EQUITY MARKETS HAVE A POOR WEEK:
Some modest positive news early in the weak was drowned out by rising oil futures prices and a radical jump in unemployment numbers. The Dow Jones Industrials were down 3.39% and the S & P 500 was down 2.83%.
REITS BOUNCING BACK:
Real estate investment trusts (“REITs”) outperformed other major market benchmarks during the first five months of the year. The FTSE NAREIT all-REIT index was up 6.5%, for the period, while equity REITs rose 8.2%. Self-storage and residential REITs were the biggest gainers, posting returns of 21.1% and 15.6% respectively. The REIT gains have helped the group recover from last year. Equity REITs posted a return of -17.8% last year.
This is a great example of the premise behind asset allocation. People who jumped out of REITs last year missed out on gains of 2008 when REITs have been a good counterbalance to equity investments.
One of the many things we as financial planners must assume in making projections are investment returns. In times like the present, clients will challenge even fairly conservative, long-term return assumptions. Evidently, however, there are still optimists out there. The governor of Pennsylvania, Ed Rendell wants to sell the toll-taking rights on the Pennsylvania Turnpike for an up-front payment, pay off some debt, and invest the remaining $10 billion with the state pension fund, set aside a bit for inflation, and pocket an average 12 percent each year, or $1.1 billion, to fix rundown roads and bridges.
MUNICIPAL BONDS GET A SHOT IN THE ARM:
Markets hate uncertainty. Fortunately, the U.S. Supreme Court just took some uncertainty out of the municipal bond market. A federal appeals court had held that individual states may not exempt residents who own same-state municipal bonds from state income taxes. This case was accepted to the U.S. Supreme Court (Dept. of Revenue of Kentucky vs. Davis) which decided that states may continue to exempt their residents from paying taxes on that state’s municipal bonds. Clarifying the tax status of state municipal bonds for local residents removes an issue that had been weighing on the market for municipal bonds in addition to the general credit issues affecting the markets. Keep Reading...
