By BERNARD CONDON
NEW YORK — The stock market rose Tuesday as investors waited to find out when the Federal Reserve might raise interest rates.
Stocks flitted between gains and losses through most of morning, then turned broadly higher in the afternoon on gains in health care and utility stocks.
“The economy continues to improve in the U.S., and there’s still an accommodative Fed,” said Brad Sorensen, director of market and sector research at the Schwab Center for Financial Research. “We think the bull market has further to run.”
The Fed has held a key short-term interest rates close to zero for more than five years, making it cheaper for companies and consumers to borrow and boosting corporate profits. The stock market has surged as a result. But investors widely expect the Fed to start raising rates in the middle of next year.
Investors may get a better sense of how soon after the central bank concludes a two-day meeting Wednesday. Fed Chair Janet Yellen could discuss the bank’s rate plans, as well as the outlook for employment and inflation, in a press conference in the afternoon.
Jonathan D. Corpina, senior managing partner at Meridian Equity Partners, said there was lot of talk among traders during the day about what the Fed might do, but little new insight.
“There’ a lot of chatter, but nothing that’s real,” he said from the floor of the New York Stock Exchange.
Until the closing minutes, the Dow Jones industrial average (^DJI) looked like it would rise to a record, but prices faltered at the end. Still the blue-chip index ended up gaining 100.83, its first triple-digit close since August 18. The Dow closed at 17,131.97, a gain of 0.6 percent.
Among the 10 sectors of the SP 500, health care stocks gained the most, up 1.3 percent. Utilities and energy stocks followed, with a 1.2 percent gain each. Energy stocks were pushed higher by rising oil prices. Exxon Mobil (XOM) increased 1.2 percent.
In economic news, a measure of prices that U.S. producers receive for their goods and services was unchanged in August, the latest sign that inflation is in check. A drop in wholesale gas and food prices was offset by higher prices for transportation and shipping services, the Labor Department said.
Besides the Fed press conference tomorrow, investors are awaiting a referendum on Scottish independence on Thursday. The British pound has turned volatile in recent weeks as opinion polls narrowed ahead of the vote. A “yes” decision could trigger turmoil in the market as investors ponder the economic and financial fallout.
Among stocks making big moves:
- Humana (HUM) rose $4.71 to $132.37, a gain 4 percent. The health insurer said it plans to repurchase as much as $2 billion of its own shares, double what it had previously planned. The stock has climbed 28 percent this year.
- Sears Holdings (SHLD) fell $3.15, or 9 percent, to $30.37. The company is taking out a $400 million short-term loan from a hedge fund run by CEO Edward Lampert, the retail company’s biggest owner. Sears has struggled against rivals like Wal-Mart Stores Inc. in recent years.
In metals trading, gold rose $1.60, or 0.1 percent, to $1,236.70 an ounce. Silver gained 10.1 cents, or 0.5 percent, or $18.72 an ounce. Copper rose 8 cents, or 2.6 percent, to $3.17 a pound.
The price of benchmark U.S. crude rose $1.96 to close at $94.88 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, rose $1.17 to close at $99.05 in London.
In government bond trading, the yield on the 10-year Treasury note was unchanged from Monday at 2.59 percent.
What to Watch Tuesday:
- At 8:30 a.m., the Labor Department releases Consumer Price Index for August, and the Commerce Department releases current account trade deficit for the second quarter.
- The National Association of Home Builders releases its housing market index for September at 10 a.m.
- Federal Reserve policymakers meet to set interest rates and issue a statement at 2 p.m.
- Fed Chair Janet Yellen holds a press conference at 2:30 p.m. to discuss interest rates.
These major companies are due to release quarterly financial statements:
- Cracker Barrel Old Country Store (CBRL)
- FedEx (FDX)
- General Mills (GIS)
- Herman Miller (MLHR)
- Lennar (LEN)
- Pier 1 Imports (PIR)
This is the granddaddy of them all. Start to type “emergency” into Google (GOOG), and the first suggestion is “emergency fund.” The rule is to make sure you have six month’s of living expenses tucked away in cash in case you losefyour job or suffer a financial setback. Of course it’s important to have a financial safety net, but when you earn virtually nothing on your cash, this rule can cost you. For example, if six months of living expenses for you is $25,000, you’d be sacrificing close to $1,000 of income a year by keeping this money in a checking or money market account.
For years, I’ve broken the mold on this financial rule by telling clients they shouldn’t have their emergency fund in cash. Instead, choose a short-term bond fund that pays 3 percent or higher for your safety net. If you need the money quickly, you can easily sell the fund and get access to the cash. If you don’t need the cash –- and these emergency fund accounts are rarely used –- you can still make money on the assets.
Not so fast. There are many good reasons to contribute to a 401(k), such as tax savings, tax-deferred growth and a possible employer match, but there are also good reasons not to contribute as well. Don’t blindly dump money into your 401(k) if you don’t have an emergency reserve of some sort and there is a chance you will be laid off. It is taking longer for most to find a job, so if you think you may be out of work, make sure you have the resources to pay rent and buy food until you land a new job.
Also, if your employer doesn’t provide a match and you are in a low-income tax bracket, it may make more sense to pay the tax now (since you are in a low tax bracket) and invest in a Roth individual retirement account instead. Use this 401(k) vs. Roth IRA calculator to crunch the numbers.
You cannot cut your way to wealth. Too many people and financial advisers focus on trimming expenses when they should be focused on the other half of the equation — income. I’m a proponent for living within one’s means, but too often that creates an artificial barrier or ceiling. “This is what I make, so I have to cut back to save more,” is often the thought process. Rather than living within your mean, work on increasing your means.
There are many ways you can make more money, including asking for a raise, boosting your skills –- your human capital –- and getting a promotion, starting a side project in the after-hours or going back to school and starting a new career. What you make today is not necessarily what you can make tomorrow. Cut unnecessary expenses and then use your energy to increase your income.
You should only save for your children’s education if you can afford it. That means when you’re on track to having enough assets for your retirement. Assuming you have the retirement assets and now want to save for college, most advisers will recommend a 529 college savings account.
Not so fast. These 529 accounts have some real advantages, such as tax-free growth of contributions if they are used for approved higher education expenses. This tax-free growth is a big benefit. However, if you withdraw money from this account and do not use it for approved higher education expenses, the gains will be subject to ordinary income tax and a 10 percent penalty.
The big risk is if you fully fund your child’s college education but he or she decides to not go to college, drops out, finishes early or goes to a less expensive school. You have the ability change the beneficiary to another qualifying family member without penalty, but if you have just one child, there may not be anyone you can transfer the funds to. You would then have to liquidate the account and pay the tax and penalty. If you are undeterred and still want to pay for your child’s college education, start with a small contribution into the 529 and fund up to a maximum of 60 percent of the cost in case one of the above scenarios occur.
The certified financial planner designation is the gold standard when it comes to financial planning. I wouldn’t think of hiring a financial planner if they weren’t a CFP practitioner. However, just because you are working with a CFP doesn’t mean you shouldn’t research your adviser, his or her areas of expertise and how he or she charges. The CFP tells you he or she has advanced training in areas related to tax, investing and retirement planning; has passed a comprehensive and difficult exam; and has agreed to adhere to a high code of ethics.
The onus is on you to know what you need and to make sure your CFP financial planner can deliver. Don’t get lulled into thinking that just because he or she have three letters after his or her name that he or she has been screened. Ask tough questions before you trust your money to anyone -– even a CFP.
Most financial pundits will advise taxpayers to have just enough taken out of their paycheck so when April 15 comes around, they will neither owe money nor receive a refund. The rationale is if you get a refund from the Internal Revenue Service, it means you paid too much in over the year — and the government has had use of your money without paying you any interest. Keep the money and invest it yourself is the theory.
‘Again, that’s the theory, but reality is much different. It all comes down to psychology. I look at paying a bit more to the IRS as a forced and automatic savings account. Sure you won’t earn interest, but human nature tells us you probably won’t save the money anyway. There is a greater chance you will squander $100 a paycheck then if you receive a $2,400 check from the IRS. One approach takes a plan and discipline each month to save and invest while the other doesn’t. A check from the IRS isn’t an interest-free loan; it is an automatic savings plan.
Nobody wants to endure an IRS audit, but too often I see honest and ethical taxpayers avoid claiming certain deductions or taking certain positions that are completely legitimate because they fear it will increase their chances of an audit. First, your chances of being audited are small –- about 1 in 104 chance. If your return doesn’t include income from a business, rental real estate or farm, or employee business expense deductions, your chances are even smaller -– 1 in 250. Second, if you and your tax preparer are not crossing the line, you have little to worry about. In fact, thousands of taxpayers get a check from the IRS at the end of the audit. Don’t let a small chance of an audit keep you from taking advantage of every tax strategy for which you qualify.
Do what you love, and you’ll never have to work a day in your life, or so the saying goes. It sounds good and feels good, but it’s not necessarily true. Sometimes –- often, actually –- doing what you love can be a great hobby but not a good career. There are a lot of things I enjoy that I’ll never make a dime doing. A better approach is to find something you enjoy, are good at and that you can get paid to That is the financial trinity you should aspire to find because it ties your interests with your skills with the marketplace
Follow this rule, and I’ll send you straight to detention. We know college costs are soaring, and we don’t want to bury our kids in college debt, so most parents prioritize college saving over retirement saving. Big mistake. If worse comes to worst, Junior can get a loan, work while in school or go to a less expensive school. Basically, Junior has decent options, and you have tough choices.
If you haven’t saved enough for retirement, you are stuck. There’s very little you can do other than slash your expenses, work longer or both. Save for your own retirement first. That’s the financial rule you should follow. If you have amassed so much wealth when your children head off to college that you can afford to help them, go for it. If you haven’t, you’d be doing your kids a disservice by jeopardizing your own retirement by paying for their tuition.