The Week on Wall Street

Despite strong corporate earnings, stock prices closed lower after a volatile week of trading triggered by unprecedented activity in a handful of companies.

The Dow Jones Industrial Average lost 3.27%, while the S&P 500 fell 3.31%. The Nasdaq Composite index dropped 3.49% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, slipped 1.83%.

FACT OF THE WEEK

National Groundhog Day on February 2nd each year asks one question. Will the groundhog see his shadow? Ok, well maybe it asks another question. Will there be six more weeks of winter?

Groundhog Day is observed on February 2nd each year in the United States and Canada. For a nice welcomed break during the winter, on this day the groundhog awakens from his nap and goes outside to see if he can see his shadow. It is believed by many that if the groundhog sees his shadow that there will then be six more weeks of winter. If this is so, he then retrieves back into his den and goes back to sleep. If he is not able to see his shadow, the groundhog remains outside to play and people celebrate believing that spring is just around the corner.

Punxsutawney, Pennsylvania has been chosen as the site for the annual Groundhog Day event. Thousands of people come to the town of Punxsutawney on Groundhog Day for this day of celebration.

MARKET MINUTE

Bull Market Takes a Breather

On Monday, the S&P 500 and NASDAQ Composite overcame early losses to post new all-time highs.

Stocks rode a roller coaster on Wednesday, falling sharply despite above-consensus earnings results, only to come roaring back the following day. Stocks suffered another broad retreat on Friday, sending the major indices to their worst weekly performance since October.

Earnings continued to surprise to the upside, with 81% of companies in the S&P 500 that reported results by last Thursday morning exceeding analysts’ expectations.

Shorts Come Into Focus

The ability of social media to stoke passions and provide a catalyst to herd behavior made itself evident on Wall Street last week.

A chat forum became the central hub for motivating individual investors to trade certain stocks with large short positions. This unexpected buying activity roiled markets and fueled a sharp rise in their stock prices. The sudden surge higher forced some fund managers to buy stocks in these companies at higher prices, resulting in substantial losses for the firms.

It’s difficult to say whether this social media phenomenon has long-term implications, though it is likely to change how professional investors evaluate trading strategies in the future.

In order to sell short, you are required to open a margin account. Selling short is not suitable for all investors. Margin trading entails greater risk, including the risk of unlimited losses in a position and incurrence of margin interest debt. You should consider your financial situation and risk tolerance before trading on margin.

FINANCIAL STRATEGY OF THE WEEK

Know and Understand Your Correct Income Tax Filing Status

Taxpayers need to know their correct filing status and be familiar with each choice. When preparing and filing a tax return, the filing status affects the following:

- Whether you are required to file a Federal tax return

- Whether you should file a return in order to receive a refund

- Your standard deduction amount

- Whether you can claim certain credits

- The amount of tax you should pay

Here are the five filing statuses:

Single

Normally, this status is for taxpayers who are unmarried, divorced, or legally separated under a divorce or separate maintenance decree governed by the state law.

Married filing jointly

If a taxpayer is married, they can file a joint tax return with their spouse. When a spouse passes away, the widowed spouse can usually file a joint return for that tax year.

Married filing separately

Married couples can choose to file separate tax returns, when doing so results in less tax owed than filing a joint tax return.

Head of household

Unmarried taxpayers may be able to file using this status, but special rules apply. For example, the taxpayer must have paid more than half the cost of keeping up a home for themselves and a qualifying person living in the home for half of the year.

Qualifying widow(er) with dependent child

This status may apply to a taxpayer if their spouse died during one of the previous two years and they have a dependent child. Other conditions can also apply.

We suggest that you discuss your specific tax issues with a qualified tax professional.

As always, please let us know if there is anything we can help with along the way or any financial concerns you may have.

Have a great week!