The Week on Wall Street

The shortened week, which began with a powerful two-day rally of trading, was enough to drive the markets into another week of substantial gains.

FACT OF THE WEEK

On September 17, 2020, the General Assembly publicly declared that the Global Day of Parents United Nations (UN) observance would be celebrated on June 1 each year to honor parents and their commitment to children worldwide. The day is celebrated with thanks and the opportunity to appreciate all parental figures for a vital role in promoting purposeful parenting.

MARKET MINUTE

The Dow Jones Industrial Average rose 3.75%, while the S&P 500 advanced 3.01%. The Nasdaq Composite Index climbed 1.77% for the week. The MSCI EAFE Index, which tracks developed stock markets overseas, gained 6.18%.

Rising Optimism

Returning from Memorial Day weekend, stocks surged on rising optimism over economic re-opening, declines in new infections, and progress in the development of a vaccine.

Stocks continued their March higher, lifted by signs that the White House and Congress may be working together to assemble another stimulus package. But the momentum lost steam, partly due to news of China’s vote to override Hong Kong’s autonomy. Comments by President Trump on the last day of trading eased concerns.

Rotation in Leadership

The low performance in March saw needed recovery by large-cap growth stocks, especially the mega-cap technology names. However, this week saw new sectors leading the market higher, notably the financials and industrials, while the technology and health care sectors lagged.

This leadership rotation is being referred to by some market commentators as the “re-opening trade.” If these sectors are to remain, leaders may hinge on a steady economic recovery and escape the possible second wave of COVID-19 infections.

FINANCIAL STRATEGY OF THE WEEK

WHEN LIFE INSURANCE BECOMES TAXABLE

The 2010 Census report found that the highest growth rate for men and women within the age of 85-94 years saw a 22% increase for women, while the men had the fastest growth rate of 50.3%. If the life expectancy rate grows, there may be potential 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 owner may receive the cash value payout in place of a death benefit payment.

Tracking Taxes

This payout may become taxable 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 become part of the policy owner’s estate and may be subject to further taxation upon the policy owner’s death.

If an irrevocable trust owns a policy, 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.

Avoiding the Taxable Risk

This taxable risk may be avoidable 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 or an indefinite period.

As always, please contact my office with any questions or financial concerns you may have.