Vorisek Financial Weekly Market Update for October 31, 2018

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Good morning!

The S&P 500, the most widely followed stock index in the United States, is down 9.3% from its all-time closing high set just over a month ago on 9/20/18.  This drop is the index’s 12th pullback of at least 5% that has taken place during its 9 ½ year bull run.  With just 3 trading days remaining in October 2018, the S&P 500 has lost 8.7% (total return), a downturn that would rank this month as the worst since February 2009 (a loss of 10.7%).  It was 10 years ago this month (October 2008) that the S&P 500 lost 16.8% just as the global real estate crisis was beginning (source: BTN Research).    

The Trump administration announced ambitious plans on Friday 10/19/18 to create “opportunity zones” to encourage investment in distressed real estate areas in the USA, e.g., Detroit, Cleveland, Chicago, Sacramento.  An investment into an “opportunity fund” that is held at least 10 years would potentially avoid any taxation.  The proposed tax breaks are intended to attract much needed capital to areas that have never recovered from the 2008-09 recession (source: White House).       

Outstanding student loans reached a record $1.41 trillion as of 6/30/18, up a startling +9.1% per year over the last 10 years.  For parents of a child born in 2018, the future costs of college are daunting.  If that child attends an average public in-state 4-year college (during the years 2036-2040) and if the annual price increases for public colleges experienced over the last 30 years (+5.4% per year) continued into the future, the aggregate 4-year cost of the child’s college education (including tuition, fees, room & board) would be $237,262 or $59,315 per year (source: College Board). 

Notable Numbers for the Week:

  1. SUPER-SIZE IT - 35% of workers surveyed in the fall of 2017 who are participating and contributing to a 401(k) or similar defined contribution plan are deferring more than 10% of their pre-tax wages (source: Transamerica Retirement Survey of Workers December 2017).  

  2. HOME SWEET HOME - Only 46% of 1,025 retirees surveyed own their home free and clear of any debt.  54% of retirees still have a mortgage or they rent (source: Society of Actuaries).  

  3. CREDIT NEW DRILLING METHODS - The Permian Basin, a 90,000 square mile stretch of land from West Texas to New Mexico, produces 3.3 million barrels a day of crude oil.  That amount has doubled in the last 4 years and is projected to increase another +50% in the next 5 years (source: IHS Markit).  

  4. FREQUENT FLYERS - The top 1% of Americans ranked by their dollar usage of health care represent 22.8% of total health care expenditures (source: Agency for Healthcare Research and Quality).

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