Author: Ramsay Capital Group

With the Fed embarking on a new course of monetary tightening amid continued fighting in Ukraine, stocks staged a powerful, broad-based rally last week.

The Dow Jones Industrial Average jumped 5.49%, while the Standard & Poor’s 500 gained 6.16%. The Nasdaq Composite index soared 8.18% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, advanced 5.17%.^1,2,3

Stocks Roar

After surrendering gains on Monday, stocks surged higher for four consecutive days. The rally was propelled by strong economic data, the outcome of last week’s Federal Open Market Committee (FOMC) meeting, and reports that Russia made interest payments on its sovereign debt, avoiding technical default.

The uptrend began with a drop in oil prices and a lighter-than-expected wholesale inflation report. Stock prices initially buckled following Wednesday’s hawkish FOMC announcement, but turned higher as investors interpreted the Fed’s news as a welcome plan to combat inflation. Stocks extended their gains into the final two trading sessions, cementing their best weekly performance since November 2020.⁴

The Fed’s Plan

For the first time since 2018, the Federal Reserve hiked the federal funds rate, increasing it by 0.25% and signaling that it expected to raise rates at a faster pace than originally outlined in December. Based on its projections of future fed fund rates, the Fed may implement seven quarter-point rate hikes this year and another three to four next year.⁵

In a statement following the FOMC meeting, Fed officials expressed rising concerns over inflationary pressures made more acute by the war in Ukraine. Members also indicated that they would soon announce a plan to reduce the Fed’s $9 trillion balance sheet.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, March 18, 2022}
2. ^{The Wall Street Journal, March 18, 2022}
3. ^{The Wall Street Journal, March 18, 2022}
4. ^{CNBC, March 18, 2022}
5. ^{The Wall Street Journal, March 16, 2022}

The Lifetime Learning Credit (LLC) is a tax credit for qualified tuition and related expenses. It can help pay for undergraduate or graduate studies, as well as courses to acquire or improve your job skills. The credit is worth up to $2,000 per tax return.

Another good thing about this tax credit is that it’s available for an unlimited number of tax years, unlike the American opportunity tax credit that is only for the first four years at an eligible institution.

To claim the LLC, you must be paying qualified education expenses for a higher education and be enrolled at an eligible educational institution. Check out the IRS guidelines for more details and whether or not you may qualify.

* 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, January 26, 2021}

War in Ukraine weighed on stocks as investors assessed the economic impact of continued hostilities, expanding economic sanctions, and potentially higher inflation due to rising oil prices and new stresses on the global supply chain.

The Dow Jones Industrial Average fell 1.30%, while the Standard & Poor’s 500 lost 1.27%. The Nasdaq Composite index slid 2.78% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 3.21%.^1,2,3

Another Volatile Week

The uncertainty introduced from Russia’s invasion continued to whipsaw the financial markets last week. Intensifying hostilities early in the week sent stocks sharply lower as oil prices surged and a flight to safety drove investors to buy bonds.

Stocks rebounded mid-week following the release of positive economic data and Congressional testimony by Fed Chair Jerome Powell, who said the Fed is likely to move forward on rate hikes, but would proceed cautiously. Investor enthusiasm was short-lived, however, as stocks resumed their decline on Thursday into Friday despite a strong employment report.

Powell Testifies

Fed Chair Powell told Congress on Wednesday that he would propose a 25 basis point increase in the federal funds rate when the Federal Open Market Committee meets in mid-March. He conceded that the invasion of Ukraine and the economic sanctions against Russia introduced a level of uncertainty and that the Fed would proceed carefully with monetary tightening.

Powell also testified that he would not have the Fed’s strategy to shrink its balance sheet finalized before the mid-March meeting. Alluding to the urgency of fighting inflation, Powell left the door open to more aggressive rate hikes later in the year.⁴

Footnotes and Sources

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

Stocks managed to gain ground last week as investors turned their focus to corporate earnings.

The Dow Jones Industrial Average rose 1.05%, while the Standard & Poor’s 500 gained 1.55%. The Nasdaq Composite index picked up 2.38% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, tacked on 2.73%.^1,2,3

Earnings in Focus

At the start of the week, stocks extended the previous week’s rally with some high-growth companies leading the move higher. Strong company profits fueled the market the middle of the week, until an earnings disappointment from a mega-cap company took investors by surprise. The earnings miss deflated sentiment as it heightened worries of what it may portend for other technology companies yet to report. These anxieties led to a sell-off that reverberated across the market.

Subsequent earnings beats from several technology and social media names, and an above-consensus rise in new payrolls on Friday, helped the market close with week with a solid gain.

Omicron and Unemployment

A string of employment reports pointed to a generally healthy labor market, despite the Omicron surge late last year. The Job Openings and Turnover Survey (JOLTS) showed a hiring slowdown, with near-record high job openings and worker resignations. The ADP (Automated Data Processing) employment report saw private payrolls shrink by 301,000. That was the first monthly decline since December 2020.^4,5

More encouragingly, initial jobless claims declined, while continuing jobless claims reached their lowest level since 1973. A strong January employment report showed 467,000 jobs added during the month, with upward revisions to previously released November and December.^6,7

Footnotes and Sources

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

No one likes to think of natural disasters and what might happen, but it’s always good to be prepared. A few things may happen after a disaster when it comes to taxpayer relief.

The first is that the IRS may give taxpayers more time to file and pay. If your address is in an area qualifying for IRS disaster relief, you will automatically receive more time to file your return and pay taxes.

In addition, taxpayers may qualify for a casualty loss tax deduction for people who have damaged or lost property due to a federally declared disaster.

* 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 7, 2021}

An exceptionally volatile week, marked by wide intraday price swings, whipsawed investors with stocks ending higher following a surge to the upside on the final trading day of the week.

The Dow Jones Industrial Average rose 1.34%, while the Standard & Poor’s 500 gained 0.77%. The Nasdaq Composite index ended flat (+0.01%) for the week. The MSCI EAFE index, which tracks developed overseas stock markets, declined 3.54%.^1,2,3

Market Volatility

Rising bond yields, Federal Reserve uncertainty, and escalating tensions on the Ukrainian-Russian border unsettled markets all week. The week opened with two successive days of deep early losses that were erased by furious, late-afternoon rebounds. The following two-trading sessions that started with strong gains that evaporated with late-session selling.

The most dramatic session was Monday, in which stocks ended slightly higher after hitting intraday lows that saw the NASDAQ fall 4.9%, the Dow shed 1,115 points, and the S&P 500 moved into correction territory. Technology was at the epicenter of the volatility all week as rate fears weighed on sector. Stocks rebounded strongly on Friday, managing to conclude a week on an upbeat note.⁴

Fed Readies Market for Rate Hikes

Last week’s meeting of the Federal Open Market Committee (FOMC) left rates unchanged, though officials signaled short-term rates would likely be raised at its next meeting in March. As expected, the Fed also approved one last round of bond purchases, bringing quantitative easing to an end by March.⁵

Left a bit more nebulous were details on the pace and timing of reducing the Fed’s balance sheet, a lingering worry of some investors. But Fed Chair Powell indicated that shrinking the Fed’s asset holdings may occur at a faster rate than in past periods of balance-sheet reductions, such as in 2014 and 2017.⁶

Footnotes and Sources

1. ^{The Wall Street Journal, January 28, 2022}
2. ^{The Wall Street Journal, January 28, 2022}
3. ^{The Wall Street Journal, January 28, 2022}
4. ^{CNBC, January 24, 2022}
5. ^{The Wall Street Journal, January 26, 2022}

6. ^{The Wall Street Journal, January 26, 2022}

Whether you own your own company or want to start making some side income off a hobby, there are some important tax considerations to know:

• The form of business determines what kind of tax return you will need to file.
• The most common business structures are: sole proprietorship, partnership, corporation, S corporation, and Limited Liability Company (LLC).
• Choose a tax year for your annual accounting period. Your tax year can be either 12 consecutive months starting January 1 and ending December 21 or 12 consecutive months ending on the last day of any month except December.
• Apply for an Employer Identification Number used to identify your business.

* 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

7. ^{IRS.gov, September 13, 2021}

Stocks extended their January retreat as worries over inflation and rising bond yields continued to exert downward pressure on prices.

The Dow Jones Industrial Average slid 4.58%, while the Standard & Poor’s 500 sank 5.68%. The Nasdaq Composite index dropped 7.55% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.61%.^1,2,3

Another Turbulent Week

After the holiday weekend, stocks found little respite from this month’s selling pressures. The week began with the 10-year Treasury yield hitting a two-year high that triggered a broad retreat in stocks, with technology and other high-growth companies bearing the brunt of the losses. The Nasdaq Composite officially entered correction territory and closed below its 200-day moving average for the first time since April 2020.⁴

Stocks struggled throughout the week, rallying in early trading on both Wednesday and Thursday on solid corporate earnings and stabilizing bond yields, only to end lower on late-day selling. While last year may have been distinguished by “buying on the dip,” this week reflected a different mindset, “selling on the rebound.” Stocks extended their losses in the final hours of the Friday trading session to conclude a difficult week.

Rate Hike Expectations Rise

Recent market volatility has stemmed predominantly from inflation concerns and how aggressive the Fed will be in fighting it. This reaction reflects the market’s pricing of rate hike probabilities, and their estimation of the Fed’s reaction.

Last week’s interest rate futures suggested that investors expect four or five rate hikes this year, up from three to four the previous week. Markets are pricing a 32% probability of 4-5 rate hikes by December and a nearly 28% probability of 5-6 rate hikes by year-end. Of course, the Fed will act independently of the market, but it provides insight into the recent run-up in yields and continuing pressure on high-growth stock valuations.^5,6

1. ^{The Wall Street Journal, January 21, 2022}
2. ^{The Wall Street Journal, January 21, 2022}
3. ^{The Wall Street Journal, January 21, 2022}
4. ^{CNBC, January 17, 2022}
5. ^{The Wall Street Journal, January 18, 2022}
6. ^{CME, January 19, 2022}

The IRS sends letters and notices for many different reasons. Some letters need a response or action item, while some are just notices to keep you informed.

Here’s what to do if you receive mail from the IRS:

• Don’t throw it away.
• Don’t panic.
• Don’t reply unless directed to do so.
• If a response is needed, respond in a timely manner.
• Review the information to make sure it’s correct.
• Respond to a disputed notice. If you need to call the IRS, use the phone number printed in the upper right-hand corner of the notice.
• Avoid scams through email, social media, or text messages.

* 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, August 16, 2021

Deteriorating investor enthusiasm for high-valuation growth companies and a mixed start to the fourth-quarter earnings season made for a volatile week.

The Dow Jones Industrial Average lost 0.88%, while the Standard & Poor’s 500 slipped 0.30%. The Nasdaq Composite index fell 0.28% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, gained 1.31%.^1,2,3

Stocks Struggle

Stocks were under pressure all week as investors grappled with higher bond yields and talk of possibly four rate hikes this year. Initially, intraday declines would bring out buyers and pare the losses. Investors were particularly heartened by Fed Chair Powell’s congressional testimony on Tuesday that softened the hawkish tone found in the minutes of the Federal Open Market Committee’s December meeting.

After digesting the hot inflation reports released mid-week, stocks were unable to resist the selling pressures on Thursday. A weak retail sales number, a resumption in the rise in yields, and mixed earnings from some of the big money center banks weighed on the market during Friday’s trading.

Inflation and the Fed

Inflation reports last week continued to reflect upward momentum in consumer prices. The Consumer Price Index posted a 7.0% year-over-year jump–the biggest increase since 1982, while the Producer Price Index rose 9.7% from a year earlier–the fastest pace since 2010 when the index was reconstituted.^4,5

Markets responded calmly as both numbers were in the neighborhood of expectations and the monthly increase for each moderated from previous single-month increases. The price pressures are expected to remain in the face of continuing supply chain constraints and wage growth. The pace and persistence of price increases may influence the speed at which the Fed may tighten in the year ahead.

Footnotes and Sources

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