THE WEEK ON WALL STREET
Stocks finished higher last week, with big tech again leading amid lingering uncertainty over how continued economic strength would influence the Fed’s rate decision.
FACT OF THE WEEK
From London’s Heathrow Airport and Orly Airport outside Paris, the first Concordes with commercial passengers simultaneously take flight on January 21, 1976. The London flight was headed to Bahrain in the Persian Gulf, and the Paris to Rio de Janeiro via Senegal in West Africa. At their cruising speeds, the innovative Concordes flew well over the sound barrier at 1,350 miles an hour, cutting air travel time by more than half.
The flights were the culmination of a 12-year effort that pitted English and French engineers against their counterparts in the USSR. In 1962, 15 years after U.S. pilot Chuck Yeager first broke the sound barrier, Britain and France signed a treaty to develop the world’s first supersonic passenger airline. The next year, President John F. Kennedy proposed a similar U.S. project. Meanwhile, in the USSR, Soviet leader Nikita Khrushchev ordered his top aviation engineers to beat the West to the achievement.
There were immense technical challenges in building a supersonic airliner. Engines would need to be twice as powerful as those built for normal jets, and the aircraft’s frame would have to withstand immense pressure from shock waves and endure high temperatures caused by air friction. In the United States, Boeing tackled the supersonic project but soon ran into trouble with its swing-wing design. In England and France, however, early results were much more promising, and Khrushchev ordered Soviet intelligence to find out as much as possible about the Anglo-French prototypes.
The Concorde was not a great commercial success, however, and people complained bitterly about the noise pollution caused by its sonic booms and loud engines. Most airlines declined to purchase the aircraft, and just 16 Concordes were built for British Airways and Air France. Service was eventually limited between London and New York and Paris and New York, and luxury travelers appreciated the less than four-hour journey across the Atlantic.
On July 25, 2000, an Air France Concorde crashed 60 seconds after taking off from Paris en route to New York. All 109 people aboard and four on the ground were killed. The accident was caused by a burst tire that ruptured a fuel tank, creating a fire that led to engine failure. The fatal accident–the first in Concorde’s history–signaled the decline of the aircraft. On October 24, 2003, the Concorde took its last regular commercial flight.
MARKET MINUTE
Stocks Dip, Then Rally
Stock prices dropped early in the week before rising to new highs as the week ended. The four-day trading week began with more Q4 bank earnings, which disappointed. The news pushed the financial sector and the broader S&P 500 Index lower on Tuesday. The yield on the 10-year Treasury climbed after a Fed Governor said the central bank may adjust rates as much as markets expect. That and a stronger-than-expected holiday retail sales report put pressure on stock prices.
Tech stocks drove the Thursday rally, with the S&P and Nasdaq recouping their 2024 losses. Stocks continued their tech-led climb on Friday, with the S&P 500 rising to an all-time high—its first record close in over two years. The Nasdaq gained 1.70% on Friday, capping a solid week for the tech-heavy index.
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.