New messaging from the Federal Reserve on interest rates and inflation last week led to a broad retreat in stock prices.
The Dow Jones Industrial Average dropped 3.45% while the Standard & Poor’s 500 lost 1.91%. The Nasdaq Composite index slipped 0.28% for the week. The MSCI EAFE index, which tracks developed overseas stock markets, fell 0.64%.1,2,3
The Federal Reserve’s announcement on Wednesday that interest rate hikes may likely occur sooner than expected and that it had underestimated the pace of inflation unsettled investors. The hardest hit groups were cyclical stocks, like energy, materials, and industrials, as well as financials and consumer staples.4
Losses accelerated into the week’s close on comments by St. Louis Fed President James Bullard that the first rate hike could be as soon as 2022.
The bond yield curve flattened, as short-term interest rates rose in anticipation of rising rates and longer-term rates declined, reflecting a view of an eventual economic slowdown.
The Fed’s Surprise
Last week’s FOMC meeting announcement took investors by surprise as the Fed indicated that two rate hikes in 2023 were likely. It was as recent as March that the Fed had signaled that rates would remain unchanged until 2024.4
The Fed also raised its inflation expectations to 3.4%, up from its March projection of 2.4%, though it continues to believe that price increases will be transitory in nature.5
The Fed provided no indication of when and by how much it might begin tapering its monthly bond purchase program.6
This Week: Key Economic Data
Tuesday: Existing Home Sales.
Wednesday: PMI (Purchasing Managers Index) Composite Flash. New Home Sales.
Thursday: GDP (Gross Domestic Product). Durable Goods Orders. Jobless Claims.
Friday: Consumer Sentiment.
Source: Econoday, June 18, 2021
This Week: Companies Reporting Earnings
Wednesday: KB Home (KBH).
Thursday: FedEx Corporation (FDX).
Friday: Carmax, Inc. (KMX).
Source: Zacks, June 18, 2021
Are Social Security Benefits Taxable?
Did you know that if you are receiving Social Security Benefits, you may have to pay federal income tax on a portion of these benefits? The amount you have to pay will depend on your specific income and filing status.
To find out if your Social Security benefits are taxable and you are single, take one-half of the Social Security money you received throughout the year and add it to your other income, which includes pensions, wages, interest, dividends, and capital gains. If the total comes to more than $25,000, then part of your benefits may be taxable.
If you are married filing jointly, take half of the Social Security money you received throughout the year, plus half of your spouse's Social Security benefits, and add both of those amounts to your combined household income. If the total is more than $32,000, then part of your benefits may be taxable.
On their website, the IRS then lays out the percentage of benefits that are taxable based on the above calculation. These percentages vary between 50% to 85% and depend on your filing status and income levels. For example, if you are filing single with $25,000 - $34,000 income, 50% of your Social Security benefits may be taxable.
The Interactive Tax Assistant on IRS.gov can help you determine if your Social Security benefits are taxable and if so, by how much.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
Footnotes and Sources
2. The Wall Street Journal, June 18, 2021
3. The Wall Street Journal, June 18, 2021
4. CNBC, June 16, 2021
5. The Wall Street Journal, June 16, 2021
6. The Wall Street Journal, June 16, 2021
7. IRS.gov, February 26, 2021
8. Healthline.com, August 30, 2019
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Weekly Market Insights: Fed Signals Interest Rate Hikes
June 21, 2021