Author: Ramsay Capital Group

Overcoming jitters about the Delta variant and the reintroduction of mask requirements, stocks climbed higher on strong employment data and a fresh batch of strong corporate earnings.

The Dow Jones Industrial Average rose 0.78% while the Standard & Poor’s 500 advanced 0.94%. The Nasdaq Composite index gained 1.11% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, picked up 1.61%.^1,2,3

Push and Pull

The crosscurrents of strong corporate profits and the rise in Delta variant infections led to a roller coaster week of price action, as markets alternated between daily gains and losses. By Thursday, however, investors appeared to grow more optimistic that the economic reopening was not under serious threat when back-to-back employment reports suggested that the economic recovery remained on track.

A favorable initial jobless claims report was enough to send the S&P 500 and Nasdaq to new all-time highs. Thanks to Friday’s stronger-than-expected employment report, the S&P 500 managed to add to its previous record close, while the Dow Jones Industrial Average set its own record high. The more tech-centric Nasdaq, however, slipped off its highs.⁴

Employment Brightens

Last week reinforced the idea of an improving labor market. After a disappointing ADP (Automated Data Processing) National Employment Report that showed a slowdown in private-sector hiring, with just 330,000 new jobs added, subsequent employment data were much more encouraging.⁵

Thursday’s report of a modest drop in initial jobless claims to 385,000 and a more substantial drop of 366,000 in continuing claims was followed by a solid employment report on Friday, which showed employers had added 943,000 new jobs in July—the biggest jump since August 2020. This hiring increase shaved the unemployment rate to 5.4%, down from June’s 5.9% rate.^6,7

1. ^{The Wall Street Journal, August 6, 2021}
2. ^{The Wall Street Journal, August 6, 2021}
3. ^{The Wall Street Journal, August 6, 2021}
4. ^{CNBC, August 6, 2021}
5. ^{CNBC, August 4, 2021}
6. ^{The Wall Street Journal, August 5, 2021}
7. ^{The Wall Street Journal, August 6, 2021}

If an organization wants to apply for tax-exempt status under Section 501(c)(3), they start by filling out a Form 1023-series application. They must submit a complete application, as well as the user fee. To complete the application, organizations also need their employer identification number. Generally, an organization that is required to apply for recognition of exemption must notify the IRS within 27 months from the date it was formed.

Some organizations, including churches or public charities whose annual gross receipts are normally less than $5,000, may not need to apply for 501(c)(3) status to be tax-exempt. When the IRS determines an organization qualifies for exemption under Section 501(c)(3), it will also be classified as a foundation, unless the organization meets the requirements to be treated as a public charity.

* 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

5. ^{IRS.gov, January 8, 2021}

The stock market posted small losses last week despite a very strong showing by corporate America.

The Dow Jones Industrial Average slipped 0.36%, while the Standard & Poor’s 500 lost 0.37%. The Nasdaq Composite index dropped 1.11% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, jumped 1.51%.^1,2,3

Stocks Take a Breather

There were plenty of excuses for stocks to retreat last week. News of a new phase in Chinese regulators’ crackdown on large, private-sector companies, a decline in new home sales, and concerns about the Delta variant weighed on investors.

After opening the week adding to record highs, stocks turned lower despite an earnings season that continued to impress.

Solid earnings from the mega-cap technology companies were not enough to propel stocks higher. Instead, stocks slipped throughout the week, fighting uncertainty over Chinese stocks, a disappointing second-quarter Gross Domestic Product number, and a retreat in technology shares they reset to fresh company guidance.

Chinese Crackdown

Chinese technology stocks were under pressure last week as Chinese regulators continued their push to rein in large companies for reasons that include data security, abusive corporate behavior, financial stability, and curtailing private-sector power.

Chinese government actions raised new levels of concerns about which industries may next fall in the crosshairs of regulators. American investors have plenty of exposure to Chinese companies. Substantial losses were felt by mutual funds and hedge funds, which account for about 86% of the holdings in the over 200 U.S.-listed Chinese companies whose aggregate market capitalization exceeds $2 trillion.⁴

1. ^{The Wall Street Journal, July 30, 2021}
2. ^{The Wall Street Journal, July 30, 2021}
3. ^{The Wall Street Journal, July 30, 2021}
4. ^{Yahoo Finance, January 7, 2021}

Here are a few facts about credits and deductions that can help you with year-round tax planning:

• Taxable income is what’s left after someone subtracts any eligible deductions from their adjusted gross income, including the standard deduction. Some taxpayers may choose to itemize their deductions to lower their adjusted gross income.
• The Tax Cuts and Jobs Act made changes to itemized deductions. In comparing these changes, many individuals who used to itemize may find it more beneficial to take the standard deduction.
• As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Depending on the situation, some taxpayers may even be required to itemize.

Taxpayers may be able to subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it. Some major tax credits include the child tax credit and the child and dependent care credit, the American opportunity credit or lifetime learning credit, and the earned income tax credit.

* 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

7. ^{IRS.gov, February 21, 2021}

Overcoming a COVID-related economic growth scare, stocks moved higher amid a week of strong corporate earnings reports.

The Dow Jones Industrial Average rose 1.08%, while the Standard & Poor’s 500 gained 1.96%. The Nasdaq Composite index soared 2.84% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dipped 0.20%.^1,2,3

 Delta Variant Head Fake

Stocks staged a broad retreat on Monday as traders worried about the adverse economic implications of growing Delta variant infections. Economically sensitive sectors, such as energy, financials, industrials, and materials, absorbed the brunt of Monday’s sell-off.

But the markets did a quick about face, posting four-consecutive days of gains and leaving the three major averages with fresh record highs.⁴

The sharp reversal may be attributable to a “buy on the dip” investor mentality, the absence of investment alternatives to stocks in this low interest rate environment, and massive financial liquidity. Stocks were also lifted by a healthy kick-off to the second quarter earnings season.

Strong Start

The earnings season moved into full swing last week, and the results exceeded the market’s high expectations.

Of the 120 companies in the S&P 500 index that have reported as of Friday, July 23, 89% of them beat the Street’s earnings-per-share estimates by, on average, 20.6%. Financials and Consumer Discretionary sectors provided the biggest earnings surprises (+28.9% and +24.5%, respectively), while Materials and Utilities delivered the smallest positive surprises (+5.3% and +2.5%, respectively).

These earnings beats are leading Wall Street analysts to raise earnings estimates for 3Q 2021 through 1Q 2022.⁵

Final Thought

The National Bureau of Economic Research said last week that the pandemic-induced recession ended in April 2020, officially lasting two months and making it the shortest recession in U.S. history.⁶

1. ^{The Wall Street Journal, July 23, 2021}
2. ^{The Wall Street Journal, July 23, 2021}
3. ^{The Wall Street Journal, July 23, 2021}
4. ^{CNBC, July 23, 2021}
5. ^{Earnings Scout, July 23, 2021}
6. ^{The Wall Street Journal, July 19, 2021}

Wondering if you can deduct expenses such as gas, depreciation, and lease payments on your tax returns? If you are a business owner or self-employed individual, you may be able to. If you use your car for both business and personal purposes, the expenses may be split and the deductions will be based on a portion of the mileage used for business.

There are two ways to calculate the car expenses you may be able to deduct. The first method is to calculate and deduct the actual expenses, including depreciation, lease payments, gas and oil, tires, repairs and tune-ups, insurance, and registration fees.

The second is to use the standard mileage rate, which is a rate calculated to represent gas and some of the above factors. In 2021, the standard mileage rate is 56 cents per mile. Taxpayers who want to use the standard mileage rate for a car they own must choose to use this method in the first year the car is available for use in their 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

7. ^{IRS.gov, February 1, 2021}

Despite a good start to earnings season and some solid economic data, worries of slower second-half economic growth led to a pullback in stock prices last week.

The Dow Jones Industrial Average fell 0.52%, while the Standard & Poor’s 500 lost 0.97%. The Nasdaq Composite index sank 1.87% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, was flat (-0.06%).^1,2,3

Stocks Retreat

Stocks weakened amid an active week of news, including two important inflation reports, Congressional testimony from Fed Chair Jerome Powell, a string of economic reports, and the start of the second-quarter earnings season.

The earnings season began on a strong note as 95% of the first S&P 500 constituent companies to report checked in with “earnings above estimates” by an average of 22%. Despite these above-expectation earnings, stocks moved little on the results.⁴

Bond yields continued to trend lower amid Powell’s testimony that monetary policy would remain unchanged. A decline in consumer sentiment fed worries of economic slowdown, leading stock lower and cementing losses for the week.

Hot Inflation

The Consumer Price Index (CPI) jumped 5.4% in June, representing the biggest monthly gain since August 2008. The core CPI, which excludes food and energy, increased 4.5%, which was the fastest pace since September 1991.⁵

The CPI report was followed by the Producer Price Index, which surged 7.3% from a year earlier, outpacing May’s jump of 6.6%. Higher wholesale prices were primarily attributed to increased commodity prices and labor costs.⁶

Fed Chair Powell, in Congressional testimony subsequent to these reports, reiterated his position that the accelerated inflation of recent months will be temporary.

1. ^{The Wall Street Journal, July 16, 2021}
2. ^{The Wall Street Journal, July 16, 2021}
3. ^{The Wall Street Journal, July 16, 2021}
4. ^{Earnings Scout, July 15, 2021}
5. ^{CNBC, July 13, 2021}
6. ^{Reuters, July 14, 2021}

If you have big plans this summer to sell or buy a home, donate some old items, or hit the casino, some of these activities may be able to be itemized as deductions. Here are some examples:

If you are refinancing your home this summer, you may be able to deduct a part of your mortgage interest. There are some limits to these deductions, though. According to the IRS, the deduction is limited to interest paid on a loan secured by the taxpayer’s main home or second home. When you refinance, you must use the loan to buy, build, or substantially improve your main home or second home.

If you are buying a new home this summer, you can deduct mortgage insurance if you pay on a total of $750,000 in qualifying debt for a first and second home or $375,000 when married filing separately.

The summer is a great time to go through your things and donate old clothes, furniture, or home goods you no longer need. Even better, these donations may qualify for a tax deduction if you itemize the deductions and show proof of the donations.

In addition to donating items, you may also be able to deduct mileage on your personal vehicle for services done for a qualified charity.

Lastly, if you enjoy hitting the casino, you may be able to itemize and deduct gambling losses up to the amount of gambling winnings.

* 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

6. ^{IRS.gov, November 9, 2020}

Stocks managed small gains as investors wrestled with concerns over economic growth prospects and a rise in COVID-19 infections.

The Dow Jones Industrial Average picked up 0.24%, while the Standard & Poor’s 500 gained 0.40%. The Nasdaq Composite index added 0.43%. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 0.78%.^1,2,3

A Choppy Week

In a truncated week of trading, stock market action was turbulent and indecisive. A mixed start saw cyclical stocks sell off amid concerns of slowing economic growth, while growth stocks advanced in response to falling yields.

After strengthening mid-week with the release of the FOMC meeting minutes, stocks skidded when reopening fears resurfaced Thursday on a new wave of global COVID-19 infections and Japan’s emergency declaration that reintroduced lockdown protocols. This led to a broad-based sell-off, with financials, home builders, and technology hit hard. A drop in bond yields added to the deteriorating sentiment.

Bond yields rebounded on Friday, setting the stage for a strong comeback for stocks, with the three major indices closing at new all-time highs.⁴

Attention Turns to Bonds

Since reaching a 2021 high of 1.74% in March, the 10-year Treasury yield has been in a slow, steady decline, closing at 1.37% on Friday.⁵

One explanation may be that reopening sentiment has turned more cautious as the Delta variant of COVID-19 spreads globally. Another view is that overseas investors are buying Treasuries, effectively lowering yields.

Perhaps it’s abating inflation concerns, or simply excess liquidity finding its way into bonds. Whatever the message, the yield narrative has changed from just a few months ago when it was believed that the 10-year treasury was heading to two percent.⁵

1. ^{The Wall Street Journal, July 9, 2021}
2. ^{The Wall Street Journal, July 9, 2021}
3. ^{The Wall Street Journal, July 9, 2021}
4. ^{CNBC, July 9, 2021}
5. ^{U.S Department of Treasury, July 9, 2021}

Most people check their withholding status at the end of the year or as filing season arrives, but the middle of the year is just as good of a time as any to double-check your withholding status and make sure it’s accurate. The IRS has a handy tool called the Tax Withholding Estimator, which can help you avoid having too much or too little tax withheld from your wages.

The tool can also help you determine if you need to fill out a new W-4 to submit to your employer, complete a new W-4P, or make additional payments to the IRS. It does this by estimating your annual income, how many children you are claiming for the child tax credit and earned income tax credit, and other items that may affect your taxes for the year.

Before using the Tax Withholding Estimator, gather all necessary documents. This includes your W-2 from your employer, any 1099 forms you have from banks and other payers, and any other forms you need. Gathering as much information as possible will help because the estimator will only be as accurate as the information you enter.

* 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

^{7. IRS.gov, February 1, 2021}