Market Commentary 11/22/13

With the holiday season upon us investors await guidance from the Federal Reserve as officials have suggested that continued improvements in economic data could lead to them scaling back the amount of their asset purchases.  Estimates for a healthier economy show GDP growth for the US is expected to improve in 2014 to 2.5 and 3 percent and fare even better in 2015.  The reduction in asset purchases could occur within the next few Fed meetings including as soon as the December 17th and 18th scheduled meetings.  However this decision could be postponed as the January 15th deadline for temporary funding for government spending will be looming.

Deere (DE) reported this past week and provided an optimistic forecast for 2014 as certain segments of their business should offset the headwinds seen in agricultural machinery.   Construction equipment sales are expected to grow 10% in 2014 due to continued improvement in the housing market and US economy, leading to the company forecasting to report record earnings once again.  Earnings for 2013 were $9.09 per share, an increase of 19% from 2012.

Home Depot (HD) and Lowe’s Companies (LOW) also reported this week and echoed much of what Deere stated when it came to improving housing markets.  Both companies were optimistic on their respective 2014 outlooks, as both companies shared the sentiment that 2014 will be a good year for the housing market, and furthermore for the home improvement industry.  Lowe’s Chairman and CEO Robert Niblock stated, “The home improvement industry is poised for persisting growth in the fourth quarter and further acceleration in 2014.”

Holiday Spending

Expectations for consumers this holiday season are for Americans to spend less than in previous years.  Even as retailers open doors earlier and earlier, consumers are very price sensitive and have become accustomed to expect significant discounts on popular items.  With Thanksgiving so late this year, it’s no surprise stores are focused on getting buyers to come in as soon as possible.  It will be interesting to see what impact the shortened holiday shopping season will have for the overall economy.

Wash Sale Rule

For non-qualified investment accounts you can “bank” capital losses available to you by selling positions with losses.  However if you wish to continue to own that investment for the long term you can repurchase that position after 30 days to avoid what is known as the wash sale rule.   This rule states that you cannot take a loss and repurchase the same stock or substantially identical security within 30 days otherwise the loss will be disallowed and that loss amount is added to the basis in the repurchased shares.  Another method to navigate this rule is to purchase the additional shares at the current (lower) market value first, establishing lower cost basis immediately, than after 30 days sell the first lot of shares for the loss.   If the share price rises in value during the 30 day time period than you get the benefit of the greater number of shares increasing, and if the share price drops you still have the losses to take to help offset realized gains and up to $3,000 of ordinary income.  The deadline to do this latter method is November 29th, however our office is closed for the Thanksgiving holiday and the day after, therefore any trades we would place for this will need to be input by November 27th.

Flexible Spending Accounts Get a Break

These employer sponsored plans known as FSAs provide a tax advantaged vehicle to help pay for certain medical expenses including doctor visits and prescription drug costs.  Contributions to these plans are not subject to payroll tax and distributions for qualified expenses are tax free.  Previously, funds within these accounts either expired if were unused by end of the calendar year or may have been available for a grace period of no more than two and a half months after end of the year.  The IRS recently announced that they will allow for $500 of unused funds to be “rolled” over to the following year for plan participants.   This rollover amount does not count against the annual contribution limit of $2,500 for individuals.  Employers who had instated the grace period will now have to decide between the new $500 carry over option or keeping the grace period, but cannot have both.    Be sure to check with your employer on how the new rule will impact your benefits.


This publication is provided as a service to our clients and associates of PFA solely for their own use and information.  The material is derived from sources believed to be reliable but its accuracy and the opinions based thereon are not guaranteed and have not been verified.  The content in this publication is for general information only and not intended to serve as individual investment advice.  You should seek independent advice from a professional based on your individual circumstances.