weighing the option of investing in gold, moving back into the equity markets, or moving into the fixed-income markets.
For the trading week ending 5/8/09, the returns in our portfolio models are as follows:
Year to Date
Since 12/31/07
S&P 500 (benchmark)
5.96 %
4.09 %
-34.46 %
Aggressive Model
3.97 %
10.17 %
-3.05 %
Growth Model
2.93 %
7.76 %
-2.99 %
Moderate Model
1.37 %
3.61 %
-5.69%
Stable Model
2.50 %
7.15 %
-3.84 %
Over the course of last week we made a few tactical moves in the portfolio models. First, we moved completely out of our hedge (DXSSX), which we put on slowly over the last couple of weeks, on the renewed strength of the markets after the announcement about the bank stress test results. Second, we moved into a full position in Rydex Internet Fund (RYIIX) and Rydex Retail Fund (RYRIX). Both sectors have been leading the various sectors on a relative strength basis over the current uptrend, second and third to only the financial/banking sector, to which we already have exposure. Finally, we opened a new position in small-caps, using Direxion Funds (DXRLX). This comes on the heels of our moving out of the small-cap space a mere two weeks ago when it looked like it could start to move lower. Small-caps ended up continuing to move higher and moved high enough to where it looked like a good purchase point. We will be actively watching all of our positions for breakdown, with an especially close eye on DXRLX, and will make adjustments as necessary.
Economic Wrap Up: There were a few economic news releases over the course of the last week that gave fairly good signals about the current state of the economy and shed a little light on future possibilities. First, the pending home sales figures for the month of March were released last Monday and showed an increase of 3.2 percent, while most analysts and the street as a whole expected zero, and the previous months figure was 2 percent. Construction Spending, also released on Monday, showed an increase of .3 percent while the street expected a decrease of 1.6 percent and February’s figure was a negative 1 percent. Both of these indicators suggest that the bottom of the housing market could be forming (if sales continue to grow and financing for buyers becomes more readily available). If the housing market can turn around, it could really help US consumers gain confidence in the system and the stimulus from the government that has flooded the financial system. Initial jobless claims for the previous week also came in better than expected at 601,000, while the markets were expecting between 620,000 and 635,000, and the previous week’s reading was 635,000. The preliminary productivity figures for the first quarter of 2009 came in at expectation and had little impact on the broad markets, as did the unemployment rate for the month of April.
This coming week is moderately full for the economic news releases, with the US Trade balance and Treasury budget kicking things off on Tuesday. On Wednesday (5/13), retail sales figures for the month of April are released as well as business inventories for the month of March. Everyone will watch the business inventories very closely for any signs of recovery since many people blamed inventories for a large portion of the negative GDP growth for first quarter 2009. Hopefully the number released will surprise investors by coming in better than the expected one percent decline. On Thursday, the Producer Price Index for the month of April is released and on Friday the Consumer Price Index is released – both figures are expected to be almost flat but could show a shift in the inflationary pressures on the economy.
Financial Planning Tip: New Car Purchase Tax Incentives
Car dealers are heavily promoting new car sales and if you are considering buying a new car you should understand the available tax incentives. Purchasers of new cars, light trucks, recreational vehicles and motorcycles will be allowed to deduct sales, local and excise taxes on their 2009 income tax returns. This is an above-the-line deduction, so you don’t have to itemize to claim it. To qualify, the vehicle must be new and purchased between Feb. 17 and Dec. 31.
Taxes on the purchase price of up to $49,500 qualify for the special deduction. As an example, if you live in a state that charges 6% sales tax on the purchase of a new car and your car costs $40,000, you will be able to deduct $2,400 on Page 1 of your 2009 Internal Revenue Service Form 1040 when you file next year. This is a deduction and not a credit. Thus, the tax benefit will depend upon your tax bracket.
The deduction phases out for single taxpayers with an adjusted gross income of more than $125,000, and married taxpayers whose AGI exceeds $250,000. The deduction is not available for single individuals with AGI of $135,000 and married individuals with AGI of $265,000 or higher.
The IRS also offers tax credits for purchase of other distinct categories of motor vehicles, such as qualified hybrid vehicles. Hybrid vehicles use a combination of gasoline and electric engines. These vehicles have drive trains powered by an internal combustion engine and a rechargeable battery.
The credit is available only to the original purchaser of a new qualifying hybrid vehicle. If the qualifying vehicle is leased, the credit is available only to the leasing company. The credits available in 2009 range from approximately $2,000 to $3,000.
Once 60,000 hybrid or clean-technology vehicles from a particular manufacturer are sold, the tax credit is reduced and eventually eliminated. The full credit can be claimed up to the end of the third month after the quarter in which the manufacturer sells the 60,000th hybrid vehicle.
The credit for qualified Toyota and Lexus vehicles was eliminated for purchases on or after Oct. 1, 2007. The credit for qualified Honda vehicles was eliminated after December 31, 2008. To find out whether your car qualifies for the hybrid tax credit and the maximum amount of that credit, you can go to the IRS website and search for “qualified hybrid vehicles.”
Posted in Weekly Commentary