Markets Cautious After Belgium Attack

Equity markets ended their five week streak as Fed officials raised expectations for more interest rate hikes this year.  But much of the focus this week was on the terrorist attacks in Belgium.  The markets reacted in a manner very similar to what we see with other “like” attacks recently.  Initially, the markets fall due to the uncertainties of what is actually happening, which occurred in the European and Asian markets .  If additional attacks took place immediately after, it is possible the markets would have fallen further…the fear and uncertainty of not knowing what is going on tends to spike volatility.  However, as it became increasingly clear that no additional attacks were imminent, the volatility in the markets calmed. 

This time around we saw the market reaction as very modest.  The dollar and yen both rose as these are considered more of “safe haven” type currencies.  U.S. treasuries also spiked since they are also seen as a safe haven.  Finally, gold (another safe haven) also rose.  However, none of these moves were very dramatic and suggests that the financial markets are becoming more immune to these attacks as unfortunately these type of events have become more common and even expected.  On the first trading day after the Paris attacks, the S&P 500 gained 1.5% and within a week the index was up 3%.  Markets have created a mentality of “this is the world we live in” and the best thing for investors to do is focus on the things that they can control such as diversification and owning quality positions.  Of course, should additional attacks take place or this attack becomes a jumping off point for a larger conflict, we could certainly see additional market volatility.

U.S. Economy Grows 1.4% in Fourth Quarter:

The Commerce Department revised its previous estimate of the Gross Domestic Product (GDP) for the 4th quarter to 1.4%.  This was higher than the last month’s estimate of 1% and higher than economists were anticipating.  The revision shows the U.S. economy’s fourth-quarter slowdown was less pronounced than was previously thought.  Consumer spending was the main component of this increase.  Household purchases, which make up approximately 70% of GDP, rose at a 2.4% annualized pace, up from the previous estimate of 2%.  Personal consumption came in at a 1.66% annualized growth rate.  The detractors to GDP were net exports, which subtracted 0.14% from GDP, down from a previous estimate of a positive 0.25% gain.

The Commerce Department also announced that 2015 corporate profits fell the most since 2011.  Corporate profits after tax, without inventory valuation and capital consumption adjustments, fell at an 8.1% pace last quarter from the third. That was largest quarterly decline since the first quarter of 2011.  For all of 2015, profits rose 3.3%.  The main reason for the drop in earnings was due to the energy sector.  The manufacturing industry, particularly petroleum and coal, showed the largest decline in profits and will likely continue to weigh on profits going forward.

IRS Warns of New Scam:

The IRS wants taxpayers to be aware of a new tactic being used by scammers trying to steal information.  The individuals call saying that they have your tax return, and they just need you to verify a few details to process your return. The scam tries to get you to give up personal information such as a Social Security number, or to provide personal financial information, such as bank numbers or credit cards.

“These schemes continue to adapt and evolve in an attempt to catch people off guard just as they are preparing their tax returns,” said IRS Commissioner John Koskinen. “Don’t be fooled. The IRS won’t be calling you out of the blue asking you to verify your personal tax information or aggressively threatening you to make an immediate payment.”  Records show that approximately 900,000 phone scam attempts have been reported since 2013, and just this year the IRS has seen a 400 percent increase in phishing schemes.

Scammers will also call claiming to be IRS officials and demand that the victim pay a fake tax bill.  They trick the victim into sending money, usually through a prepaid debit card or a wire transfer. They’ve even begun asking taxpayers to verify their identity over the phone.  Other scams will use threats to scare a victim into paying, including threatening to arrest, deport or revoke the license of their victim if they don’t get the money.  Scammers often alter caller ID numbers to make it look like the IRS or another agency is calling. The callers will use official sounding titles and fake badge numbers to appear legitimate.

When in doubt, hang up the phone, or ask for the individual’s call back information.  But remember that the IRS will never do any of the following:

  • Call to demand payment over the phone, nor will they call about taxes owed without first having mailed you several bills.
  • Call or email you to verify your identity by asking for personal and financial information.
  • Demand that you pay taxes without giving you the opportunity to question or appeal.
  • Require you to use a specific payment method for your taxes, such as a prepaid debit card.
  • Ask for your credit or debit card numbers over the phone or email.
  • Threaten to immediately have you arrested.

 

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