Markets – Optimistic Start of 2023

The first major report of the year gave the markets reason for an optimistic first week of trading.  

Last Friday’s job report showed we gained 233,000 jobs in December.  The unemployment rate decreased to 3.5%.  The reason for the market surge higher was the wage component of the report.  Wage gains came in less than the market anticipated, reporting a .3% rise versus a .4% rise.  Doesn’t seem like much, however if wage gains can in fact moderate, that can go a long way toward reducing inflation.

Also, on Friday we heard the ISM Manufacturing report for December which showed downward contraction to the lowest level since May 2020.

The jobs report and the manufacturing report pushed the markets higher for the week.  The Dow rose 1.5%, the S&P 500 1.47%, the Nasdaq 1.01% and the Russell 2000 1.81%.  

Over the pond, international markets are continuing the stretch of outperformance with foreign stocks rising 2.68% and Emerging Markets up 3.39%.  The US dollar weakening is a major reason for foreign markets moving higher.

Inflation – Fed – Earnings

This week we’ll hear the all-important Consumer Price Index (CPI) report on Thursday morning.  Expectations are that both the headline rate and the core rate will decrease.  Assuming this transpires, the markets should respond favorably.  However, we also have a bunch of Federal Reserve speeches this week.  

The last 2 CPI reports have been favorable with the markets responding favorably.  Each time, the Fed then grabbed the microphone and said, keep the horses in the barn, we have a ways to go…. pushing the markets back down.  Let’s hope for a good CPI report and a modest bunch of Fed talks.

On Friday, 4th Quarter Profit reports begin with the banking sector. Over the next 6 weeks, we’ll hear how the higher rate environment is now impacting corporate America.  Profit (earnings) expectations are very low and keep in mind, earnings reports typically beat the all-ready reduced estimates.

Retirement Changes 

The Secure Act 2.0 was passed into law on December 23, 2022 with many significant changes. For today, I’ll highlight the major changes. Be on the look-out for a separate blog with all the details.

The major changes:

Requirement Minimum Distributions (RMD)

  • If you were born between 1951 and 1959, you must begin taking your RMD at age 73.
  • If you were born in 1960 or later, RMD’s will begin at age 75.
  • If you were born prior to 1951, there are no changes.

RMD Penalty Tax

  • The penalty tax for not taking out your full RMD will decrease from 50% to 25%.  If you remedy the situation in a timely manner, the penalty drops further, to 10%.

Simple IRA and SEP-IRA’s will now be permitted to have a Roth contribution option.

Beginning 2025, 401K and similar plans will have expanded “catch-up” provisions for participants ages 60, 61, 62 and 63.

Beginning 2024 – 529 to Roth IRA transfers

  • 529’s maintained for 15 years or longer can be directly transferred to a Roth IRA with a maximum of $35,000.

There are several other changes and nuance rules we’ll detail in a separate blog.

If you want to discuss the planning opportunities that now exist because of the Secure Act 2.0, please reach out to schedule a consultation.

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