January Wraps Up First Month of 2014 with U.S. Equity Markets Down 1/31/14

Roughly three fourths of the S&P 500 companies that have reported fourth quarter earnings thus far have beaten estimates.  GDP on an annualized basis grew 3.2 percent in the fourth quarter due to improvements in household spending and exports, suggesting strength of the economy is improving.  But many of these earnings announcements have come with lowered guidance as CEOs work to temper expectations in this environment.  Analysts have gotten comfortable setting expectations that become large hurdles for companies to manage even with continued earnings growth.  Instead of being rewarded for solid numbers, we are seeing stocks punished because the bar has been set too high by analysts. 

The Federal Reserve announced that they will continue their plan for tapering as they lowered the monthly asset purchases to $65 billion.  It is expected that this will continue at a pace of approximately $10 billion at each of the remaining 7 meetings in 2014 and be completely shut off by year-end.   Their goal is to keep the current federal funds rate unchanged until late 2015.  Global leaders have expressed concerns for the impact this may have on their foreign economies as the US winds down their stimulus.


Apple earnings

The company sold a record 51 million iPhones and 26 million iPads in the fourth quarter alone.  However, this still came shy of the lofty expectations set by analysts.    During the past quarter they announced a deal with China Mobile allowing access to its 750 million potential new customers.  Apple sold an estimated 24 million iPhones in China in 2013 and is forecasted to sell 29 million in 2014, below 10 percent of the overall Chinese market.  Many believe that for Apple to be successful in China they will need to introduce a cheaper priced phone to compete with the lower-priced options currently popular with Chinese consumers.    Thus far, Apple has restrained from doing so as they continue to focus on premium pricing to protect profit margins.  


State of the Union

President Obama addressed the nation in his 5th State of the Union on Tuesday.  His message called for a bipartisan Washington to come to agreement on issues including the debt ceiling and methodologies to help resolve the gap in financial inequality in America.  However due to Washington’s inability to come to agreement on most issues the President indicated he was planning to use his authority to initiate several actions.  He announced an executive order that will raise the minimum wage for future federal contract workers to $10.10/hour.  The President also proposed an individual retirement plan (MyRA) for employees of companies with no retirement plans available to them.  Under this plan an employee can elect to have pay withheld and contributed to an account investing in US government bonds.   The contributions will be made on an after-tax basis similar to Roth IRAs and distributions would be available at any time penalty and income tax free.  Once the account accumulates to $15,000 the account would be rolled over to a Roth IRA.   These accounts are planned to be made available to households with no access to employer retirement plans and have adjusted gross income of less than $191,000.  While the goal is to help those with limited income resources and who will need more than just Social Security benefits to support them in retirement, the plan has many wondering if it will truly accomplish the intended purpose as many who need to use these plans cannot afford to contribute. 


IRS and Tax Season

With tax preparation season upon us we wanted to remind everyone of potential tax scams that pose as possible threats to everyone.   There have been many reports of false filings where criminals are claiming refunds from taxpayers returns, known as stolen identity refund fraud.  Unsuspecting victims do not discover this until they file their return and learn that a return has been filed already.   It appears the focus is on elderly and those who may not regularly need to file a return due to limited income, thereby making it harder to identify the fraud.  While the IRS has devoted many resources to work on stopping these acts from occurring, it is estimated that the IRS has issued billions of dollars in fraudulent refunds. 

Additionally there has been incidents of email and telephone schemes impersonating IRS agents requesting personal information.  Be aware of any suspicious emails containing links for you to click on claiming to be from the IRS.  You can forward these emails to the IRS at phishing@irs.gov.   The IRS will not contact you via email to request personal identification numbers, passwords, credit card information, or bank account information, nor should you give this information out over the phone to an unsolicited caller claiming to be an IRS agent.  You can request they provide contact information for you to call them back and confirm with the IRS that they are a legitimate agent for them.  When in doubt, be overly cautious.

Taxpayers still have until the tax return deadline to consider contributing towards IRAs for 2013 tax year.   Now is also a good time to review 2014 contributions towards retirement plans and be sure you are contributing enough to earn any available employer match or consider if can contribute the maximum deferral amount.

Addition to Paradigm’s Team

Paradigm continues to grow as we happily welcome Katherine Hanlon as our new Client Service Administrator.  We look forward to having Katherine as part of our team and allow us to continue providing our high level of services for our clients.  In addition we want to congratulate Mary Horn for her promotion to Financial Planning Associate.  Her knowledge and experience has led to a seamless transition into this role and we know she is excited for the new challenges this position will bring.  Official announcements will be going out next week to Paradigm clients.  As always we appreciate the many family and friend referrals we have received and are thankful to have such outstanding and enjoyable clients to work with.

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.