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U.S. Stocks Slump; Dow Briefly Plunges 1,000 Points

The Gilmer Free Press

The U.S. stock market took investors on a stomach-churning ride Monday, as the Dow Jones industrial average briefly plunged more than 1,000 points and sent a shiver of fear from Wall Street to Main Street.

Stocks regained much of that ground as the day wore on. But the slump — part of a global wave of selling triggered by the slowdown in China — reflected uncertainty among investors over where to put their money when the world’s second-largest economy is in a slide.

The Standard & Poor’s 500 index also fell sharply shortly after the opening bell, entering “correction” territory — Wall Street jargon for a drop of 10 percent or more from a recent peak. The last market correction was nearly four years ago.

U.S. treasurys surged as investors bought less risky assets. Oil prices fell. But investors also saw opportunity, moving fast and early to snap up some bargains. That helped trim some of the market’s earlier losses.

The Dow fell 588.47 points, or 3.6 percent, to 15,871.28. The S&P 500 index slid 77.68 points, or 3.9 percent, to 1,893.21. The Nasdaq composite shed 179.79 points, or 3.8 percent, to 4,526.25 points. The three indexes are down for the year.

The sell-off triggered worries in corporate boardrooms, in government capitals and among ordinary Americans young and old who have been saving for retirement or a down payment on a house.

Heightened concern about a slowdown in China had already shaken markets around the world on Friday, driving the U.S. stock market sharply lower. The rout continued Monday as China’s main stock index sank 8.5 percent.

The Dow plummeted 1,089 points within the first four minutes of trading as traders dumped shares. But the fire sale was short-lived. A wave of buying cut the Dow’s losses by half just five minutes later.

The U.S. market slide was broad. The 10 sectors in the S&P 500 headed lower, with energy stocks recording the biggest decline, 5.2 percent, amid a continued slump in the price of oil. The sector is down almost 25 percent this year.

Newfield Exploration was down the most among stocks in the S&P 500, shedding $3.19, or 10.4 percent, to $27.63. AGL Resources led among the gainers, rising $13.55, or 28.3 percent, to $61.41.

Stocks have been on a bull run of more for more than six years, after bottoming out in March 2009 in the aftermath of the financial crisis and the Great Recession.

Stocks have kept climbing even as corporate earnings growth has slowed. The price-earnings ratio for the S&P 500, a measure of how much investors are willing to pay for each dollar of company earnings, climbed as high as 17.2 in March. That was the highest level in at least a decade, according to data from FactSet.

Oil prices, commodities and the currencies of many developing countries also tumbled Monday on concerns that a sharp slowdown in China might hurt economic growth around the globe.

Benchmark U.S. crude dropped $2.21 to $38.24 a barrel in New York. Metals also ended the day lower. Gold fell $6 to $1,153 an ounce and silver declined 54 cents to $14.76 an ounce.

Worries about a China-fueled global economic slump sent markets overseas lower, as well.

In Europe, Germany’s DAX fell 4.7 percent, while the CAC-40 in France slid 5.4 percent. The FTSE 100 index of leading British shares dropped 4.7 percent.

In Asia, Japan’s Nikkei fell 4.6 percent, its worst one-day drop since in over 2 1/2 years. Hong Kong’s Hang Seng index fell 5.2 percent, Australia’s S&P ASX/200 slid 4.1 percent and South Korea’s Kospi lost 2.5 percent.

The Shanghai index suffered its biggest percentage decline in 8½ years. The market has lost all of its gains for 2015, though it is still more than 40 percent above its level a year ago.

Underlying the gloom in China is the growing conviction that policymakers and regulators may lack the means to stem the losses in that nation. The country is facing a slowdown in economic growth, the banking system is short of cash and investors are pulling money out of the country, experts note.

U.S. Crude Closes Under $40 a Barrel to Breach Long-Time Low

The Gilmer Free Press

NEW YORK, NY — The price of U.S. oil closed under $40 a barrel on Monday for the first time since the days of the global economic crisis on fears of a slowdown in the world economy.

Already trading at six-year lows on a prolonged slump, U.S. crude fell $2.21 to finish at $38.24 per barrel. Oil hadn’t closed below $40 since February 2009, although it briefly traded below that level on Friday. Monday’s closing price was the lowest since Feb. 18, 2009.

Brent crude, a benchmark for international oils used by many U.S. refineries, slipped $2.77 to $42.69 Monday and is at its lowest levels since March 2009.

Signs are mounting that growth in China, the second-largest economy in the world, is slowing down. That’s making investors worry more and more about the health of the world economy, and those fears led to a sell-off in stocks Friday and again on Monday, when China’s main stock market took its biggest dive in eight years. The Dow Jones industrial average spent the day far in the red, losing almost 600 points.

The U.S. has ramped up oil production to historic levels over the last few years while OPEC countries continued to churn out crude. Supplies have built up and growth in the world economy has been slow, with China’s economy losing steam and Japan’s shrinking. That resulted in a supply glut that has punished oil prices: the price of U.S. crude has fallen about 60 percent over the last year.

U.S. crude averaged more than $90 a barrel from 2011 through 2014. Its price has fallen for eight straight weeks, the longest slump in almost 30 years.

Avoid These Four 529 College Savings Traps

The Gilmer Free Press

Putting money into a 529 college savings plan is relatively easy. Getting it out can be tricky.

This may come as a surprise to the families who have piled money into accounts, hoping to reap tax and financial aid benefits.

“People get tripped up and don’t realize it until it’s too late,“ said consultant Deborah Fox of Fox College Funding in San Diego.

Assets in the plans topped $224 billion at the end of 2014, according to research firm Strategic Insight, up from about $13 billion in 2001.

Here are four traps that can keep you from getting the most out of your account:


COMPETING TAX BENEFITS

Money in a 529 account grows tax-free if the proceeds are used for qualified educational expenses. But there are complications.

The biggest trap may be the rule against double dipping. You cannot use tax-free 529 money to pay for expenses that you use to claim tax credits, including the American Opportunity Credit and the Lifetime Learning Credit. Conversely, you cannot get the tuition and fees deduction on expenses you have paid with tax-free 529 money.

People often do not discover that they have incurred an unnecessary tax bill until they prepare their return, said Joseph Hurley, a certified public accountant and founder of the SavingForCollege site.

At that point, if you want the credits, which are typically more valuable than the tax savings from a 529 distribution, then you have to pay taxes (but not penalties) on at least part of the money you withdrew from the plan in the previous tax year.


GRANDPARENT HELP

Accounts owned by grandparents are not included in initial financial aid calculations. Sounds like a good thing, right?

Except that any withdrawals count heavily against the grandchild in the next year’s aid calculations. Distributions from grandparent-owned accounts are considered untaxed income to the student, which means he or she could lose a big chunk of grants or scholarships: up to half the amount distributed.

By contrast, accounts owned by parents or students are considered parental assets. That means up to 5.64 percent of the account balance is included in financial aid calculations, but distributions are not.

A few workarounds exist, such as transferring the account to a parent if the plan allows or waiting to withdraw the money until Jan. 1 of the student’s junior year. At that point, any withdrawals will not affect aid eligibility, which is based on the previous year’s financial details.

Another solution could be gifting any money withdrawn to the parents. The Internal Revenue Service has not specifically blessed the move, Hurley said, but he does not see much risk from it if the account beneficiary incurs sufficient qualified expenses.


THE DIVORCE TRAP

A similar problem awaits divorced parents. Financial aid calculations typically are based on the income and assets of the parent with whom the child lives most of the time.

Non-custodial parent accounts typically are excluded from the first financial aid calculations, but distributions count as the student’s income in later aid determinations.

A non-custodial parent can try the same workarounds as grandparents but may be leery about handing money to the ex rather than to the student or the school.


TIMING IS EVERYTHING

You only get the tax break on 529 withdrawals if they match the amount of “qualified education expenses” in the same year.

If you withdraw money in December and pay the tuition bill in January, you may not have enough qualified expenses, and the excess distribution could be taxed and penalized.

Tax-free assistance like scholarships must be deducted from the expenses incurred.

What was paid for also matters. Tuition and books are fine, but computers do not count unless the school requires them.

Other costs not covered? Transportation and repayment of student loans.

Bottom line: Do not just call the 529 plan and tell them to send money to the school.

“It’s very important to have a 529 withdrawal plan before you withdraw any money,“ Fox said. “You need to know all the ins and outs and how they will affect you.“

Average U.S. Rate on 30-Year Mortgage Drops to 3.84%

The Gilmer Free Press

WASHINGTON, D.C. — Average long-term U.S. mortgage rates dropped this week to their lowest levels since May, in a week marked by turmoil in global markets that was stoked by economic developments in China.

Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage fell to 3.84 percent from 3.93 percent a week earlier. The benchmark rate hasn’t been that low since May 21.

The rate on 15-year fixed-rate mortgages declined this week to 3.06 percent from 3.15 percent.

The panic selling and extreme gyrations in stock markets sent investors to the safety of U.S. government bonds, raising their prices and dampening their rates. Mortgage rates often track the yield on the 10-year Treasury bond, which dipped below 2 percent on Monday, a day of epic losses and price swings on Wall Street. The yield recovered to 2.18 percent Wednesday. That compared with 2.22 percent last Wednesday.

On Monday, a brief 1,000-point plunge in the Dow Jones industrial average just minutes after stocks opened for trading sent shivers from Wall Street to Main Street. The average ended the day down 3.6 percent. The market staged a robust recovery Wednesday, clocking its best day in nearly four years as the Dow average gained 4 percent.

The recent economic jitters and stomach-churning markets have thrown into question whether the Federal Reserve will raise a key interest rate next month, as has been long anticipated. A rate hike by the Fed could bring higher rates for home loans. The Fed has kept its key short-term rate near zero since the financial crisis year 2008.

Steady U.S. job growth and low mortgage rates have improved home sales this year. Data issued Thursday by the National Association of Realtors showed that slightly more Americans signed contracts to buy homes in July, as pending sales edged up after dipping in June.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.6 point. The fee for a 15-year loan also held steady at 0.6 point.

The average rate on five-year adjustable-rate mortgages fell to 2.90 percent from 2.94 percent; the fee fell to 0.4 percent from 0.5 point. The average rate on one-year ARMs was unchanged at 2.62 percent; the fee held at 0.3 point.

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