Will the second half of the year be as good as the first half for the markets?

The S&P 500 Index finished up 18% for the six months ending June 30th. That was the best first half since 1997. Historically, that kind of return is three times the gains investors can normally expect from the market in an average year. The chance of a repeat performance in the next six months is, at best, remote. That doesn’t necessarily mean this is as good as it gets for stock investors. My near-term target for the S&P 500 Index is somewhere around 3,050, which is a further 4% gain from here. From my vantage point, as long as interest rates continue to decline and the Fed stays at least neutral, we go higher. For the time being, the China trade tariff worries are off the table. As I predicted last week before the G-20 meeting, Donald Trump adhered to his “speak loudly, but carry a little stick” foreign policy. He relented on a number of issues, including holding off on any further tariffs on China, at least for the time being. While the markets rallied on Monday as a result, they quickly gave back their gains since investors are beginning to learn that not everything that our president says will necessarily be accurate, or when it is, his statements are almost always an exaggeration of reality. The Fed, on the other hand, is a different kettle of fish. You might ask why the markets are continuing to rise when economic growth here and abroad continues to slow. First, recognize that the economy and the stock market are two different entities. What may not be good for Main Street...

G-20 weighs on stocks

It wouldn’t be a normal weekend in the financial markets without something to worry about. This weekend, it is the meeting of the two presidents, Trump and Xi, in Japan with $350 billion in new tariffs hanging on the outcome. What are the odds that they clinch a deal? Not great, in my opinion. That doesn’t necessarily mean that we need to brace for a worldwide economy-killing deluge of massive tariffs and counter-tariffs either. There is too much at stake for Donald Trump and China knows it. Instead, I expect we will get a classic Trumpian foreign policy “speak loudly and carry a little stick” maneuver. Robert Lighthizer, our U.S. Trade Representative already telegraphed just such an outcome earlier in the week. After a conference call on Monday with his Chinese counterpart, Vice premier Liu He, several unnamed trade officials indicated that “the U.S. is willing to suspend the next round of tariffs on an additional $300 billion of Chinese imports while Beijing and Washington prepare to resume trade negotiations.” So sometime over the weekend, I expect one of those ‘my great friend, Xi, and I agreed to further talks, so I will delay implementing these new tariffs,’ kind of statements from the president. Of course, there will be the usual bluster about how much tariffs will hurt China and how we are making so much money on existing tariffs already, yada, yada, yada. If my expectations are fulfilled, the markets should once again breathe a great sigh of relief. Stocks will likely rally. The economy will probably continue to slow. I expect businesses will continue to postpone investing...

Reverse Mortgages

Some Baby Boomers have found themselves financially between a rock and a hard place. Rising costs, insufficient retirement savings and, in some cases, health issues, have forced seniors to consider taking out a reverse mortgage on the only asset they own. Is it a good idea? For those who don’t know, a reverse mortgage is a loan that uses a primary residential dwelling as collateral. It provides an option to generate cash by borrowing money against their home equity. Funds can be drawn as a fixed monthly payment, or a line of credit. In order to participate, at least one owner must be over 62 years old. The bank or financial entity figures out what the house is worth at the time of the loan and lends the borrower a percentage of that number. As an example, if the market price on the home is $350,000, the bank or mortgage lender may front you $275,000. The borrower then receives a payment (usually monthly) until the amount of equity (in this case, $275,000) in the loan is gone. Unlike a traditional mortgage, however, the amount a borrower owes on a reverse mortgage increases over time. No repayments are required during the borrower’s lifetime. Payment is only due when the homeowners die or are no longer living in the property (over the past 12 months). Over one million reverse mortgages or Home Equity Conversion Mortgages (HECM) have been sold since the government program started back in 1990. The program is run by HUD and over 90% of these mortgages are insured by the Federal Housing Administration (FHA). One important reason reverse...

Stocks should move higher from here

It was a good week for investors. The S&P 500 Index hit an all-time high. The Fed indicated that they might cut interest rates sometime soon, and the President is once again optimistic about a China trade agreement. That’s a heady cocktail that could see markets gain another 3-5% over the next few weeks. Of course, the critical caveat to my forecast remains President Trump’s next tweet on the progress of a trade deal with China. As you know, with such a big “if” on the table, making future forecasts with even a modicum of certainty is impossible. In last week’s column, I enumerated all the scenarios that could play out, but it really comes down to how much faith an individual has in the president’s ability to pull-off a deal with China. And while a successful agreement would definitely be good for the economy over the long term, I am not so sure it would be beneficial for the stock market. My concern rests upon the Fed’s reaction (or lack thereof) if an agreement is put in place. Chair of our Federal Reserve Jerome Powell has hinted that cutting interest rates would largely depend on what happens next on the trade front. That has sent the stock market to new highs. The Fed reasons that additional tariffs of the size contemplated by Trump would impact our economy by over one half of one percent. That would be on top of a U.S. economy that is already slowing, thanks to the existing level of tariffs, and the rhetoric of even more actions if things don’t go the president’s way....

Why FHA loans are so popular

Federal Housing Authority Loans have long been one of the most popular types of mortgage loans available. Roughly 20% of all mortgage applicants will choose an FHA loan because it makes total economic sense to do so. And the older you are, the more important having an FHA approved dwelling becomes. To many, that may appear to contradict your understanding of the FHA loan market. Most believe it is a program to assist younger folks, who need a hand to purchase their first home. You wouldn’t be far wrong from a historical perspective, but times have changed. The FHA loan was originally designed during the Depression years to help home buyers, (usually first-time applicants), with low credit scores and a small bank account, to afford a home. But the FHA doesn’t make the loan; the bank does. The Federal Housing Administration, however, guarantees the loan, and as such, provides mortgage lenders an added degree of confidence and security in lending to the prospective home buyer. If the borrower defaults on the loan, the FHA will reimburse the lender the amount due. Some of the benefits to the borrower include lenient credit scores, much lower minimum down payments (as little as 3.5% down), and lower mortgage rates, usually 0.10%-0.15% lower than the average rates on conventional loans. The Veterans Administration’s Home Loan Program is also available to qualified vets and works like its FHA brethren, guaranteeing the lender a portion of the loan if the vet defaults. An added benefit is that there is usually no minimum down payment required, and much lower credit scores, interest rates, and income requirements...