THE WEEK ON WALL STREET
Stocks were mixed last week, with broad gains on Monday and Friday bookending midweek selling pressure as investors digested earnings results from more than 100 S&P 500 companies.
The S&P 500 Index ended the week roughly where it started, slipping 0.10 percent, while the Nasdaq Composite Index declined 1.84 percent. The Dow Jones Industrial Average rose 2.50 percent. By contrast, the MSCI EAFE Index, which tracks developed overseas stock markets, rose 0.49 percent.
FACT OF THE WEEK
On Feb 9, 2022, Snowboard phenom Chloe Kim made history as the first athlete to win gold in the women's snowboard halfpipe event in two consecutive Winter Olympics. In 2018, she made history as the youngest winner of that event at the age of 17.
MARKET MINUTE
Dow 50,000
Stocks bounded out of the gate on Monday with the Dow leading a broad rise across all three major averages. Markets rose in anticipation of a big week for Q4 corporate reports.
Market sentiment quickly changed on Tuesday as anxious investors appeared to rotate out of technology names and into cyclical areas of the economy more likely to rebound with an improving economy.
News on Wednesday that private-sector job growth slowed in January added to investor anxiety. Stocks fell again on Thursday, with the S&P 500 briefly going negative year-to-date.
Then things turned around.
Stocks rebounded broadly on Friday as investors appeared to “buy the dip.” The Dow led, closing above the 50,000 level for the first time. The tech-heavy Nasdaq closed back above 23,000, while the S&P gained 2 percent. The latest University of Michigan survey showed consumer sentiment rose to its highest level in six months, helping buoy investor sentiment.
Fed Watch: Jobs Data
The brief government shutdown that ended last week delayed several economic reports. The federal employment report for January, originally due out on February 6, has been delayed until Wednesday, February 11.
But payroll processor ADP reported on Wednesday that private employers added 22,000 jobs in January—about half of the 45,000 expected. Then, on Thursday, outplacement firm Challenger, Gray & Christmas reported that companies cut more than 108,000 jobs in January—the highest number of layoffs of any January since 2009.
Investors tried to reconcile the reports with the Fed’s January post-meeting statement, which read, “Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated.”
FINANCIAL STRATEGY OF THE WEEK
Tax Deductions You Won't Believe
While Americans are entitled to take every legitimate deduction to manage their taxes, the Internal Revenue Service (IRS) places limits on your creativity. Here are some examples of deductions from the IRS that were permitted and some that were, well, too creative.
Creative Deductions that Passed Muster
Usually a child’s school-related costs are not deductible. However, one taxpayer was allowed to deduct the cost of travel, room, and board as a medical expense for sending a child with respiratory problems to a school in Arizona.
Pet food typically doesn’t qualify as a write-off, except in the case where a business owner successfully argued that it was a legitimate expense to feed a cat protecting their inventory from vermin.
Does your child have an overbite? If so, you may find that the IRS is okay with a medical deduction for the cost of a clarinet (and lessons) to correct it.
A deduction for a swimming pool won’t float with the IRS, except if you have emphysema and are under doctor’s orders to improve breathing capacity through exercise. The deduction, however, was limited to the cost that exceeded the increase in property value. And yes, ongoing maintenance costs are deductible as medical expenses.
Deductions that Were Too Creative
The cost of a mink coat that a business owner bought for his wife to wear to dinner for entertaining clients was denied even though he claimed it was an integral part of dinner conversation and provided entertainment value.
Despite having dry skin, one taxpayer was denied a deduction for bath oil as a medical expense.
Losses associated with theft may be deductible, but one taxpayer went too far in deducting the loss of memories when her photos and other life souvenirs were discarded by her landlord.
One business owner reported an insurance payment as income, but then deducted the cost of the arsonist as a “consulting fee.”
Don’t expect taxpayers to pay for enhancements to self-image. Just ask the ballerina who tried to deduct a tummy tuck or the woman who tried to write off her Botox expenses.
Creativity is not something that the IRS typically rewards, so you should be careful testing the limits of its understanding. Seek the counsel of an experienced tax or legal professional for specific information regarding your situation.