Author: Ramsay Capital Group

On Friday, a sharp sell-off sent major stock market indices into negative territory for the week, capping a volatile close to April.

The Dow Jones Industrial Average declined 2.47%, while the Standard & Poor’s 500 tumbled 3.27%. The Nasdaq Composite index dropped 3.93% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 3.33%.^1,2,3

Stocks Slide

Trading was volatile in the final week of April as investors struggled with the crosscurrents of global economic growth anxieties stemming from widening COVID-related lockdowns in China and a fresh batch of corporate earnings reports.

Monday set the tone for the week. Stocks staged an intraday reversal, wiping out a deep morning decline to end the day higher. After broad losses on Tuesday and a choppy session on Wednesday, stocks mounted a powerful rally Thursday thanks to positive corporate earnings reports, overcoming a disappointing first-quarter Gross Domestic Product report. Stocks could not sustain Thursday’s momentum, as Friday witnessed a broad-based retreat to cement another week of losses.

Economy Contracts

Following the torrid 6.9% annualized GDP growth rate in the fourth quarter, economists had expected economic growth to moderate to about a one-percent gain in the first quarter. Instead, the economy shrank at an annualized rate of 1.4%, dented by a slowdown in inventory investment by businesses, a jump in the trade deficit, and a decline in defense spending.

Consumer spending held up, rising 2.7%, though the gain was amid higher prices. Some economists expect the economy to resume its expansion for the remainder of the year, which may be one reason investors shrugged off the negative surprise.⁴

Footnotes and Sources

1. ^{The Wall Street Journal, April 29, 2022}
2. ^{The Wall Street Journal, April 29, 2022}
3. ^{The Wall Street Journal, April 29, 2022}
4. ^{CNBC, April 28, 2022}

The Internal Revenue Service (IRS) offers a number of online resources for military members and their families. Some of these resources include:

• IRS Free File. This program offers online tax preparation, electronic filing and direct deposit of refunds, at no cost.
• Members of military and their families who have income below $72,000 can choose from any of the Free File tax software companies that the IRS has compiled.
• Free File Fillable Forms is available for those who have income above $72,000.
• Using Free File can help taxpayers figuring things like their earned income tax credit, child and dependent care credit and Recovery Rebate Credit.
• Miltax is another free tax resource available for the military community, offered through the Department of Defense.

* 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, February 25, 2021}

Stocks posted losses in a holiday-shortened trading week as the first-quarter earnings season kicked off and investors digested new inflation data.

The Dow Jones Industrial Average declined 0.78%, while the Standard & Poor’s 500 fell 2.13%. The Nasdaq Composite index dropped 2.63% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 1.20%.^1,2,3

Watching Bonds

Stocks began the week moving lower as bond yields climbed higher, with growth stocks suffering some of the steepest declines. Investors considered China’s ongoing lockdown warily, worried it might worsen supply-chain issues.

Historically high consumer and producer price inflation reports were shrugged off by the stock and bond markets in the main, with bond yields slipping despite the hot inflation numbers. Despite an encouraging start to the first-quarter earnings season, stocks pulled back on Friday as bond yields resumed their move higher ahead of a three-day holiday weekend.

An Eye on Inflation

On Tuesday, March’s Consumer Price Index (CPI) report offered little indication that inflation may be moderating, as prices increased 8.5% year-over-year, the fastest pace in 40 years. Core inflation, excluding food and energy prices, recorded a 6.5% jump, the steepest rise since August 1982. One encouraging note was that core inflation showed potential signs of ebbing, posting a monthly increase of 0.3% versus expectations of a 0.5% increase.⁴

The following day, March’s Producer Price Index, a potential insight into future inflation, rose 11.2% year-over-year. A March survey by the National Federation of Independent Business released earlier in the week, indicated that half of the respondents were likely to raise prices in the next three months.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, April 14, 2022}
2. ^{The Wall Street Journal, April 14, 2022}
3. ^{The Wall Street Journal, April 8, 2022}
4. ^{CNBC, April 12, 2022}
5. ^{The Wall Street Journal, April 13, 2022}

Tax Tip: Beware of Phishing Scams

A phishing scam is when someone pretends to be a trusted source, such as a bank, tax preparer, or credit card company, to access your personal information.

To avoid falling victim to a phishing scam, here are some recommendations from the IRS:

• Never open an email from a sender that you don’t recognize.
• Never disclose personal information, including your passwords, bank account number, credit card number, or Social Security number, to anyone online. The IRS will never ask for this information via email.
• When possible, use two-factor authentication to protect your accounts. Two-factor authentication requires a secondary form of identification (such as a phone number) to access your account.

* 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.gov⁵

Footnotes and Sources

5. ^{IRS.gov, August 26, 2021}

Stock prices fell last week in response to the Fed’s plan to combat inflation, which staked out a more aggressive stance than investors had anticipated.

The Dow Jones Industrial Average slipped 0.28%, while the Standard & Poor’s 500 fell 1.27%. The Nasdaq Composite index dropped 3.86% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slid 2.05%.^1,2,3

Fed Roils Markets

After a positive start to the week, stock prices turned lower on a more hawkish tone from Fed officials. On Tuesday, investors were surprised by comments from Fed governor Lael Brainard, one of the Fed’s more dovish members, who suggested the Fed could take a more aggressive approach with interest rates.

The unease extended into Wednesday when minutes of the last Federal Open Market Committee (FOMC) meeting were released, signaling a potentially faster pace in both interest rate hikes and the wind-down of the Fed’s balance sheet. Yields climbed steadily throughout the week as the bond market digested this new information. Particularly hard hit were high valuation stocks, as reflected in the 4% drop in the Nasdaq.

Fed Minutes

After raising the federal funds rate by 0.25% last month, the minutes from the March FOMC meeting made it clear the Fed is serious about fighting inflation with higher interest rates.

Fed officials indicated they might have hiked rates by a half percentage point in March had it not been for the uncertainty created by the invasion of Ukraine. Multiple Fed officials suggested that future rate hikes may reach 0.5%. Fed officials also discussed allowing up to a $95 billion monthly run off the Fed’s balance sheet, a faster pace than the market expected.⁴

Footnotes and Sources

1. ^{The Wall Street Journal, April 8, 2022}
2. ^{The Wall Street Journal, April 8, 2022}
3. ^{The Wall Street Journal, April 8, 2022}
4. ^{CNBC, April 6, 2022}

Self-Employed Tax Obligations

There are a few tax considerations to consider when you work for yourself. Generally, you’re required to file and pay estimated taxes every quarter.

Determine if you are subject to tax: Subtract your business expenses from your income. If your expenses are less than your income, the difference is part of your income. If your expenses are more than your income, the difference is a net loss.

Make quarterly payments if you’ve determined you need to make quarterly payments using Form 11040-ES.

Filing annually: If you’re filing annually, you’ll need to use Schedule C to report income or loss. To file your Social Security and Medicare taxes, you should file Schedule SE Form 1040.

Deductions: If you’re using part of your home for business, you may be able to make certain deductions, such as for your office or a portion of your home’s square footage used for business purposes.

* 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, September 15, 2021}

Stocks spent last week digesting the sharp gains of previous weeks as investors assessed a tightening yield curve, the war in Ukraine, and an uncertain outlook for economic growth and inflation.

The Dow Jones Industrial Average slipped 0.12%, while the Standard & Poor’s 500 was flat (+0.06%). The Nasdaq Composite index led, picking up 0.65% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 1.02%.^1,2,3

Stocks Pause

Stock prices bounced around following strong gains in two previous weeks as money managers appeared to reposition their portfolios ahead of the first-quarter close. Oil was under pressure all week as prices fell on news that Shanghai imposed a strict lockdown due to COVID infections. President Biden announced a sustained release of oil from the country’s strategic petroleum reserve.

Bond yields reversed their recent climb. The flattening in the yield curve triggered some concerns about economic growth and the possibility of a recession.

Labor Market

With economic growth worries overhanging the market, last week’s employment reports showed continued strong demand for workers. The Job Openings and Labor Turnover Survey reported the number of open positions remained near record highs, with job openings exceeding the number of available workers by a record five million. Afterward, the Automated Data Processing employment report saw private payrolls grow by 455,000 in March, slightly above consensus expectations.^4,5

Finally, the government’s monthly jobs report showed that employers added 431,000 jobs in March, lowering the unemployment rate to 3.6%. That’s approaching the 50-year low of 3.5% reached in February 2020.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, April 1, 2022}
2. ^{The Wall Street Journal, April 1, 2022}
3. ^{The Wall Street Journal, April 1, 2022}
4. ^{CNBC, March 29, 2022}
5. ^{CNBC, March 30, 2022}

As you prepare to file your tax return, the first step is to ensure that your records are in order. Good recordkeeping throughout the year will make filing your taxes easier.

Here are some recordkeeping tips:

• Identify all sources of income.
• Keep track of expenses.
• Prepare your tax returns quickly and accurately. Add tax records to your files as you receive them to make filing easier.
• Organize support items that you may need to provide more clarity into your tax return.

* 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, June 22, 2021}

With growing confidence in the economy’s resilience, stocks posted another week of solid gains.

The Dow Jones Industrial Average rose 0.31%, while the Standard & Poor’s 500 advanced 1.79%. The Nasdaq Composite index picked up 1.98% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, added 0.27%.^1,2,3

Stocks Extend Gains

Markets bounced around all week as investors grappled with the crosswinds of rising yields, continued hostilities in Ukraine, and hawkish comments from Fed Chair Jerome Powell. After suffering declines in two of the first three trading sessions of the week, stocks turned higher on a good jobless claims number that investors interpreted as continuing economic strength.

Stocks drifted higher as the week came to a close amid rising bond yields, which on Friday saw the 10-year Treasury yield rise for the 13th time in 16 trading sessions.⁴

Labor Market

Many economists speculated that the invasion of Ukraine would likely shave economic growth in the short term as hostilities worsened supply chains and increased inflationary pressures. The impact, so far, has not been seen in the labor market.

Last week’s initial jobless claims fell by 28,000 to 187,000, the lowest level since December 1969. The number of people on state unemployment rolls fell to 1.35 million, from 1.42 million the previous week, while open jobs are at a near-record high of 11.3 million. Employers’ need for workers suggests that the demand for products and services has remained resilient despite the events in Eastern Europe.⁵

Footnotes and Sources

1. ^{The Wall Street Journal, March 25, 2022}
2. ^{The Wall Street Journal, March 25, 2022}
3. ^{The Wall Street Journal, March 25, 2022}
4. ^{The Wall Street Journal, March 25, 2022}
5. ^{The Wall Street Journal, March 24, 2022}

Whether you picked up embroidering, dog grooming, or making your jewelry, a side hobby may or may not require paying taxes. Here are some things to consider when determining whether your activity is a hobby or business:

• Is your hobby carried out in a businesslike manner?
• Do you maintain complete and accurate books and records for your hobby?
• Is the effort you put into your hobby intended to make a profit?
• Do you depend on the income from your hobby for your livelihood?
• Do you have the knowledge needed to carry out your hobby as a successful business?
• Have you made a profit from your hobby?

If you receive income from your hobby with no intention of making a profit, you may have to report the income to the IRS.

* 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, June 30, 2021}