Posts made in June 2022

Prospects of cooling inflation powered a rally in stock prices last week despite growing recession concerns.

The Dow Jones Industrial Average gained 5.39%, while the Standard & Poor’s 500 climbed 6.45%. The Nasdaq Composite index rose 7.49% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, edged 0.78% higher.^1,2,3

Stocks Bounce

Declining energy and food prices and falling bond yields signaled a potentially improving inflation outlook, buoying investor sentiment. The rally in stocks was most powerful on the first and final trading days of a holiday-shortened week. Stocks turned a bit choppy mid-week as investors digested Fed Chair Jerome Powell’s Senate appearance but resumed their momentum on Thursday and rallied Friday as rate-hike expectations eased.

Though the weekly gain was a welcome respite from the market’s downward trend, declining bond yields and falling food and energy prices can also be interpreted as signs of slowing economic growth, which may represent a headwind for corporate earnings in the months ahead.

Powell Testifies

Fed Chair Jerome Powell told members of the Senate Finance Committee that the Fed is committed to lowering inflation and moving quickly to do so. He conceded that a recession could result from the Fed’s inflation-fighting efforts and acknowledged that some of the forces driving inflation (e.g., supply chain, war) are out of the Fed’s control.⁴

Perhaps the most exciting part of his testimony was what he didn’t say, which was a definitive statement on future hikes. Instead, Powell told lawmakers that he “anticipate[s] that ongoing rate increases will be appropriate.” Before his testimony, the Fed published a new research paper that found a greater than 50% chance of recession in the next four quarters.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, June 24, 2022}
2. ^{The Wall Street Journal, June 24, 2022}
3. ^{The Wall Street Journal, June 24, 2022}
4. ^{The Wall Street Journal, June 22, 2022}
5. ^{The Wall Street Journal, June 22, 2022}

While the IRS website might not be in your top bookmarks, the website is helpful for a lot of things regarding taxes. Here are just a few things you can do on the site:

• Use Free File, where you can access brand-name tax software and online fillable forms.
• Use the IRS e-file system: a safe, easy, and common way to file your tax return.
• Check the status of your tax refund.
• Find out how to make payments electronically to pay your federal taxes. You can use a credit or debit card or enroll in the US Treasury’s Electronic Federal Tax Payment System to pay your taxes.
• Get tax forms and publications, including helpful tips for frequently asked questions.

* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁷

Footnotes and Sources

7. ^{IRS.gov, March 20, 2020}

Stocks moved lower last week as recession fears deepened following a Fed hike in interest rates and weak economic data.

The Dow Jones Industrial Average fell 4.79%, while the Standard & Poor’s 500 dropped 5.79%. The Nasdaq Composite index slid 4.78% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slumped 4.51%.^1,2,3

Stocks Tumble

Stocks were under pressure all week due to inflation worries, higher yields, and rising recession concerns. In advance of the much-awaited mid-week meeting of the Federal Open Market Committee (FOMC), bond yields jumped, and stocks retreated on speculation that the Fed might raise rates by 75 basis points. When the Fed announced a 75 basis point hike on Wednesday, stocks rebounded strongly.

The enthusiasm was short-lived. Stocks resumed their slide on Thursday as global central banks followed with their own rate hikes. Recession fears grew based on a weak housing starts report and a contraction in the Philadelphia Fed Business Index–the first contraction since May 2020.⁴

Fed Rate Hike 

The Federal Reserve announced a 0.75% hike in the federal funds rate, making it the biggest rate increase since 1994 and signaling its commitment to address inflation. The report from last week’s FOMC meeting also indicated new rate projections, showing that all members expect rates to rise to at least 3.0% by year-end, with half the members expecting rates to rise to 3.375%.⁵

The 75 basis point rate increase was a late-developing change from earlier Fed guidance of a 50 basis point increase. The change of heart was in response to recent inflation data and rising inflationary expectations.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, June 17, 2022}
2. ^{The Wall Street Journal, June 17, 2022}
3. ^{The Wall Street Journal, June 17, 2022}
4. ^{CNBC, June 16, 2022}
5. ^{The Wall Street Journal, June 15, 2022}

Properly preparing your tax return can be tricky, but here are some tips to help you avoid common errors:

• Submitting your tax return online ensures greater accuracy than mailing it in. The e-file system can detect common errors and send your filing back to you for you to correct, saving you a ton of time in processing and delays.
• Make sure to clearly print or type your full name, taxpayer identification number or SSN, and current address (including zip code).
• Choose only one correct filing status.
• Enter your income on the correct lines and include a Form 1040 to declare additional income and adjustments as needed.
• Put brackets around negative amounts.
• Keep a copy of the signed return and schedules for your records.

* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁶

Footnotes and Sources

6. ^{IRS.gov, January 3, 2021}

A higher-than-expected inflation report triggered a sell-off on Friday, leaving stocks in the red for the week.

The Dow Jones Industrial Average lost 4.58%, while the Standard & Poor’s 500 dropped 5.05%. The Nasdaq Composite index slid 5.60% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 1.81%.^1,2,3

Inflation Upends Stocks

Stocks gyrated between gains and losses last week until sliding lower on Friday’s hot inflation report, which heightened worries over a more aggressive Fed and a further economic slowdown. Stocks moved higher to begin the week, despite rising bond yields, a profit warning from a major retailer, and Senate testimony by Secretary of Treasury Janet Yellen, who said that inflation was likely to remain elevated.

Stocks turned lower later in the week on renewed concerns of an economic slowdown, sparked by a downward revision in The Federal Reserve-Atlanta’s real-time estimate of second-quarter GDP growth and a drop in new mortgage applications. Investors lightening up on stocks ahead of Friday’s inflation report may have also contributed to Thursday’s selling.

Inside Inflation 

Consumer prices rose 8.6% year-over-year in May, marking the highest rate since December 1981. Price increases over the last 12 months were driven by a 34.6% jump in energy prices and by food costs, which climbed 10.1%. Used car and truck prices, which had seen three straight months of declines, rose 1.8% from April, while airfares soared 12.6% in May.⁴

May’s inflation exceeded economists’ forecasts and dashed the hopes that inflation had plateaued. In a separate economic report on Friday, real wages (net of inflation) fell 0.6% in April and were lower by 3% from 12 months ago.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, June 10, 2022}
2. ^{The Wall Street Journal, June 10, 2022}
3. ^{The Wall Street Journal, June 10, 2022}
4. ^{CNBC, June 10, 2022}
5. ^{CNBC, June 10, 2022}

If you don’t receive your W-2 or 1099 by January 31 of the year, you are filing taxes, or if the information on these forms is incorrect, contact your employer/payer. If you still haven’t received the forms you need by the end of February, you can contact the IRS at 800-829-1040, and they may be able to help.

When you contact the IRS, they will also reach out to the employer/payer for the information you need, and they will also send you Form 4852, which is a substitute for a W-2 or 1099. To do this, they will ask for your employer/payer’s name, address, and phone number (as well as your information).

* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁶

Footnotes and Sources

^{6. IRS.gov, January 13, 2021}

In a holiday-shortened week of volatile trading, stocks surrendered some of the previous week’s strong gains.

The Dow Jones Industrial Average fell 0.94%, while the Standard & Poor’s 500 declined 1.20%. The Nasdaq Composite index lost 0.98% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.17%.^1,2,3

An Uncertain Market

Stocks experienced wild swings last week, in part, due to ongoing uncertainty over economic health and the path of inflation. Investors seemed conflicted when interpreting the data, in some instances viewing economic strength as a negative since it may mean more aggressive rate hikes from the Fed.

Illustrative of how this uncertainty has played out, stocks surged higher on Thursday despite comments from Fed Vice Chair Lael Brainard indicating it’s unlikely that the Fed will pause on rate hikes. Then on Friday, stocks dropped as a better-than-expected jobs report raised concerns about monetary policy.

Strong Job Growth

The U.S. economy added 390,000 jobs in May, a slowdown from recent months but higher than consensus estimates. Job gains registered in several categories, led by leisure and hospitality, professional and business services, and warehousing and transportation. The retail sector lost jobs.⁴

The unemployment rate remained unchanged at 3.6%. Wage growth cooled off, with a 12-month increase of 5.2%, down from April’s year-over-year jump of 5.5%. Finally, the labor participation rate ticked higher again, reflecting how job availability is helping to pull Americans off the labor-market sidelines.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, June 3, 2022}
2. ^{The Wall Street Journal, June 3, 2022}
3. ^{The Wall Street Journal, June 3, 2022}
4. ^{CNBC, June 3, 2022}
5. ^{CNBC, June 3, 2022}

If you file your taxes using itemized deductions, you may be able to deduct medical and dental expenses for yourself, your spouse, and your dependents. According to the IRS, you may deduct only the amount of your total medical expenses that exceed 7.5% of your adjusted gross income.

Some types of medical care expenses that may be deductible include:

• Payments for the diagnosis, cure, treatment, and prevention of a disease.
• Payments to doctors, dentists, surgeons, chiropractors, psychiatrists, psychologists, and nontraditional medical practitioners.
• Paying for inpatient hospital care or nursing home care.
• Fees associated with inpatient treatment for alcohol or drug addiction.
• Payments to participate in a weight-loss program for a specific disease diagnosed by a doctor (such as obesity).

* This information is not intended to be a substitute for specific, individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.

Tip adapted from IRS.gov⁷

Footnotes and Sources

7. ^{IRS.gov, February 17, 2021} 

Stocks posted solid gains for the week, buoyed by the release of Fed meeting minutes and upbeat earnings from mid-size and discount retailers.

The Dow Jones Industrial Average jumped 6.24%, while the Standard & Poor’s 500 advanced 6.58%. The Nasdaq Composite index gained 6.84% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.09%.^1,2,3

A Good Week

The stock market staged a broad rally last week, ignited by the release of minutes from the May’s Federal Open Market Committee (FOMC) meeting. The meeting notes eased concerns that the Fed might pursue a more aggressive monetary tightening stance than the Street had anticipated.

Investor sentiment rose owing to solid earnings and encouraging guidance from several mid-size and discount retailers, which eased concerns about the health of the American consumer. A smaller rise in the personal consumption expenditures price index, the Fed’s preferred measure of inflation, triggered a strong rally on Friday. The powerful move ended seven straight weeks of stock losses.⁴

Fed Minutes

The minutes from May’s FOMC meeting were released last week. They confirmed the likelihood of at least two successive 50 basis point interest rate hikes. The minutes also indicated they might need to raise rates to a level that acts to restrict economic growth, something that Fed Chair Jerome Powell acknowledged might be a painful process.⁵

Not all Fed members are fully committed to the more aggressive rate hikes. Last week, Atlanta Fed president Raphael Bostic wrote that a pause in rate increases in September might be appropriate. He joined other members in suggesting that economic conditions may warrant reconsideration of additional rate hikes beyond those already signaled by Powell.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, May 27, 2022}
2. ^{The Wall Street Journal, May 27, 2022}
3. ^{The Wall Street Journal, May 27, 2022}
4. ^{CNBC, May 27, 2022}
5. ^{The Wall Street Journal, May 25, 2022}
6. ^{The Wall Street Journal, May 25, 2022}