Tisdale CPA

As February drew to a close, a variety of topics – oil prices, interest rates and 401(k) investment fees – dominated the financial news headlines in the United States. On the international front, a conditional agreement by Euro-zone nations to extend bailout help to Greece avoided a showdown and helped bolster major stock indices.

Oil Prices

The whip-saw in energy stocks continued in February. There was a rally in the sector after escalating violence in Libya and Iraq – both major oil producers – hit the news. However, this quickly was reversed mid-month after the American Petroleum Institute estimated an inventory upswing of more than 14 million barrels – an increase significantly higher than the additional 3 million barrels forecasted by industry experts. Total U.S. inventories were pegged at a record high of 418 million barrels at the end of the first week in February. The fall in oil prices also helped push down major oil stocks and dragged both the Dow Jones Industrial Average and the Standard & Poor’s 500 down from their recent record highs.

401(k) Investors Await Supreme Court Ruling

The many U.S. investors who participate in 401(k) plans are expected to reap the benefits from the ramifications of a class-action lawsuit that highlights an employer’s responsibility to seek the best deal in investment fees. The landmark case – Tibble v. Edison (the California-based utility company) – alleges mismanagement specifically involving overpriced fees for 401(k) plan participants. It is one of a number of similar lawsuits filed against financial companies and other corporate institutions.

Although this particular case, which is the first to reach the Supreme Court, now centers on a statute of limitations, lower courts have agreed that Edison did not act in the best financial interests of its plan’s participants when it opted for “retail class” shares rather than less expensive “institutional class” shares. It is this aspect of the lawsuit that has seized the attention of advocates of 401(k) plan participants and individual retirement savers. Groups like these are supporting efforts to make companies demonstrate “fiduciary responsibility” and act in the best financial interests of their employees.

The Federal Reserve

Analysts and investors were keen to hear Fed Chairwoman Yellen’s semi-annual report to the Senate Banking Committee to gain more clarity on the ever-present issue of the timing of interest rate hikes. The Fed is walking a fine line – trying to back off from the forward guidance it has used previously to support the markets without provoking an overreaction when discussing future interest policy changes. Yellen’s presentation did not do much to clarify analysts’ understanding of when interest rate hikes might begin. Yellen spoke of economic indicators that had been increasing at a solid rate, but countered this with references to continued concerns over low wages and a global economy that remains weaker than hoped. Bearing in mind last month’s knee-jerk response to her statement on rate increase timings, Yellen avoided saying that target interest rates would increase “in a couple of meetings.” Instead, her language indicated she is not ready to signal that a rate increase is imminent.

The remarks above are intended as general commentary and are not intended to replace specific advice and counsel from tax and investment professionals.