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Stock prices retreated last week as global central banks joined the Federal Reserve in taking steps to tighten monetary policy.

The Dow Jones Industrial Average fell 1.68%, while the Standard & Poor’s 500 dropped 1.94%. The Nasdaq Composite index tumbled 2.95% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, managed a gain of 0.47%.^1,2,3

From Uncertain to Unsettled

Stocks weakened ahead of Wednesday’s Federal Open Market Committee (FOMC) meeting as investors weighed how aggressive the Fed might be in reversing its easy-money policies. Investor sentiment was further dented by disappointing economic data. Retail sales fell short of expectations and a year-over-year jump of 9.6% in producer prices reflected price pressures that may translate into higher future consumer prices. It was the highest percentage increase since records started in 2010.⁴

The market initially responded well to the FOMC announcement on Wednesday afternoon, but became unsettled into Thursday and Friday over a tighter monetary policy and Omicron concerns.

A New Fed Narrative

After the FOMC meeting, the Fed announced a plan to quicken the tapering of its monthly bond purchases. It plans to double the rate from $15 billion a month (announced in November) to $30 billion a month, effectively putting an end to asset purchases by March 2022. The Fed also signaled that as many as three rate hikes may be coming in 2022.⁵

The Fed cited elevated inflation and an improved labor market as justification for the pivot from its pandemic-related, easy-money policies. Reflecting the persistence of higher-than-anticipated inflation, the Fed raised its previous inflation estimates for this year and 2022.⁶

Final Note

Our weekly market commentary will not be published next week. We want to take this opportunity to wish you and your family a wonderful holiday season and a very happy and prosperous new year!

1. ^{The Wall Street Journal, December 17, 2021}
2. ^{The Wall Street Journal, December 17, 2021}
3. ^{The Wall Street Journal, December 17, 2021}
4. ^{The Wall Street Journal, December 14, 2021}
5. ^{The Wall Street Journal, December 15, 2021}
6. ^{The Wall Street Journal, December 15, 2021}

 

Tax credits help with the cost of higher education by reducing the amount of income tax you may need to pay. The two tax credits available are the American Opportunity Tax Credit and the Lifetime Learning Credit.

Some education savings plans offer tax benefits if the individual qualifies. Also, you may be able to deduct higher-education costs – such as tuition, student loan interest, and qualified education expenses – from your tax return.

If you’ve always dreamed about going back to school, whether to further your career or just to learn something new, knowing your potential tax benefits may save you money.

* 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, June 16, 2021}

A more benign reassessment of the possible economic risk posed by Omicron sent stocks sharply higher last week.

The Dow Jones Industrial Average picked up 4.02%, while the Standard & Poor’s 500 advanced 3.82%. The Nasdaq Composite index gained 3.61% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, rose 2.74%.^1,2,3

Assessing Omicron

Though much is still unknown about the Omicron variant, reports of potentially milder health effects and the efficacy of booster shots ignited optimism that its economic impact would be less severe than originally feared.

Stocks rallied higher each of the first three days, with strong gains in many of the reopening stocks, such as airlines, travel and leisure, financials, and energy. The performance of high-valuation growth companies was a bit more erratic as they rose and fell sharply throughout much of the week. Weakening Thursday, stocks turned higher on Friday despite a hot inflation number, pushing the S&P 500 to a new record high.⁴

Inflation Factor

November’s Consumer Price Index (CPI) came in at a nearly 40-year high, rising 0.8% from the previous month and 6.8% from a year ago. It is the 6th-consecutive month that inflation has exceeded 5%. Core inflation (excluding the more volatile food and energy prices) came in lower, but still posted its sharpest jump since 1991.⁵

Economists have attributed this elevated inflation rate to strong consumer demand, a shortage of goods due to supply chain constraints, and strong wage growth. How long this high level of inflation persists is unknown, but the Fed has begun considering policy steps to manage it.

 

1. ^{The Wall Street Journal, December 10, 2021}
2. ^{The Wall Street Journal, December 10, 2021}
3. ^{The Wall Street Journal, December 10, 2021}
4. ^{CNBC, December 10, 2021}
5. ^{The Wall Street Journal, December 10, 2021}

Did you know that if you owe the Internal Revenue Service $52,000 or more, the IRS can revoke your passport? That’s right, the IRS has the power to revoke the passport of any taxpayer owing $52,000 or more, including penalties and interest.

Notably, if you’re currently paying off the debt or are contesting a tax bill in court, you should not be affected. However, anyone under an IRS tax lien could find their ability to travel hampered.

If you have any questions about tax debts or other complex tax issues, contact a qualified attorney or tax specialist.

* 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, May 25, 2021}

Stocks took investors on a wild ride last week as the Omicron variant and Fed comments upended market expectations.

The Dow Jones Industrial Average fell 0.91%, while the Standard & Poor’s 500 stumbled 1.22%. The Nasdaq Composite index dropped 2.62% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, lost 0.62%.^1,2,3

A Tumultuous Week

Stock prices were volatile all week, swinging wildly after staging a modest recovery to begin the week. Omicron fears were not the only issue weighing on investors. Markets were also rattled by Fed Chair Powell’s Congressional testimony stating conditions warranted considering an acceleration of its bond purchase taper schedule. Last week’s roller-coaster action was epitomized on Wednesday when stocks rallied intraday by 520 points on the Dow Industrials, only to close the session lower by 460 points.⁴

Stocks staged a powerful rebound on Thursday on news that a second Omicron infection exhibited mild symptoms. Also helping the rebound was news that an agreement was reached in the House of Representatives to temporarily fund the government and word from President Biden that an economic lockdown was not in the plan to fight COVID this winter. Emblematic of the volatile week, stocks fell on Friday following a weak jobs report.

Powell Surprises Markets

Markets easily digested the Fed’s early-November announcement that it would pull the trigger on its bond purchase tapering program, but were caught off-guard by Powell’s comments during Congressional testimony last Tuesday. Powell indicated that the Fed would discuss the option of accelerating its tapering plans at its next meeting.⁵

Powell cited the risk of higher inflation and substantial improvement in the labor market as warranting ending bond purchases a few months sooner than planned. Powell sought to move away from describing inflation as transitory, acknowledging that rising energy prices, higher rents, and strong wage gains could keep inflation elevated, though he maintained inflation would decline sometime in 2022.⁵

1. ^{The Wall Street Journal, December 3, 2021}
2. ^{The Wall Street Journal, December 3, 2021}
3. ^{The Wall Street Journal, December 3, 2021}
4. ^{The Wall Street Journal, December 1, 2021}
5. ^{Reuters.com, November 30, 2021}

No matter where you live, you should be aware of possible natural disasters in your area and plan accordingly by considering the following tax tips:

• Update your emergency plan.
• Create electronic copies of all important documents.
• Document your valuables. Documenting these items ahead of time makes it easier to claim insurance and tax benefits if a disaster strikes.
• You can call the IRS at 866-562-5227 with any natural disaster-related questions. The agency can provide copies of previous tax returns, order transcripts showing most line items, and more.
• Net personal, casualty, and theft losses may be deductible if they’re attributable 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.gov⁴

 

4. ^{IRS.gov, January 22, 2021}

News of a new, highly virulent COVID variant triggered a market sell-off on Friday, sending stocks into negative territory for the week.

The Dow Jones Industrial Average slid 1.97%, while the Standard & Poor’s 500 slumped 2.20%. The Nasdaq Composite index lost 3.52% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 1.68%.^1,2,3

Red Friday

Investors woke up on Black Friday to reports of a mutated COVID variant, reviving fears of potential new economic restrictions. U.S. markets were not alone, as stock prices in Europe and Asia also tumbled.

Friday’s market action saw declines in economic reopening stocks, such as travel and leisure, cyclicals, financials, and energy, while some of the so-called stay-at-home stocks and pharmaceutical stocks experienced gains. Yields retreated amid a flight to safety and the potential that this turn of events may lead to a slowdown in the Fed’s bond tapering program and a delay in contemplated rate hikes. Prior to Thanksgiving the markets had been choppy, but largely trending higher for the week, while yields had moved up with the renomination of Fed Chair Powell.

Powell Renominated

President Biden announced last week that he was renominating Jerome Powell to serve another term as chairman of the Federal Reserve Bank, ending market speculation surrounding his renomination.

President Biden cited the need for stability and independence in a time of uncertainty in making his decision. While Powell’s renomination faced resistance, Senate approval appears likely. Coincident with Powell’s renomination, President Biden also nominated Lael Brainard, a member of the Federal Reserve Board of Governors, to serve as vice chair. Investors can soon expect further Fed nominations by the Biden Administration to fill vacancies created by term expirations and retirements.

1. ^{The Wall Street Journal, November 26, 2021}
2. ^{The Wall Street Journal, November 26, 2021}
3. ^{The Wall Street Journal, November 26, 2021}

The first is that if you’re selling your car for less than what you paid for it, you likely won’t need to pay any sales tax on the sale because the IRS considers selling a used car for less than what you paid a capital loss. However, if you’re selling your car for more than what you paid (like if it’s a classic car you’ve restored and it’s increased in value), you may need to pay sales tax.

If you’re buying a car from a private seller, you may need to pay sales tax, but this sales tax doesn’t go to the seller – it goes to the Department of Motor Vehicles and is incorporated into your car’s registration.

* 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 CarGurus⁵                                                                                                                            

5. ^{cargurus.com, June 24, 2021}

Stocks were mixed last week in choppy trading as investors battled the crosscurrents of good economic data and a troubling rise in COVID-19 infections globally.

The Dow Jones Industrial Average slid 1.38%, while the Standard & Poor’s 500 added 0.32%. The Nasdaq Composite index gained 1.24% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, dropped 0.59%.^1,2,3

Trading Uncertainty

A healthy retail sales report, falling jobless claims, positive earnings surprises, and strong manufacturing data lent support to stock prices, but investor sentiment was dampened by several concerns.

Chief among these worries are a resurgence of COVID-19 infections this winter and the impact inflation may have on consumer confidence and corporate profit margins. The uncertainty surrounding the renomination of Fed Chair Powell exacerbated this unease; a decision from President Biden may come soon. Technology and other high-growth companies led the market, while some of the reopening stocks, such as travel and energy, lagged.

Retail Sales Jump

October retail sales increased 1.7%, indicating that consumers may be more confident than recent surveys have suggested. Sales of electronics, appliances, and autos were particularly strong last month.⁴

The market cheered the report, interpreting the results as a sign that inflation has not discouraged Americans from buying the products and services they want or need. This retail sales number, however, may be overstated for two reasons. First, higher prices increase the level of sales even if consumer demand is flat. Second, spending may have been pulled forward by consumer worries over higher future prices and concerns that goods may not be available during the holiday shopping season.

Final Thought

We want to take this opportunity to wish you and your family a wonderful Thanksgiving, full of family, fun, and joy.

On this special day of gratitude, we would also like to express our appreciation to you for extending us the privilege of serving you this year and helping you pursue your important financial goals.

1. ^{The Wall Street Journal, November 19, 2021}
2. ^{The Wall Street Journal, November 19, 2021}
3. ^{The Wall Street Journal, November 19, 2021}
4. ^{CNBC, November 16, 2021}

Taxpayers who earn money from their hobbies might have to report the income to the IRS. Here are some tips to help:

1. The IRS taxes income differently, depending on whether the income stems from a true hobby or a for-profit business.
2. Your hobby may entail expenses required to do it well. For example, you may need to buy yarn to knit scarves. You might be able to deduct expenses associated with hobby/business.
3. In some instances, you can deduct approvable expenses only up to the amount you brought in for income.

* 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, May 25, 2021}