THE WEEK ON WALL STREET
Stocks extended their November rally last week as investors cheered lower-than-forecast inflation data. The Dow Jones Industrial Average gained 1.94%, while the S&P 500 added 2.24%. The Nasdaq Composite index rose 2.37% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, increased 3.36%.
FACT OF THE WEEK
Did the young Austrian nun named Maria really take to the hills surrounding Salzburg to sing spontaneously of her love of music? Did she comfort herself with thoughts of copper kettles, and did she swoon to her future husband’s song about an alpine flower while the creeping menace of Nazism spread across central Europe? No, the real-life Maria von Trapp did none of those things. She was indeed a former nun, and she did indeed marry Count Georg von Trapp and become stepmother to his large brood of children, but nearly all of the particulars she related in her 1949 book, The Story of the Trapp Family Singers, were ignored by the creators of the Broadway musical her memoir inspired. And while the liberties taken by the show’s writers, Howard Lindsay and Russel Crouse, and by its composer and lyricist, Richard Rodgers and Oscar Hammerstein II, caused some consternation to the real Maria von Trapp and to her stepchildren, according to many later reports, those liberties made The Sound of Music a smashing success from the very night of its Broadway opening on November 16, 1959.
With a creative team made up of Broadway legends and a star as enormously popular and bankable as Mary Martin, it was no surprise that The Sound of Music drew enormous advance sales. But audiences continued to flock to The Sound of Music despite sometimes tepid reviews, like the one in The New York Times that said the show “lack[ed] the final exultation that marks the difference between a masterpiece and a well-produced musical entertainment.” Reviewer Brooks Atkinson did, however, single out the “affecting beauty” of the music from The Sound of Music as saving it from a story verging on “sticky.” Sticky or no, The Sound of Music was an instant success, and numerous songs from its score— including “Do Re Mi,” “My Favorite Things,” and “Climb Every Mountain”—quickly entered the popular canon. Indeed, the original cast recording of The Sound of Music was nearly as big a phenomenon as the show itself. Recorded just a week after the show’s premiere on this day in 1959 and released by Columbia Records, the album shot to the top of the Billboard album charts.
Stocks March Higher
A better-than-anticipated consumer inflation number on Tuesday sent bond yields sharply lower, igniting a powerful, exceptionally broad-based rally that saw 91% of all New York Stock Exchange volume advancing in price and a similarly substantial advance (85%) on the NASDAQ. Small-cap stock performance was solid, surging 5.2%, more than double the advance of the S&P 500. Further gains came the following day as wholesale price inflation rose even slower than consumer prices. The rally paused in the final days of trading as stocks digested their gains and investors assessed weak retail sales and industrial production reports and a rise in continuing jobless claims.
Two inflation reports released last week, the Consumer Price Index (CPI) and the Producer Price Index (PPI), showed continued inflation progress. Consumer prices were flat in October from the previous month, while the 12-month increase was 3.2%. Both were below market forecasts. Core CPI (excluding food and energy) also moderated, rising just 0.2% in October and 4.0% from a year ago–below forecast. The climb in the annual core CPI was the lowest in two years. Producer prices confirmed the disinflationary picture, as wholesale prices declined 0.5% in October (versus a +0.1% forecast). It was the biggest decline in 3 ½ years. Over the last 12 months, wholesale prices rose just 1.3%.
FINANCIAL STRATEGY OF THE WEEK
Year-End Charitable Gifting and You
Are you making charitable donations at year's end? If so, you should know about some of the financial "fine print" involved, as the right moves could potentially bring more of a benefit to both you and your chosen charity.
Evaluate the Impact
How can you maximize the impact of your gifts? First, consider giving to a qualified charity with 501(c)(3) nonprofit status. Also, Charity Navigator, Charity Watch, and Give Well have websites that offer information to help you evaluate a charity and learn about how effectively it utilizes donations. If you are considering a large donation, it is often wise to ask the charity involved how it will use your gift. If you're still working, you may want to check with your employer. Some companies match charitable contributions made by their employees, an often-overlooked opportunity to give back.
Itemize to Optimize
To deduct charitable donations, you must itemize them on IRS Schedule A. So, you'll need to log each donation you make. Ideally, the charity will provide you with a form to document proof of your contribution. If the charity does not have such a form handy (and some do not), a receipt, a credit or debit card statement, a bank statement, or a canceled check can work. The IRS may want to know three things: the name of the charity, the gifted amount, and the date of your gift. Remember, itemized deductions may only have tax benefits when they exceed the standard income tax deduction, so be sure to check on the standard deduction amount for your tax filing year.
Show Your Appreciation
Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move. You may wish to explore a gift of highly appreciated securities. Selling securities can lead to a taxable event. As an alternative, you or a financial professional can write a letter of instruction to a bank or brokerage, which can facilitate authorizing a transfer of shares to a charity.
This transfer can accomplish three things:
- You can manage paying the tax you would normally pay upon selling the shares.
- You may be able to take a current-year tax deduction for the full fair market value of the shares.
- The charity gets the full value of the shares, not their after-tax net value. This can be a winning strategy all around.
A Policy of Giving Back
Do you have a life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment may become a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit may be transferred out of your taxable estate, in any case. 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. 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.
Whatever your situation, getting advice from a tax or financial professional can help you give wisely as the year comes to a close. We're here to help find a strategy that works for your situation.