Market-Moving News[i]
Inching higher
The S&P 500, the Dow, and the NASDAQ each rose, climbing for the sixth week in a row to extend the market’s recovery from a sharply negative start to September. The S&P 500 and Dow pushed their record levels higher while the NASDAQ ended less than 2% below its historic peak.
Rising yields
The yield of the 10-year U.S. Treasury note was flat. The yield of the 10-year note closed at 4.08% on Friday—matching the previous week and well above a recent low of 3.62% on September 16.
Earnings season
And we’re off! The 3Q earnings season began last Friday with reports from the largest U.S. banks. Currently, analysts are projecting pro forma earnings per share (EPS) of $60.01. If realized, this would represent y/y growth of 1.9% and a q/q contraction of -0.9%. Looking at the three main sources of EPS growth, revenues, margins and buybacks are expected to contribute 2.2, 0.5 and -0.8 points, respectively.
Solid macro economic picture
Zooming out, the macro picture is still supportive, though growth and inflation have slowed from breakneck paces. The Atlanta Fed’s GDPNow model is projecting 3Q24 GDP growth of 3.2% annualized, and consumer spending seems similarly resilient with y/y growth tracking at 2% for goods and 3% for services. Manufacturing activity, however, remains weak with PMIs close to cycle lows. So, while growth sectors like Information Technology, Communication Services and Health Care should experience another quarter of robust earnings growth, cyclicals like Materials, Industrials and Energy are struggling.
Oil slip
Over the quarter, crude oil and natural gas prices decreased y/y by an average of 5.0% and 16.4%, respectively, hurting Energy sector profitability.
Muted industrials
In Industrials, transportation and capital goods activity is muted as companies postpone expenditures until interest rate and regulatory uncertainty dissipates.
China, the U.S. and monetary policy
China’s centrality in global manufacturing and commodity demand is also hurting, particularly in Materials. But things are looking up. China’s stimulus, U.S. monetary easing and fiscal spending on energy and supply chain security should support a cyclical recovery. Indeed, all three sectors are expected to see double digit earnings growth by the second half of 2025.
Retail report aheadA report on U.S. retail sales scheduled to be released on Thursday will indicate whether a recent positive trend extended into September. The Commerce Department reported last month that sales rose 0.1% in August; the agency also revised July’s gain to 1.1%, up from an initially estimated figure of 1.0%.
The Week Ahead: Oct 21-25
- Market PMIs
- Durable goods orders
- Consumer sentiment
Philosophy Quote of the Week[ii]
Frenemies
“There’s nothing worse than a wolf befriending sheep. Avoid false friendship at all costs. If you are good, straightforward, and well meaning it should show in your eyes and not escape notice.
Marcus Aurelius, Meditations, 11.15
It’s pretty obvious that one should keep away from the wicked and two-faced as much as possible – the jealous friend, the narcissistic parent, and untrustworthy partner. At first glance, Marcus Aurelius is reminding us to avoid false friends. But what if we turn it around? What if, instead, we ask about the times that we have been false to our friends? Ultimately that is what stoicism is about – not judging other people’s behavior but judging our own.
We’ve all been a frenemy at one point or another. We’ve been nice to their face – usually because there was something in it for us – but later, in different company, we said how we really felt. Or we’ve strung someone along, cared only when things were going well, or declined to help even though someone really needed us. This behavior is beneath us – and worth remembering the next time we accuse someone else of being a bad friend.
Tax Tips[iii]
Casualty, Theft and Disaster Losses
Hurricanes, wildfires, volcanoes, earthquakes, tornadoes, oh my! Images of flooded streets, devastated homes and shattered families tug at your heart. It wasn’t until 2017 that Congress passed the “Disaster Tax Relief and Airport and Airway Extension Act.” Due to this act, many changes have occurred that greatly benefit taxpayers who experience disaster losses. When someone loses their home and all the things that make it home, the Act can help them regain some normalcy, although it will never make up for the emotional loss.
If you experience damage from a storm, theft, auto wreck, fire, flood, earthquake, break-in, terrorist event or other disaster, you need to contact the police and your insurance company. Once you file a claim, your next step is to total the amount of your losses. After your insurance company reimburses you, your Casualty Loss remains.
Tax relief or benefit of a casualty loss is an Ordinary Tax Loss on your tax return and provides tax relief that may PAY YOU in your time of need. This type of loss is an additional tax deduction, on top of any standard deduction you may take, and adds extra expenses to any itemized deductions. While the disaster is terrible and may be devastating at the time, it’s heartening to know that the IRS gives you some relief on any taxes you might otherwise pay.
If the disaster is in a Federal Declared Disaster Area or Zone, you will also qualify for a delay on when your tax returns and payments must be filed or paid. Each disaster will have different time frames but you could get up to an extra year to file. See your tax professional for specifics.
Another relief you can benefit from is that if you need to withdraw funds from your retirement account you will not be hit with an early withdrawal penalty! This will save you 10% of what you have withdrawn (that’s the amount of the early withdrawal penalty).
Thos taxpayers who might be able to claim the Earned Income Tax Credit (EITC) or Child Tax Credit (CTC) also receive some relief for the disaster tax year. As an example, individuals affected by Hurricanes Ian and Nicole, who earned less income in 2022 than 2021, can use the 2021 amounts reported to claim the EITC or CTC in 2022.
You may be able to take the current loss backward and amend your past tax returns for immediate refunds. For example, a loss that occurs in 2023 can be listed on your amended 2022 tax return so you can immediately file for a refund and use the money! Use IRS forms 4684 and 1040X to amend past returns. You may use the amount of your disaster loss on your current return on form 4684 if it has not been filed yet.
It is possible for a casualty loss to use up all income for the past year, plus your current year. This is known as a Net Operating Loss (NOL). If the loss is large enough, you may have no taxes for the past year, the current year, or some future years, depending on how great the loss is compared to your income. If casualty losses exceed your income, you have a loss in that year and could pay no taxes. You get to carry excess losses backwards or forwards, to help you get back on your feet.
Key Points to Remember
- Losses can occur for many reasons: theft, fire, storm, auto wreck, earthquake, terrorist event and other sudden disasters.
- The amount of loss, after insurance reimbursement, is your Casualty Loss deduction.
- You can amend your prior years tax returns for the current loss you experienced (File IRS forms 4684 and 1040x) or you can use the Casualty Loss in the current year (your choice).
- You may qualify for delayed time to file returns and pay taxes up to a year after the normal due date.
- Money withdrawn from retirement accounts will not get hit with the early withdrawal penalty (10% of the amount withdrawn).
- Those who qualified for the EITC and CTC in the past year may be able to use that income amount for the current year, to qualify again for extra refunds.
- If the amount of loss is great enough to absorb all your income, you have a Net Operating Loss (NOL) and you can carry the loss forward into future years, until the loss is used. These losses help some taxpayers to not pay taxes for many years, depending on each person’s circumstances.
- Only disasters declared by the President qualify for tax relief. Go to fema.gov and ensure your state had a declared disaster for the year you are filing for.
Remember – always contact your tax professional for help! That’s what you pay them for!
Financial Planning Month[iv]
What is Long-Term Care Insurance?
Long-term care insurance is one way you may pay for long-term care. This type of insurance will pay or reimburse you for some or all of your long-term care costs. It was introduced in the 1980s as nursing home insurance but now often covers services in other facilities.
A federal law, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) gives some federal income tax advantages to people who buy certain long- term care insurance policies. These policies are called tax-qualified long-term care insurance policies or, simply, qualified policies. There may be other tax advantages in your state. You should check with your state insurance department or insurance counseling program for information about tax-qualified policies. Check with your tax advisor to learn if the tax advantages make sense for you.
Do I Need To Buy Long-Term Care Insurance?
Whether you should buy a long-term care insurance policy depends on your age, health, overall retirement goals, income and assets. Carefully consider whether buying a policy makes financial sense if you can’t afford the premium or aren’t sure you can pay the premium, including any increases, for the rest of your life. If you already have health problems that could lead to long-term care (for example, Alzheimer’s disease or Parkinson’s disease), you probably won’t be able to buy a policy. Insurance companies have medical underwriting standards to keep the cost of long- term care insurance affordable. If companies didn’t have these standards, most people wouldn’t buy long-term care insurance until they needed long-term care. In some states, a regulation requires the insurance company and agent to go through a personal worksheet with you to help decide if long-term care insurance is right for you. It also asks you questions about yourincome and yoursavings and investmentsto help with your decision. Some states require you to fill out the worksheet and send it to the insurance company. Even if you aren’t required to fill out the worksheet, it might help you decide if long-term care insurance is right for you.
REMEMBER: Not everyone should buy a long-term care insurance policy nor rely solely on long-term care insurance. Paying for long-term care can be done by combining different sources, such as assets, income and long-term care insurance. For some, a policy is affordable and worth the cost. For others, it may be unaffordable. You should not buy long-term care insurance if the only way you can afford to pay for it is to not pay other important bills. Look closely at your needs and resources. Talk with family members, a friend or a trusted and knowledgeable financial professional to decide if long-term care insurance is right for you.
Is Long-Term Care Insurance Right For You?
You should NOT buy long-term care insurance if:
- You can’t afford the premiums
- You don’t have many assets
- Your only source of income is a Social Security benefit or Supplemental Security Income (SSI)
- You often have trouble paying for utilities, food, medicine or other important needs
- You are on Medicaid.
You may want to consider buying long-term care insurance if:
- You have many assets and/or a good income
- You don’t want to use most or all of your assets and income to pay for long-term care
- You can afford to pay the insurance premiums, including possible premium increases
- You don’t want to burden family or friends
- You want to be able to choose where you receive care.
If, after careful thought, you decide that long-term care insurance is right for you, check out the company and the agent, if one is involved, before you buy a policy. If you have questions about licensing, contact your state insurance department.
What Types of Policies or Contracts Can I Buy That Provide Long-Term Care Benefits or Coverage?
Private insurance companies sell long-term care insurance policies. You can buy an individual policy from an agent, through the mail or by telephone. Or, you can buy coverage under a group plan through an employer or through membership in an association.
The federal government and several state governments offer long-term care insurance coverage to their employees, retirees and their families. These programs are voluntary, and participants pay the premiums.
You also can get long-term care benefits through some life insurance policies.
Individual Policies
One of your options is a long-term care insurance policy. Insurance agents sell many of these policies, but companies also sell policies through the mail or by telephone. Individual policies can be very different from one company to the next. Also, policies from the same company may be different from each other. Shop among policies, companies and agents to get the coverage that best fits your needs.
Life Insurance Policies and Annuity Contracts
If you have a cash value life insurance policy, you can take some of the cash value to pay for long-term care expenses. But first, ask how a withdrawal might affect your death benefits and talk with your tax advisor or consultant. Or, if you no longer need the policy, you could cancel (or surrender) it and take all the cash value. But think about how that would affect your beneficiaries.
If you have an annuity, you may be able to take some of the annuity’s value to pay for long- term care expenses. Most annuities require you to pay a surrender charge to withdraw some of the value. Some companies will waive that charge if the withdrawal is to pay for long-term care.
A Hybrid/Combination Life Insurance Policy or Annuity Contract That Has Provisions That Could Be Used for Long-Term Care
An increasing number of life insurance policies and some annuity contracts now offer an add-on rider that you could use to pay long-term care expenses. This type of rider gives you more coverage if you need long-term care. You usually pay an extra premium for a rider.
A life insurance policy that uses an accelerated death benefit (sometimes called a living benefit) could be used to pay for long-term care expenses also may be called a “life/long- term care,” “hybrid,” “linked benefits” or “combo” policy. It may be an individual or a group life insurance policy. This benefit lets you access some or all of the policy’s death benefit while you’re alive. You must meet certain conditions to use the rider to pay for long-term care expenses. Usually, the benefit triggers are being unable to perform a certain number of activities of daily living or being cognitively impaired.
The company may pay benefits in one of two ways. One way is a reimbursement based on your long-term care expenses. Or, the company may pay a set amount each month (an indemnity benefit). The amount is either set in the rider or the owner chooses it. In either case, there may be minimum and maximum amounts paid each month based on the policy benefit.
A life insurance policy with an accelerated benefit rider for long-term care must follow all the laws and regulations that apply to long-term care policies. Many of these riders may be tax-qualified. Consult with your tax advisor or tax consultant for more information.
Long-term care benefits paid as an accelerated death benefit likely will reduce the death benefit the policy will pay after you die. For example, suppose your policy has a $100,000 death benefit and you use $60,000 for long-term care. Then your beneficiary would get a $40,000 (not a $100,000) death benefit. Some policies may offer a small death benefit even if all of the original death benefit amount is used for long-term care expenses.
Also, many life insurance policies and annuity contracts offer benefits beyond the acceleration of the death benefit. These are often called extension of benefits riders. They provide more benefits for a set period of time after you’ve used up a policy’s cash value and/or death benefit or your annuity’s value. These policies offer both accelerated death benefits and an extension of benefits rider. The benefits may increase by a set inflation percentage.
As with all insurance products, premiums are higher for policies with more benefits. So, the premium for a traditional stand-alone long-term care policy could be much less than the premium for a hybrid/combo policy, all else being equal.
[i]https://am.jpmorgan.com/content/dam/jpm-am-aem/americas/us/en/insights/market-insights/wmr/weekly_market_recap.pdf, accessed 10.22.2024.
[ii] Holiday, Ryan. The Daily Stoic: 366 Meditations on Wisdom, Perseverance, and the Art of Living. Kindle edition, page 311. Accessed 10.22.2024.
[iii] Hockensmith, Robert F. 52 Ways to Outsmart the IRS, Weekly Tax Tips to Save You Money. Kindle edition, page 187-189, accessed 10.22.2024.
[iv]https://content.naic.org/sites/default/files/publication-ltc-lp-shoppers-guide-long-term.pdf, pages 9-11 accessed 10.22.2024.