Stock Market Commentary
For the week of January 19, 2009
In its last week of trading under the administration of George W. Bush, equities markets posted losses across the board. Strength in the energy sector and other recession-resistant industries could not offset investor concern about the banking sector after the government gave Bank of America another $20 million in capital. For the week, the Dow lost 3.66 percent to finish at 8,281.22. The S&P dropped 4.50 percent to close the week at 850.12, and NASDAQ fell 2.69 percent to end the week at 850.12. Markets were closed Monday, Jan. 19, in observance of Martin Luther King, Jr. Day, which happened to fall on the day before Barack Obama’s inauguration as America’s first African American president.
Free Tax Returns – On Friday, the Internal Revenue Service debuted a new service that lets taxpayers complete forms online and file their taxes at no charge, regardless of income level. The new Free Fillable Tax Forms allow taxpayers to enter their data, perform basic calculations, sign the returns electronically, print copies for their records, and electronically file their return. According to the IRS, taxpayers who file electronically with direct deposit can receive their refund in as few as 10 days.
Less Crude – U.S. petroleum deliveries, a measure of demand for crude oil, dropped 6 percent in 2008, its lowest level since 2003. Record high prices and a declining economy created lower demand for major crude products, reducing deliveries to 19.4 million barrels a day. That’s not surprising: From November 2007 to October 2008, Americans drove 100 billion fewer miles than the previous year, according to government numbers.
Shrinking Gap – The U.S. trade deficit dropped to $40.4 billion, a significant decline from October’s $56.7 billion and well below the $51 billion gap that economists had expected. The deficit hasn’t been this small since November 2003, when it was $40 billion, according to the Department of Commerce.
Economic Giant – The U.S. has an economy of nearly $14 trillion, three times as large as second-place Japan. Third-place China and fourth-place Germany each have economies of about $3.5 trillion a year, according to Kiplinger Business Resource Center.
WEEKLY FOCUS – Keep An Eye On Estate Tax
The federal estate tax exemption – the amount of your assets that is not subject to taxes at your death –increases this year from $2 million to $3.5 million.(Married individuals can pass an unlimited amount of assets to their spouse without paying estate taxes.) Amounts in excess of the exemption are taxed at a maximum rate of 45 percent.
The federal exemption has been increasing since the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001. In 2010, the federal estate tax tables are scheduled for a complete repeal, but unless Congress extends that repeal, the exemption will revert to its 2001 level of $1 million, with 55 percent tax on the excess. So the difference between dying on Dec. 31, 2009, or Jan. 1, 2010, or Jan. 1, 2011, could be hundreds of thousands of dollars in taxes.
Meanwhile, the 2001 act has unraveled the connection between the federal estate tax system and that of many states, which previously got a cut of the IRS collections on estates. The increase in federal exemption levels decreased the amount the state gets, causing many states to begin collecting their estate tax separately from the IRS.
According to the Wall Street Journal (Jan. 12, 2009), incoming President Barack Obama and Democratic leaders in Congress will take action this year to prevent the federal estate tax repeal scheduled for 2010. Obama’s proposal would make permanent the exemption cap of $3.5 million and the maximum rate of 45 percent, eliminating the 2010 repeal and the 2011 return to 2001 exemption and tax levels.
Because none of us know exactly when we will die, staying on top of the estate tax, both federal and for your state of residence, can make a dramatic difference in the amount of tax paid and the amount of assets left for your heirs. Those issues can, in turn, affect your investment plans. We can work with your estate attorney to keep you abreast of important changes and keep your estate plan up to date. Call our office to schedule a joint appointment to review your estate plan and your options under various scenarios of the future.
* The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Morgan Stanley Capital International Europe, Australia and Far East Index (MSCI EAFE Index) is a widely recognized
benchmark of non-U.S. stock markets. It is an unmanaged index composed of a sample of companies representative of the market structure of 20 European and Pacific Basin countries and includes reinvestment of all dividends. Written by Securities America. SAI# 292815