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Be of Good Cheer

Stock Market News

December, 2010

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Be of Good Cheer

Pre-Thanksgiving economic data gave investors an early opportunity to embrace the Season of Good Cheer. Fears of a recessionary double-dip diminished as data from the Commerce Department was revised upward and first-time unemployment benefit filings were lower than predicted. This improving economic picture helped boost the consumer discretionary and industrial sectors as investors snapped up stocks prior to the Thanksgiving holiday period.

Although investors are not ready to indulge in unbridled optimism, as we approach the end of the year the outlook appears rosier than first expected. Consumers earned more, spent more and saved more during the month of October. Inflation posed little threat with prices showing an increase of only 1.3 percent over October 2009. The unemployment picture is a key factor in the current upswing in sentiment. First-time claims for benefits for the week ending Nov. 20 were at the lowest level since July 2008, and although economists caution against reading too much into these numbers, a further decline in continuing benefits also helped lighten the mood. The employment data buoyed other indices, including the Reuters/University of Michigan consumer sentiment index that exceeded expectations, rising to 71.6 percent in November, up from last month’s 67.7 percent.

Such was the overall mood that front-page global issues, including austerity measures in Ireland and political tensions in the Korean peninsula, failed to upset investors’ sentiments. The news was not all positive on the home front. The housing market continues to languish, with sales declining for the fourth time in six months. The numbers are bleakest in the new home sector, with sales dropping 8.1 percent to an annualized decline of some 283,000 units. Regionally, the Midwest and West are the toughest markets. Orders for durable goods also declined in their sharpest drop in nearly two years.

On the housekeeping side, December is a time when many investors determine which stocks to sell for tax purposes. Many investment pros urge individual investors to fight the impulse to wait until the last possible moment to shed the losers. They note that stocks that have been poor performers all year long rarely show any marked improvement during December. Professional tax advisors also urge their clients not to procrastinate. With important tax issues – including the Congressional debate on extending expiring tax cuts – up in the air, it makes more sense than ever to sit down as soon as possible with a professional tax advisor to determine if tax-loss selling fits into your year-end investment strategies. Losses can be used to offset capital gains and then applied against income of up to $3,000. Any additional losses may be carried forward, which could be useful if long-term capital gains tax rates revert to 20 percent.

The bottom line is this: Enjoy the return of optimism but don’t put off taking action to whittle your tax liabilities down for this year.

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These articles are intended to provide general resources for the tax and accounting needs of small businesses and individuals. Service2Client LLC is the author, but is not engaged in rendering specific legal, accounting, financial or professional advice. Service2Client LLC makes no representation that the recommendations of Service2Client LLC will achieve any result. The NSAD has not reviewed any of the Service2Client LLC content. Readers are encouraged to contact their CPA regarding the topics in these articles.

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