Earnings Season

One of my favorite industry veterans is the Founder of Vanguard – Jack Bogle. Jack was on CNBC earlier this week and basically said the same thing we have been saying during this period:

“Just stay the course. Don’t do something, just stand there. This is speculation that we’re seeing out there, and you can’t respond to it,” “Each bubble, for lack of a better word, is different from the previous bubble. The dotcom bubble back in 1999 into the beginning of 2000 was a whole lot of ridiculously overpriced new companies, only probably 15 percent of which made it,” Bogle said. “The mortgage bubble was because a lot of people had mortgages, and weren’t able to pay for them.” “We are not in any bubble so do not panic.”

“The markets are acting like the world is ending but nothing has changed.” “The U.S. economy is gaining strength” “listen to the economy; don’t listen to the stock market,” he said. “These moves in the market are like a tale told by an idiot: full of sound and fury, signaling nothing.”

Earnings Season:

Stronger than expected corporate earnings were one factor that caused the markets to rise this week. As of this morning, 15% of companies listed in the S&P 500 have reported quarterly earnings. Of those, 73% have reported earnings above the mean analyst estimate, while 49% have reported sales above the mean analyst estimate. A few companies that reported this week were:

Bank of America (BAC) reported its largest profit in nearly 10 years even as its revenue fell from last year. For the fourth quarter, BAC reported earnings of $3.34 billion, or $0.28 per share. This was ahead of the average analyst estimate of $0.26 per share. For 2015, BAC earned $15.89 in profits, the highest since 2006. The week preceding the earnings announcement from BAC was not kind to banks, as fears of exposure to China and energy companies hit the financial sector hard. However, in the call with analysts, CFO Paul Donofrio noted that BAC only has about 2% of the overall loan book in energy companies and stated that he is “not sending out any red flags.”

Kinder Morgan Inc (KMI) reported a loss for the fourth quarter on a big asset write-down amid weak commodity prices and continued weakness in its carbon-dioxide division. Overall, the loss was $0.29 per share, down from a $0.08 gain from the same time last year. This was worse than the average analyst estimate of a $0.18 per share loss. However, the shares rose as the company stated it is on track to control costs by reducing its 2016 spending plans by $900 million. The company also slashed its dividend by 75% last month, which will eliminate any need to access capital markets to fund its upcoming growth plans. The results aside, the underlying natural gas segment was strong, with pipelines seeing a 4% profit increase.

General Electric (GE) stated it grew its core earnings and revenue despite lower oil prices weighing on earnings. The company reported earnings of $0.64 per share, ahead of the $0.48 per share that analysts were expecting. Shares fell, however, as revenues came in lower than expected and CEO Jeff Immelt warned that lower oil prices will continue to be a headwind for the industrial conglomerate. In response, GE is doubling its cost cutting plans for 2016 to $800 million.

Next week will see a large number of companies reporting earnings as it is the . A few companies scheduled to report are Halliburton (HAL), McDonald’s (MCD), 3M (MMM), Apple (AAPL), AT&T (T), Freeport McMoRan (FCX), Johnson & Johnson (JNJ), Procter & Gamble (PG), Boeing (BA), Qualcomm (QCOM), Blackstone Group (BX), Caterpillar (CAT), Ford Motor (F), Microsoft (MSFT), Visa (V), and Chevron (CVX).

Planning Ideas for 2016:

With the market volatility getting so much attention in the first few weeks of 2016, it’s easy to forget the importance of sticking to plans and getting a good start on the year. Here are some things that you can actually control to help successfully reach your retirement and financial goals.

1. Save for retirement – maximize the most allowable based on your budget. If your retirement plan provides an employer match be sure to contribute the amount needed to maximize this benefit as this is an immediate return on your investment. Also be sure to review investment elections for your contributions to these plans to confirm that they still match up with your desired asset mix and risk tolerance.

2. IRA contributions can still be made for the 2015 tax year up until April 18th – If you do not have a retirement plan available to you, consider making contributions to a traditional IRA (pre-tax), or a Roth IRA (after-tax) if your income is below the phase out threshold. The maximum one can contribute to an IRA account is $5,500 per year (those over the age of 50 can contribute an additional $1,000).

3. Give yourself a raise – If you anticipate receiving a significant tax refund on your 2015 tax return, consider if adjusting your level of withholdings is appropriate. This could provide you additional cash flow during the year. It is also ideal to reduce the amount you are due from refunds just in case you become a victim of tax identity theft. In these instances it can take over six months to receive your refund.

4. Be charitable – consider donating items of clothing or household goods to various organizations that accept these type of donations. Keep good records and be sure to collect a receipt for these items. If you normally gift cash, consider if gifting appreciated securities owned for over a year in your portfolio is beneficial. This allows you to receive the tax deduction for the fair value of the donation, while also avoiding paying any capital gains tax.

5. Education savings plan – Contributions for many in their respective state-sponsored 529 plans provides a state tax deduction. Instead of waiting until year-end to fund these, start towards the annual goal by making more manageable monthly deposits.

6. Look to harvest tax losses from your investments – The volatility in the markets in the past month have potentially generated some temporary capital losses. These losses can be used to offset future capital gains and excess above the gains can offset up to $3,000 of earned income, with the remainder carried forward to the next year. If you wish to continue to own the investment, avoid IRS wash sale regulations by re-purchasing shares either 31 days before you sell the original position for a loss, or 31 days after you sell for a loss. Taxpayers in the 10 and 15 percent tax brackets qualify for a zero percent tax rate on long term capital gains, so recognizing gains while in these brackets could actually prove to be beneficial.

7. Asset and income protection – as premiums come due for insurance policies take a minute to review that they are still sufficient and you don’t have gaps in coverage. Be mindful of expiring life insurance policies that may need to be replaced. As organizations look to save costs, many employers are trimming their benefit packages offered. Understand changes that have been made and determine whether your coverage for things like life and/or disability is adequate.


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.