THE WEEK ON WALL STREET
Stocks rallied last week as investors received better-than-expected consumer and producer inflation data. The Dow Jones Industrial Average rose 2.60 percent, while the S&P 500 Index gained 4.02 percent. The Nasdaq Composite led, picking up 5.95 percent as tech stocks rebounded. The MSCI EAFE Index, which tracks developed overseas stock markets, rose 1.01 percent.
FACT OF THE WEEK
Celebrated soprano Maria Callas dies in Paris at the age of 53.
Born in New York City in 1923 to Greek immigrants, Callas demonstrated her talent for singing at an early age. When she was 13, she went to Athens to study under the noted soprano Elvira de Hidalgo. Her first major operatic role came in 1947, when she appeared in La Gioconda in Verona. Acclaimed for a powerful soprano voice that lent itself to the difficult coloratura roles, she was soon appearing in opera houses around the world. Her talents made possible the revival of 19th-century bel canto works by Bellini and others that had not been performed for decades. In 1954, the “Divine Callas” made her American debut in Chicago in the title role of Norma, a performance she repeated before a record audience at New York City’s Metropolitan Opera.
Callas’ stormy personal life was closely watched and exaggerated by the press, as were her professional walkouts and tiffs with rivals. The diva divorced her husband of many years after becoming involved with Greek shipping tycoon Aristotle Onassis, but he later left her when he fell in love with the widowed Jackie Kennedy. In the 1970s, Callas’ career rapidly declined, and she died in 1977.
MARKET MINUTE
A Wednesday to Remember
Stocks bounced out of the gate at the start of the week as “risk on” investors made moves before the pending release of the twin inflation reports–the Consumer Price Index (CPI) and Producer Price Index (PPI). The three major averages added slightly more than 1 percent in Monday trading.
On Wednesday, stocks initially dipped following the release of the CPI as traders appeared disappointed by the report. By midday, sentiment changed. The S&P 500, down as much as 1.6 percent in early trading, gained 1.1 percent by the closing bell. More inflation data out Thursday showed wholesale price increases were tempered, which helped stocks move higher through the balance of the week.
Small Caps Shine
Small-cap stocks, as measured by the Russell 2000 Index, have pushed higher in recent weeks, which is a telling move for some Wall Street observers. The Russell 2000 has outperformed the S&P 500 by more than 4 percent during Q3 so far.
One reason is that smaller stocks tend to respond when they anticipate interest rates will trend lower. Investors appear to be positioning themselves in small cap issues, expecting the Fed may adjust rates at its September meeting as it looks to guide the economy to a soft landing.
FINANCIAL STRATEGY OF THE WEEK
When Life Insurance Becomes Taxable
In 1900, the average life expectancy of a newborn was only 32 years old. By 2021, that number more than doubled to 71 years, and the trend is expected to continue.
Living this long may have 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’s cash value may be paid out to the policy owner in lieu of a death benefit payment.
Tracking Taxes
This payout may be taxed 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 then become part of the policy owner’s estate and may be subject to further taxation upon the policy owner’s death.
If a policy is owned by an irrevocable trust, 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.
Managing the Taxable Risk
This taxable risk may be mitigated 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 (like 120) or an indefinite period.