MARKETS AT A GLANCE

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A Look Back at the Markets in July and Ahead to August 2019

Posted August 2, 2019

In July, U.S. markets were up overall, between 1 percent and 2 percent, and bonds also had gains as interest rates declined. Although international markets were down slightly, by about 1 percent or so, they remained above their long-term trend lines. From a financial perspective, July wasn’t a great month, but it was a pretty good one for investors.

A look back

Solid economic growth. It was an even better month for the economy. The first estimate of second-quarter growth came in at 2.1 percent, well above the 1.8 percent expected. Still, this result was down from 3.1 percent for the first quarter. Now, that decline doesn’t sound great. But the second quarter incorporated a pullback in inventories and the trade balance, which pushed the first quarter up. Averaging the two, growth was about 2.6 percent for the first half of the year, which is very solid.

Strong underlying data. July’s data also told us that the growth was well founded. Consumer spending increased substantially in the second quarter, by 4.3 percent. At more than two-thirds of the economy, consumer spending is the biggest single factor in economic growth, and it was supported by strong employment growth and continued wage growth. Consumer spending was also supported by a rebound in confidence, leaving consumers both able and willing to spend. That confidence should provide support for more growth in the future. Government spending was also a significant factor in growth and, with the recent budget deal, should also continue.

Economic news not all good. Business investment was down, which is a concern. Here again, the recent data was better, with durable goods orders showing reasonable growth, well above expectations. The housing market also remains a worry, and this is an area of continued weakness. A decline in mortgage rates has not yet improved demand, which may be a more serious threat. The prospect of these and other risks led the Fed to cut rates at the end of the month for the first time since 2008. Although this move does show concern, it should also help cushion the impact of any risks and will likely end up being a positive influence.

Supportive market fundamentals. Despite the real economic concerns, however, market fundamentals remained solid in July. Rising spending pushed corporate earnings up well past expectations. As of the end of the month, earnings for the S&P 500 were up by 0.8 percent, against an expected decline of 2.2 percent. This is a big swing, and the gap will likely continue to widen, which should support the financial markets.

A look ahead

Positive economic data. Looking forward into August, so far the economic data remains positive. The ISM Manufacturing survey was down but remains in expansionary territory. Plus, today’s jobs report was solid, with 164,000 new jobs and wage growth rising from 3.1 percent to 3.2 percent year-on-year. Business investment also showed growth.

Risks remain. With the economy reasonably solid, and with earnings doing much better than expected, the real risks come from policy and politics. Although we saw markets hiccup after the Fed news at the end of the month, the announcement of new U.S. tariffs on Chinese goods on August 1 has resulted in a more significant pullback. As I write this, that pullback is ongoing. So far, however,  it is still well within the normal range of market volatility—and nothing to worry about yet.

A good place. Even if the market decline worsens, the solid economic foundation should limit any sustained impact. Indeed, August can be a volatile month. But the fact that the data has been improving through July and into this month should help cushion the effects. With fundamentals solid, investors are still in a good place.

Disclosure: Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Barclays Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg Barclays government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg Barclays U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below.

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TOPIC OF THE MONTH

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Understanding the Borrower Defense to Repayment Student Loan Forgiveness Program

Have you heard the term borrower defense to repayment but are not sure what it means? Are you wondering if it could apply to your student loans? Read on to learn more about this program, as well as how to determine your eligibility and apply.

Have You Been Misled?
Borrower defense to repayment is a federal student loan forgiveness program available to students who obtained certain federal student loans while attending a school that either misled students or violated certain laws. Many of these violations occurred at institutions owned by Corinthian Colleges, Inc. (i.e., Everest Institute, Everest College, Everest University, Heald College, and WyoTech), affecting students who attended between July 1, 2010, and September 30, 2014. Although the issue is not limited to these schools, Corinthian Colleges gained particular attention during the sale and closing of several of its schools in 2015.

If you attended a school that you believe misled you or engaged in conduct that violated laws directly related to federal student loans you obtained during that time, a student loan forgiveness discharge may be a possibility. Further, if you have already made payments on those loans, you may request to be reimbursed.

Determining Eligibility
If one of the following situations applies to you, you may be eligible for federal student loan forgiveness:

Do you believe you were defrauded by the school you attended, and/or do you believe the school violated state laws? If yes, then you may be eligible for a federal Direct Loan forgiveness discharge through the borrower defense to repayment program. Parent PLUS federal student loans may be eligible for forgiveness as well. According to Rev. Proc. 2015-57, amounts discharged through the borrower defense to repayment process may be excluded from gross income, to be determined on a case-by-case basis.

Did your school close while you were attending (and you have not transferred to a similar program at another school)? If yes, then you may be eligible for a closed school discharge. Upon meeting the requirements for this relief, you can apply for a loan discharge for a federal Direct Loan, the federal education loan program, or a federal Perkins Loan. Contact your loan servicer to apply for a loan discharge. According to Rev. Proc. 2015-57, amounts discharged under the closed school debt relief will be excluded from gross income.

Next Steps
Application. 
If you believe you are eligible for the borrower defense to repayment program, you may initiate the application process online through the U.S. Department of Education’s application page. In addition to your personal details, the application will ask for information about your school, degree program, and loans, as well as the basis of your claim or allegation against the school. Here, it might be helpful to include supporting documentation of the allegation.

Review. During the application review process, you can continue to make loan repayments, or you may submit a request in coordination with your loan servicer to place your loan in forbearance during the application review process. Once you receive notice your loan is in forbearance, the requirement to make payments on your student loan will be suspended while your application is under review. For loans in collections, the collections process will be suspended during the review. Be aware that interest will continue to accrue during the review period.

After the review is completed, your borrower defense application will either be approved or be denied.

  • Approved: Once an application is approved, the applicable student loans will have either a full discharge or a partial discharge. In circumstances where a partial discharge is granted, loan repayments will need to resume on the remaining portion, including any accumulated interest.

  • Denied: When an application is denied, any loan forbearance will end, and you will need to resume making loan repayments.

For additional information about this type of student loan forgiveness, visit the U.S. Department of Education’s website.