2017Q3 Quarterly Commentary

October 18, 2017

2017Q3 Newsletter


The US stock market settled in for modest but steady gains in the quarter, with the S&P500 hitting new all-time highs. Such gains extended beyond the US, as all segments posted quarterly gains. Particularly noteworthy were international stocks with EAFE (international large cap) posting a YTD gain of 20% and MSCI EM posting a whopping YTD gain of 27.8%.

As can be seen in Table 1, the S&P500 has posted a strong YTD gain of 14.2%, but that only tells half the story. What really makes this surge so remarkable is how little volatility has accompanied it. So far this year only 5% of trading days have had a move of greater than +/- 1%, by far the lowest level since intra-day data began to be recorded in 1982. For the first time in a dozen years, so far this year there have been no +/- 2% days.

These market gains were built on a solid foundation, with corporate earnings producing few major surprises and the economy producing solid growth.

Table 1
Key Index Returns

S&P500 (Large) 4.5% 14.2%
Russell 2000 (Small) 5.7% 10.9%
EAFE (International) 5.4% 20.0%
MSCI Emerging Markets 7.9% 27.8%
Barclays Agg (Taxable) 0.9% 3.1%
Barclays Muni (Tax-Free) 1.1% 4.7%
DJ-Real Estate 1.1% 7.1%
Bloomberg Commodity 2.5% -2.9%

In September, the Bureau of Economic Analysis announced that Real GDP increased at an annual rate of 3.1% in the second quarter. Around the same time, the Institute for Supply Management reported that economic activity in manufacturing grew for the 100th consecutive month and in the non-manufacturing sector for the 92nd consecutive month. Meanwhile the unemployment rate was little changed at 4.4%.

The BLS reported that over the last 12 months, the Consumer Price Index for All Urban Consumers (CPI-U) all items rose to 1.9%, growing from prior month 1.7%. Increases in gasoline and shelter accounted for nearly all of the increase. While the CPI-U did inch upwards, it is worth noting that it has stayed in the range of 1.6% to 2.3% since June 2011.

At its September meeting the Fed announced its decision to maintain the target range for the federal funds rate unchanged to give the economy room to keep growing. More importantly, it announced that it would begin shedding some of the $4.5 trillion in debt from its balance sheet. It had previously purchased the debt in the wake of the 2008 meltdown as a way to stimulate the economy.


Did You Know?

In the wake of hurricanes Irma and Harvey many people are beginning the process of rebuilding their homes, businesses, and communities. Unfortunately in recent years there has been a steady increase in people dropping their flood insurance coverage.

Given recent events, we thought it would be timely and appropriate to provide a brief summary of property and casualty insurance terms, amounts, and how they work in conjunction with each other and umbrella policies.


Homeowner (HO) policies come in eight varieties HO-1 to HO-8. Brief descriptions of HO-1 to HO-5 are provided below, along with descriptions of other policies related to your Property and Casualty coverage. HO-6 to HO-8 are somewhat more specialized and not included.

Basic Homeowner’s (HO-1)

The most basic homeowner’s policy, HO-1 covers the following named perils: fire or smoke; explosions; lightning strikes; hail and windstorms; theft; vandalism; damage from vehicles; damage from aircraft; riots and civil commotion; and volcanic eruption.

Broad Form (HO-2)

HO-2 covers the same perils as HO-1 and includes the following: damage caused by falling objects; the weight of ice, snow, or sleet; the freezing of household systems; the sudden and accidental tearing apart, cracking, burning, or bulging of pipes and other household systems; accidental discharge or overflow of water or steam; and sudden and accidental damage from artificially generated electrical current.

Special Form (HO-3)

HO-3 is the most common type of homeowner’s insurance. It covers everything but the specifically listed exclusions which include items such as earthquakes, flooding, power failure, neglect, war, nuclear hazard, eminent domain, and intentional destruction of the property.

Renters (HO-4)

The HO-4 policy covers the personal possessions that are kept in the place that you rent (including your car, both at home and while you travel) and also provides a layer of liability coverage for guests.

Comprehensive (HO-5)

The HO-5 policy provides the broadest coverage available to homeowners in a standard form. Often considered a “premium” policy, HO-5 covers your home, other structures, loss of use, and your personal property on an “all risk” or open perils basis.


The most well-known and oft-used of the property and casualty policies. Auto and watercraft coverage at its most basic level is state-mandated and covers the liability of damaging someone else’s car and/or causing additional property and medical damages.

Flood Insurance

Separate from your homeowner’s policy, flood insurance is often required by your mortgage lender if your house is in a FEMA flood zone. Sometimes flood maps change and persons may be legally obligated to purchase flood insurance when for years they went without it. These policies are unique in that most flood insurance policies are run by the federal government through the National Flood Insurance Program (NFIP).

Umbrella (Excess Liability)

When an insured is sued for damages relating to their home, auto, or watercraft and the underlying liability coverage is maxed out, umbrella insurance covers additional amounts up to the stated policy limit. We generally recommend that everyone own an umbrella policy as the premiums are relatively inexpensive given the additional protection provided.

Barnett Financial will continue to  review your insurance policies to help ensure that underlying required liability amounts align with your umbrella minimums, and that you are not overpaying for coverage. If you have any specific questions regarding your insurance or would like to discuss your policies please feel free to reach out. We will be happy to assist!

Year-End Planning

Required Minimum Distributions

If you are over 70½ years old, we may be reaching out to you in coming weeks regarding the required minimum distribution (RMD) from your   retirement accounts.

As a refresher, you generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 70½. Roth IRAs do not require withdrawals until after the death of the owner.

Your required minimum distribution is the minimum amount you must withdraw from your retirement account each year, and is calculated annually using government-mandated formulas. You can withdraw more than the minimum required amount.

Your withdrawals are included in your taxable income except for any part that was previously taxed or that can be received tax-free (such as qualified distributions from a designated Roth account).

 Charitable Giving

If you’ve had any inclination to give to a charity but haven’t gotten around to it, now is a great time. Of course for tax purposes, the 4th quarter is an ideal time to engage in charitable giving.

Consider making a gift of an appreciating asset such as stocks, bonds, or real estate. By doing so you’ll receive a charitable deduction for the current value as well as avoid capital gains.

Another option is a donor-advised fund. A donor-advised fund is a charitable giving account that allows an  individual to donate money into the account and receive an immediate tax deduction for the entire amount, even if those funds are not immediately given to a charitable organization.

If you plan to make a charitable contribution in Q4, you may also want to check whether your employer matches such contributions.

Let us know if we can help coordinate any of this for you. We’re happy to help!

Medicare Open Enrollment

Medicare Open Enrollment occurs from October 15th to December 7th of every year. During this time, you can change your Medicare coverage by joining a new Medicare Advantage  Plan or by joining a new stand-alone prescription drug plan (PDP). You can also switch to Original Medicare with or without a stand-alone Part D plan from a Medicare Advantage Plan.

If you enroll in a plan during Fall Open Enrollment, your coverage starts January 1.

If you have Medicare Advantage, you can also switch to Original Medicare. To get Medicare drug coverage, you must join a stand-alone Part D plan at this time. A Medigap policy helps pay Original Medicare costs, but you may be limited in your ability to buy a Medigap during the Fall Open Enrollment Period, depending on where you live.

If you have a Medicare Advantage Plan or a stand-alone Part D plan, you should receive an Annual Notice of Change (ANOC) and/or Evidence of Coverage (EOC) from your plan. Review these notices for any changes in the plan’s costs, benefits, and/or rules for the upcoming year.

Even if you are satisfied with your current Medicare coverage, it is a good idea to review your options. People with Medicare prescription drug coverage (Part D) could lower their costs by shopping among plans each year.

If you want to join a stand-alone prescription drug plan (PDP), use the Plan Finder tool on www.medicare.gov. The Plan Finder tool compares plans based on the drugs you need, the pharmacy you visit, and your drug costs.

If you want to join a Medicare Advantage Plan, call 1-800-MEDICARE to find out what plans are in your area. When you receive the list of plans, check the plans’ websites to see which best fits your needs.

The best way to enroll in a new plan is to call 1-800-MEDICARE. Enrolling in a new plan through Medicare is the best way to protect yourself if there are problems.

If you are dissatisfied with your Medicare Advantage Plan, you can disenroll from that plan and join Original Medicare during the Medicare Advantage Disenrollment Period (MADP). The MADP is every year from January 1 to February 14.

Freezing Your Credit

If you believe that somebody has stolen your identity (i.e., your Social Security or other identifying information) we urge you to consider placing a freeze on your credit. A credit freeze can be beneficial in that it locks down your credit and restricts access to your credit reports, making it more difficult for identity thieves to open new accounts in your name.

While a credit freeze can be useful, it is important to note that it does have some drawbacks and limitations:

  • Most critically, it does nothing to prevent the misuse of your existing accounts.
  • There may be a nominal fee to place, temporarily lift and/or remove the freeze (currently $10 in Texas).
  • There may be some inconvenience when you later want to open a new account.
  • It does not prevent existing creditors or government agencies from seeing your report under certain limited circumstances.

The bottom line is that a credit freeze can be a time consuming process, but can be a useful step — especially if you suspect that someone has stolen your identity.

Credit Reporting Initiative

In response to recent events at Equifax and elsewhere, Barnett Financial is pleased to offer you the opportunity to participate in a program designed to help you monitor your credit.

Should you agree to participate, three times per year on your behalf Barnett Financial will request one of the three nationwide credit reporting agencies (Equifax, Experian and Transunion; on a rotating basis) to mail you your credit report.

Each report will be sent directly to you by the credit reporting agency. Barnett Financial will have no responsibility for what is sent or for correcting any errors you may find.

We hope you find that this program helps you effectively monitor your credit, and thereby avoid identity theft!

To get started, simply sign the attached form and email it to Jessica at jessica@barnettfinancial.com. There is no cost to participate in this program. If you have any questions about the program, please contact Jessica.

Closing Thoughts

We think that the Credit Reporting Initiative is a good example of how we are constantly working to “Take the Worry Out of Wealth.” We’re not content to just keep doing what we’ve been doing but are instead motivated every day to earn and keep your trust.

Let us know if there is anything on your mind or anything else we can do for you!