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The S&P 500 and the NASDAQ fell for the second week in a row as tariff threats escalated again and technology stocks slipped. The NASDAQ finished down about 3.5% for the week while the S&P 500 retreated 1.0%. The Dow was an outlier, as it rose 1.0%.
Yields of U.S. government bonds fell to their lowest levels in nearly three months amid concerns over the latest economic data. The yield of the 10-year U.S. Treasury note closed on Friday around 4.19%, down from 4.42% at the end of the previous week and a recent peak of 4.80% in mid-January.
The stock market’s mostly positive momentum in January and early February reversed course in the last two weeks of the year’s shortest month. The NASDAQ took the biggest hit among the major U.S. indexes, retreating around 4.0% in February, while the S&P 500 and the Dow fell 1.4% and 1.6%, respectively.
February’s sharp price decline for the most widely traded cryptocurrency accelerated in the closing week of the month. On Friday, Bitcoin was trading around $84,500 - down about 12% for the week and around 18% for the full month. At the end of January, Bitcoin was trading above $102,000.
Companies in the S&P 500 posted an average earnings gain of 17.8% over the same quarter a year earlier, according to FactSet data from the recently concluded fourth-quarter earnings season. That result marked the strongest growth since the fourth quarter of 2021 and was up sharply from the 11.8% growth rate that analysts had expected heading into earnings season. Financials posted a 56.0% earnings gain, the highest among all 11 sectors.
Inflation was largely stable in January but remained well above the U.S. Federal Reserve’s 2.0% long-term target, based on Friday’s reading from the Personal Consumption Expenditures Index. PCE inflation rose at an annual rate of 2.5% in January, in line with economists’ expectations and slightly below the 2.6% figure recorded the previous month.
The next monthly labor market report due out on Friday will show whether January’s slowdown in jobs growth extended into February. In January, the economy generated 143,000 new jobs, down from 307,000 in December and 261,000 in November. However, January’s report showed the unemployment rate slipped from 4.1% to 4.0%.
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Recent market swings have highlighted a gap between how investors feel and how markets have performed. As the famous Warren Buffett quote suggests, it has often been wise to be "fearful when others are greedy and greedy when others are fearful.” While this can seem counterintuitive when there are many economic and political concerns weighing on the market, having the discipline to stay invested has historically been the reason investors are rewarded in the long run.
While some investors are worried about the economy, tariffs, interest rates, and more, many of the underlying market drivers have remained strong. In times like these, the key to managing volatility isn't reacting to the market's ups and downs but rather maintaining a well-constructed portfolio that aligns with your long-term goals and risk tolerance. How can investors maintain perspective on recent market moves and news headlines?
According to the latest AAII Investor Sentiment Survey, which measures how investors feel about the market, bearish attitudes have recently outpaced bullish ones by as much as 19%. This is the most pessimistic investors have felt since late 2023 when some expected the economy to fall into recession. It’s clear from the accompanying chart that these feelings can change quickly.
There is often a gap between how investors perceive markets and how they actually perform. Despite day-to-day market swings and worsening sentiment, major stock market indices have experienced positive returns over the past several months. This underscores the fact that investor sentiment is often a contrarian indicator. As Warren Buffett’s quote suggests, the greatest market opportunities tend to present themselves when investors are the most worried.
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The Tax Cuts and Jobs Act (TCJA) introduced a higher standard deduction – $15,000 for single filers and $30,000 for people who are married and filing jointly in 2025. While the higher deduction was beneficial to many taxpayers, those who are near the cutoff for itemizing may employ an approach known as “bunching”, which makes it possible for taxpayers to itemize every other year, reported Adam Nash of Kiplinger’s.
Here’s how it works: taxpayers condense two years of tax-deductible expenses into a single tax year. Then, they itemize taxes for that year. In general, three types of expenses can be bunched. They include:
Charitable gifts. Some people choose to bunch charitable gifts into a single year by donating in January and then again in December. This increases the amount that can be itemized in a single year. There are other approaches that can help maximize charitable contributions into a single year, as well.
Medical expenses. Taxpayers can deduct qualified healthcare costs that are not reimbursed, as long as the amount exceeds 7.5% of their adjusted gross income. So, when you know a big medical expense is ahead, if it is possible plan the procedure for a year when you are itemizing.
Property taxes. If a municipality allows it, homeowners can make the previous year’s property tax payment in January and make the current year’s property tax payment in December. Currently, there is a $10,000 cap on state and local government taxes (SALT), which include property taxes, reported the Tax Foundation.
Some provisions of the TCJA are set to expire at the end of this year, including the cap on SALT. The administration has yet to decide how SALT deductibility will be modified. The options under consideration include:
- Repealing the SALT deduction, which would raise $1 trillion over 10 years.
- Making the $10,000 cap permanent and doubling it for married couples.
- Raising the cap to $15,000 for individuals and $30,000 for married couples.
- Eliminating income and sales tax deductibility while keeping property tax deductibility.
- Eliminating the SALT deduction for businesses.
This information is not intended as tax, legal or accounting advice. It is offered for informational purposes only. Talk with a tax professional and your financial advisor before taking action.
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AJ Advisors
www.ajadvice.com
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Phone: (615) 709-8709
Fax: (615) 505-3306
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John Stauffer, CFP®
Partner
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Andrew Quinn, CFP®
Partner
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