THE WEEK ON WALL STREET
Stocks posted a solid gain last week, riding a rally in megacap tech stocks while overcoming interest rate anxiety, a downward revision to jobs data, and mixed inflation reports. The S&P 500 Index rose 1.59 percent, while the Nasdaq Composite Index climbed 2.03 percent. The Dow Jones Industrial Average added 0.95 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, gained 1.18 percent.
FACT OF THE WEEK
On September 15, 1931, a small dirigible briefly docks at the mooring mast atop the new Empire State Building before winds drive it away. Despite high hopes for creating a convenient airship port in midtown Manhattan, it never happened again.
MARKET MINUTE
Stocks At New Highs
Stocks rose to start the week on renewed AI enthusiasm, with the Nasdaq hitting a new record intraday high. Stocks continued to push ahead on Tuesday despite fresh data showing large downward revisions to job creation for the 12 months through March.
The rally continued midweek after an unexpected drop in wholesale inflation appeared to boost investors' hopes for Fed rate moves before the year's end.
Investors cheered Thursday’s consumer inflation report, anticipating that the reading wouldn't be enough to derail a Fed rate move this month. The S&P and Nasdaq posted record intraday highs and closes three days in a row, while the Dow Industrials cracked 46,000 for the first time.
The Nasdaq hit a new record close on Friday, while the S&P 500 flattened out and the Dow posted a modest loss on the week’s last day of trading.
Fed Meets After Mixed Inflation Reports
Wednesday’s Producer Price Index (PPI) report showed wholesale prices fell 0.1 percent in August after a 0.7 percent increase in July. Then, on Thursday, fresh Consumer Price Index (CPI) data showed that retail prices rose a hotter-than-expected 0.4 percent in August—faster than July’s 0.3 percent gain.
All eyes will be on Fed Chair Powell this week. He is expected to outline his plan to adjust rates at the Fed’s scheduled two-day meeting, which ends on Wednesday, September 17. Investors will be looking for insights about how he plans to guide the economy through this period of sluggish job growth and stubborn consumer inflation.
FINANCIAL STRATEGY OF THE WEEK
When Life Insurance Becomes Taxable
In 1900, the average life expectancy of a newborn was only 32 years old. By 2021, that number more than doubled to 71 years, and the trend is expected to continue.1
Living this long may have unexpected tax consequences. Here’s why. Many older life insurance policies mature at a specific age, typically 95 or 100. If the insured individual attains that age, the policy’s cash value may be paid out to the policy owner in lieu of a death benefit payment.2
Tracking Taxes
This payout may be taxed as ordinary income on the amount that exceeds the policy owner’s cost basis (or the sum of after-tax premiums). The after-tax amount would then become part of the policy owner’s estate and may be subject to further taxation upon the policy owner’s death.3,4
If a policy is owned by an irrevocable trust, the trust is responsible for any tax owed, though the proceeds would not become part of the insured’s estate if the insured had no incidents of ownership.3,5
Managing the Taxable Risk
This taxable risk may be mitigated through a maturity extension rider, which allows the policy to continue until the death of the insured. Many newer life policies come with a higher maturity age (like 120) or an indefinite period.6
If you have questions about this or any other topic, give my office a call and let's set up some time to talk. We are here for you.
1. OurWorldinData.org, 2023
2. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder may also pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
3. Investopedia.com, April 29, 2023
4. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.
5. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, consider working with a professional who is familiar with the rules and regulations.
6. Forbes.com, May 12, 2023