October 24, 2014 Update

  • The S&P 500 finished its best week since 2013
  • IRS provides 2015 pension plan limits – 401(k) participants can contribute $18,000 in 2015; catch-up contributions increase to $6,000
  • Social Security benefits to increase by 1.7 percent in 2015

 

The S&P 500 finished its best week since 2013 after falling over 8% in early October.  The rebound in equity prices can be attributed to the better than expected earnings from U.S. corporations and continued improvements in leading macroeconomic indicators.   This week saw a large number of S&P 500 companies report earnings.  Here are a few highlights:

  • Apple (AAPL) reported better than expected earnings Monday, as the iPhone 6 and iPhone 6 Plus sold more units than analysts anticipated.  Apple raised its revenue guidance for the year end, also exceeding analyst expectations.  The company now has $155.2 Billion in cash, which it plans to use for share repurchases and dividends, although activist investor Carl Icahn has pushed the company to increase both.
  • Microsoft’s (MSFT) quarterly sales topped estimates on better than expected cloud computing growth and stronger growth from their recently acquired Nokia handset division.  Sales of their cloud Azure software and Web-based versions more than doubled in the quarter.  The company benefitted from an upgrade cycle in the PC market and plans to continue its cost cutting measures related to Nokia.
  • United Parcel Service, Inc. (UPS) posted better than expected profits and they raised their guidance for the holiday season where they expect sales to rise 11 percent from last year.  UPS plans to spend $175 million on improving its operations during the holiday season rush.  They are opening 14 temporary shipping facilities to help expedite deliveries and plan on hiring as many as 95,000 seasonal workers to field packages.
  • Boeing (BA) posted quarterly results that exceeded top and bottom line expectations. The stock went down after the announcement due to concerns surrounding cuts in defense spending due to the sequester cuts which have dragged on the stock price this year.  However, given the new threats (ISIS, Russia/Ukraine) we may see Congress restore some of the cuts.  The most impressive part of the announcement was Boeing’s backlog of $490 billion at the quarter-end, which was up $50 billion since the beginning of the quarter.
  • General Motors (GM) reported a higher-than-expected profit in the third quarter on strong demand for its redesigned full-size pickup trucks in North America.  Excluding one-time charges related to recalls, GM reported a $0.97 per share profit, which was higher than $0.95 per share that the average analyst was anticipating.  While the recall expenses did hurt the company’s profits this quarter, CFO Chuck Stevens said that they are “substantially behind us”.
  • 3M (MMM) posted strong U.S. sales and profit topped analyst estimates driven by a jump in U.S. sales and cost controls as well as strong pricing that helped boost margins.  The company saw higher sales in its health care unit where sales rose 4.7%, year-over-year.  Organic growth in the company was also strong and shares rose on the news.
  • Caterpillar (CAT) reported stronger than expected profit and raised its full-year earnings forecast.  Commercial construction in the U.S. is gradually improving as demand for construction spending rose 5 percent in August from a year earlier.

 

U.S. home prices rose for the ninth consecutive month in August. The Federal Housing Financial Agency said that U.S. home prices rose .5% in August after a revised .2% gain in July. Home prices have risen 4.8% since August 2013. For the past 12 months, gains have been greatest in the Pacific states, up 7.8%, and the least in the Middle Atlantic States, where prices rose only 1.9%. The FHFA monthly index is calculated using the purchase price of houses with mortgages that have been sold to or guaranteed by Fannie Mae or Freddie Mac. The index is 5.8% below its April 2007 peak and is roughly equivalent to its level in April 2005.

The index of U.S. leading indicators accelerated in September, signaling the world’s largest economy will keep expanding into 2015. The Conference Board’s gauge of the outlook for the next three to six months climbed 0.8% after no change in August.  9 of the 10 indicators in the leading index contributed to the increase, including fewer jobless claims, more factory orders, and the interest-rate spread between the federal funds rate and 10-year Treasury notes. The Conference Board’s index of coincident indicators, a gauge of current economic activity, also rose 0.4% after a 0.1% gain in the prior month.  The financial markets are reflecting turmoil and unease, but the data on the leading indicators continue to suggest moderate growth in the short-term.

Consumer confidence improved last week as Americans grew more upbeat about the economy than at any time in almost seven years. The Bloomberg Consumer Comfort Index climbed to 37.7 in the week ending October 19th from a prior reading of 36.2. A gauge of attitudes about the economy was the strongest since January 2008. The solid confidence readings show no signs of spillover from the recent turmoil in financial markets and slowdown in the global economy. Lower prices at the gas pump and limited inflation for other goods and services are helping boost purchasing power for consumers despite slow wage growth.

Retirement Plan Contributions to increase in 2015The Internal Revenue Service (IRS) on Thursday announced 2015 pension plan contribution amounts.   Due to cost-of-living adjustments (COLAs) several plan contribution amounts will change starting next year.  Some highlights include:

  1. The employee elective deferral contribution amounts for 401(k), 403(b), and 457 type plans increases to $18,000 per year, up from $17,500.
  2. The catch-up contribution for participants in these plans over the age of 50 increases to $6,000, up from $5,500.  Therefore the total elective contributions an individual over the age of 50 can make to a 401(k) plan will now be $24,000, up from $23,000.
  3. The limitation for defined contribution plans increases to $53,000 from $52,000.
  4. Contribution limits for SIMPLE IRA plans increase to $12,500 from $12,000.  Catch-up contributions to these type of plans for participants over the age of 50 increases to $3,000 from $2,500.
  5. IRA contribution limit amounts remain unchanged at $5,500 with the $1,000 catch-up remaining for those over 50.

 

Social Security Payments will increase in 2015

The Social Security Administration announced on Wednesday that its cost-of-living adjustment (COLA) for 2015 will be 1.7 percent.  The number is determined based on consumer price index (CPI) figures which measure price changes for items such as food, housing, and medical care.  The Social Security wage base for 2015 will increase to $118,500 from $117,000 in 2014.  Medicare Part B premiums are expected to stay the same.

 

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