THE WEEK ON WALL STREET
Stocks extended their tech-led advance last week as signs of a resilient and still-enthusiastic consumer boosted momentum.
FACT OF THE WEEK
March 5, 1963: the Hula Hoop, a hip-swiveling toy that became a huge fad across America when it was first marketed by Wham-O in 1958, is patented by the company’s co-founder, Arthur “Spud” Melin. An estimated 25 million Hula Hoops were sold in its first four months of production alone.
In 1948, friends Arthur Melin and Richard Knerr founded a company in California to sell a slingshot they created to shoot meat up to falcons they used for hunting. The company’s name, Wham-O, came from the sound the slingshots supposedly made. Wham-O eventually branched out from slingshots, selling boomerangs and other sporting goods. Its first hit toy, a flying plastic disc known as the Frisbee, debuted in 1957. The Frisbee was originally marketed under a different name, the Pluto Platter, in an effort to capitalize on America’s fascination with UFOs.
Melina and Knerr were inspired to develop the Hula Hoop after they saw a wooden hoop that Australian children twirled around their waists during gym class. Wham-O began producing a plastic version of the hoop, dubbed “Hula” after the hip-gyrating Hawaiian dance of the same name, and demonstrating it on Southern California playgrounds. Hula Hoop mania took off from there.
The enormous popularity of the Hula Hoop was short-lived and within a matter of months, the masses were on to the next big thing. However, the Hula Hoop never faded away completely and still has its fans today. According to Ripley’s Believe It or Not, in April 2004, a performer at the Big Apple Circus in Boston simultaneously spun 100 hoops around her body. Earlier that same year, in January, according to the Guinness World Records, two people in Tokyo, Japan, managed to spin the world’s largest hoop–at 13 feet, 4 inches–around their waists at least three times each.
MARKET MINUTE
Nasdaq Sets New HighStocks traded in a narrow band early in the week but ended the five-trading sessions with a powerful advance. While the Dow dipped lower, artificial intelligence (AI) names powered the gains in the S&P 500 and the Nasdaq Composite. The Nasdaq bobbed around the 16,000 level for most of the week before posting consecutive record highs on Thursday and Friday, surpassing its 2021 record. It was the last of the three major stock benchmarks to reach a record high this year. Economic news also helped boost markets. The Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation gauge, rose 0.3 percent in January versus December—and 2.4 percent on a 12-month basis. Both were in line with expectations. Stocks ticked up on Thursday following the release of the report.
Consumers Remain UpbeatWith all the excitement over AI, it’s easy to overlook some key economic indicators that also speak to the underlying strength of the economy—specifically, consumer data. In addition to the closely watched PCE report, an end-of-week consumer survey revealed that while sentiment softened in February, it remained near a 32-month high. Fresh data this week also showed an unexpected jump in personal income. Finally, the PCE report also reflected an ongoing consumer shift from goods to services—a sign the economy continues to normalize after the pandemic. Since two-thirds of gross domestic product comes from consumer spending, these consumer-related metrics helped support the narrative that the economy appears to be gathering momentum.
FINANCIAL STRATEGY OF THE WEEK
A Primer on Irrevocable Life Insurance Trusts
"I'm proud to pay taxes in the United States; the only thing is, I could be just as proud for half the money."
~Entertainer Arthur Godfrey
The irrevocable life insurance trust (ILIT) can be an important estate strategy tool that may accomplish a number of estate objectives; however, it may not be appropriate for every individual. 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.
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 also may 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.
What Is an ILIT?
An ILIT is created by an individual (the grantor) during his or her lifetime. The ILIT owns a life insurance policy on the grantor's life via the transfer of ownership of an existing policy or through the grantor's annual contribution of cash to pay the premiums on a policy purchased by the trust.
The grantor designates beneficiaries, usually family members, who will typically receive the proceeds upon the death of the grantor.
The trust is irrevocable, meaning that the grantor forfeits all rights to the property contained in the trust. Its irrevocable nature is integral to accomplishing the ILIT's objectives.
What Can an ILIT Accomplish?
The ILIT may be able to accomplish several estate objectives, including:
- Meeting liquidity needs;
- Managing estate taxation on the policy proceeds;
- Providing income to survivors.• How Does an ILIT Work?
- When you die, the trust is designed to receive a payment equal to the policy coverage amount, e.g., $500,000. Since the trust's ownership of the policy is irrevocable, the proceeds are not considered your property. Consequently, they do not fall into your estate, thus potentially avoiding estate taxation. (Remember, generally, no income tax is due on such life insurance proceeds.)
The trust provisions should be set up to provide direction about how and to whom payments may be made. You may direct that the trust pay out cash to cover certain expenses, e.g., funeral costs, probate, taxes, final medical expenses, and debts.
This may obviate the need to sell less liquid assets at an inopportune time to cover such costs. The trust's beneficiaries may receive the proceeds (after any payments are made to satisfy liquidity needs), creating an inheritance free of estate taxes. Finally, creditors should not be able to attack these assets since they belong to the trust, not you.
Creating an ILIT should be done only with the assistance of a qualified estate planning attorney. It is a complicated exercise in which mistakes may result in losing the benefits ILITs offer.