Stocks gave in to gloom about low global oil prices and fell again last week, erasing the previous week’s gains. For the week, the S&P 500 lost 1.25%, the Dow fell 1.79%, and the NASDAQ dropped 1.65%.
Domestically, the data looks more positive. Friday’s July jobs report might have given the Federal Reserve the ammunition it needs to raise interest rates in September. The latest data shows that the economy added 215,000 new jobs last month, bringing the total for 2015 to 1.48 million so far. Unemployment held steady at 5.3% (very close to the Fed’s long-term average of 5.1%) and wages edged up 0.2%. Combined with growth in the total number of hours worked, workers’ total cash earnings are up 4.8% from a year ago, giving American workers more money to spend.
Last month was also the 65th month in a row with growth in private (non-government) payrolls, marking the longest jobs-growth streak since the 1930s. All told, the labor market continues to improve. While we’re not in the boom times of the 80s or 90s, our “Plow Horse economy” is moving ahead moderately, which may set the stage for a rate increase later this year.
In not-so-great news, Puerto Rico missed a municipal bond payment, marking a major setback for the U.S. territory, which has suffered from years of stagnant growth and rampant unemployment. Technically, Puerto Rico’s Finance Corporation, (PFC) has until this Tuesday to make its debt payment, but it’s not likely to make the deadline. Puerto Rico owes $73 billion in debt, much of it to investors in its municipal bonds.
While the default may spell financial disaster for the territory, long-term investors are unlikely to be affected. The default has been widely expected, and ratings agencies downgraded Puerto Rico’s debt into junk territory earlier this year. The default is also unlikely to affect the broader muni bond market since the situation in Puerto Rico is not representative of most municipal bond issuers. Improving credit conditions and broad economic growth across the country mean that investment-grade muni bonds may be an option for some investors as part of a well-diversified portfolio strategy.
Looking ahead, the week is light on economic data, though analysts will be looking for consumer sentiment and retail sales data for clues about the back-to-school shopping season. Back-to-school shopping is the second largest retail shopping event after the winter holidays and is an important barometer of overall consumer spending.
Tuesday: Productivity and Costs
Wednesday: JOLTS, EIA Petroleum Status Report, Treasury Budget
Thursday: Jobless Claims, Retail Sales, Import and Export Prices, Business Inventories
Friday: PPI-FD, Industrial Production, Consumer Sentiment
- Low pump prices fuel vehicle sales. The July motor vehicle sales report shows that U.S. car manufacturers are reaping the benefits of low gas prices as consumers rush to buy SUVs and bigger vehicles. The industry is close to pre-recession sales numbers.
- Oil prices reach multi-month lows. Though crude oil supplies fell, a jump in U.S. gasoline inventories sent global oil prices low again. If refineries continue to produce at capacity, gasoline stocks will remain high even after the peak driving season.
- Factory orders rebound in June. Orders for manufactured goods jumped in June in a positive sign for the struggling sector. A strong dollar and weak energy prices had stalled manufacturing activity in May.
- Consumer debt rises in June. Americans took on debt faster in June, suggesting that an improving labor market may be making them comfortable enough to open their wallets.
Quote of the Week
“Be sure you put your feet in the right place, then stand firm.”
– Abraham Lincoln
Tax Tip of the Week: Take Advantage of College Tax Credits
- You can claim only one type of education credit per student on your tax return each year. If you have multiple eligible students, you could claim a different credit for each student.
- To qualify, education expenses must be for tuition, fees, and “related expenses” for an eligible student. Expenses must be paid for attendance at eligible higher education institutions, including most colleges and universities. Ask the school whether they are an eligible institution or check the school’s accreditation status in the U.S. Department of Education’s Accreditation Database.
- The American Opportunity Tax Credit: The AOTC is worth up to $2,500 per year, per eligible student. You may claim this credit only for the first four years of higher education. 40% of the AOTC is refundable, which means if you are eligible, you can get up to $1,000 of the credit as a refund, even if you do not owe any taxes.
- The Lifetime Learning Credit: The LLC is worth up to $2,000 on your tax return. There is no limit on the number of years that you can claim the LLC for an eligible student.
For more information on tax credits for education, contact a qualified tax professional.
Tip courtesy of IRS.gov
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