Mark on the Markets
July 2024

AI Revolution

The Artificial Intelligence revolution is powering significant gains in technology shares and the S&P 500 and is driving headlines. Look no further than AI-chipmaker Nvidia (NVDA), which briefly became the largest publicly traded company in the world last month. Fortune.com pointed out that shares of the stock accounted for more than one-third of the S&P 500’s advance this year (through mid-June).

Here’s another interesting factoid. Nvidia accounted for 44% of the rise in the S&P 500 since the end of 2021, according to The Wall Street Journal (as of June 21).

Why? The S&P 500 Index is a market-capitalization-weighted index. The top three stocks are valued at over $9 trillion, comprising a significant portion of the S&P 500’s value of about $46 trillion.

Look no further than the lesser-known S&P 500 Top 10 Index, which consists of 10 of the largest S&P 500 companies. It rose nearly 29% in the first half of the year, according to S&P Dow Jones Indexes.

Other catalysts that have fueled this year’s advance include:

1. Corporate profits that have topped expectations.
   
   
2. Job growth is solid, the economy is expanding, and the soft-economic landing scenario still appears to be in place.
   
   

We’ve established that the largest publicly traded companies are, on average, performing admirably. That said, have investors shunned many of the equities that make up the S&P 500 Index in favor of a few firms?

Let’s review the S&P 500 Equal Weight Index.

As the name implies, every stock in the index equally contributes to the performance of the index. In this case, it is the S&P 500 Index. The equal weight index is up a respectable but modest 3.25% this year (as of July 2). Notably, the equal-weighted index was off 3.1%% in Q2 versus an advance of nearly 4% for the S&P 500 market-cap-weighted index. And the Value Line Geometric Index, which we often used as a barometer of the entire stock universe, is up only 0.6%, and that is a bit concerning.

Market Breath

As a Certified Market Technician, I look at many indicators that give a complete picture of the direction of the market. Market breath is one, and market breath is low in today’s market, giving a signal of potentially a weaker market. Market breath is a ratio of the number of stocks that are rising in price compared to the number of stocks that are falling in price. It is a tool to assess the health and direction of the market. Several market publication and newspapers have pointed this out: “This Rally Is All About a Few Star Stocks—and Some Investors Are Worried,” The Wall Street Journal opined. Here’s another one from Barron’s: “The Stock Market’s Rally is Being Driven by a Few Stocks.” 

Our Take…

Our technical view is that the uptrend in the market is here and is strong, and technical indicators show a positive trend in the short and intermediate direction of the market. We also believe that economic fundamentals—the economy and corporate profits—will have the greatest influence on the major indexes in the medium and long term. If the ever-elusive recession materializes later in the year, we’d expect volatility to return.

However, a gentle economic slowdown that supports earnings would be expected to create a more favorable environment for investors. Over a longer period, the optimists argue that investors are underestimating the economic impact of the AI revolution. The upbeat scenario argues that technology and AI will drive productivity, fueling economic growth just as millennials are entering their prime spending years.

We are market technicians, not market seers. We acknowledge that visibility is limited. We’d never dismiss the possibility of a market pullback. However, the market’s long-term track record provides a compelling reason stocks should be included in a comprehensive financial plan.

Mark on the Charts

The S&P 500 hit the 5,400 area and has taken a pause. However, the trendline is still positive and the largest companies in the US continue to move upward. Summer often results in lower volume and a lackluster market; however, this year is not typical. We will likely see lower breadth and buying as we churn through the end of the summer. If market breath returns, the setup bodes well for the remainder of the year.

The Value Line Geometric Index continues to trade at the top of the channel and is still waiting for a breakout above the redline – the 600 area. As we continue to point out, this support has been holding strong for two years. A break above 600 will be a strong sign for the broader market, and an indicator that market breath has returned to the market. (The Value Line Geometric Index is a broad index of around 1,700 stocks, where each stock is given an equal weight of the index.)

The HITF is mainly funded by Medicare taxes. And currently, there are three Medicare taxes:

1. A 1.45% Medicare tax is levied on both employees (through payroll tax withholding) and employers with respect to workers’ wages and salaries, with no cap on taxable earnings.
2. A 2.9% Medicare tax is imposed on people with self-employment earnings, again with no cap.
3. Individuals pay an additional 0.9% Medicare surtax once their wages and/or self-employment income exceed $200,000 for single filers and $250,000 for joint filers. This extra 0.9% surtax does not hit employers.
4. At age 65, the HSA becomes a regular retirement account and is no longer only bound to medical

This is all good news; however, lawmakers are looking to shore up the HITF. And, not surprisingly, the idea to raise revenues involve tax hikes. Here are some of the current administration’s proposals:

• Increase the current 0.9% Medicare surtax imposed on employees and self-employed people to 2.1% for taxpayers with over $400,000 of earned income.
• Raise the Net Investment Income (NII) tax rate from 3.8% to 5% on individuals with modified adjusted gross incomes over $400,000. The 3.8% NII tax now applies to singles with modified AGIs over $200,000…$250,000 for joint filers.
• Expand the tax to cover more business income than it currently does.
• Redirect NII tax revenues, that under Obamacare have gone into the general revenue, to Medicare’s HITF.

Higher wages mean higher tax revenues. However, our lawmakers don’t have lots of time to flesh out revenue and cost-saving options to secure the HITF’s future. Let’s pray that they don’t wait until the last minute to act.

The Benefit of a Health Savings Account (HSAs)

As you begin to think about your health insurance alternatives for 2025, one option is a health savings account. HSAs are tax-advantaged arrangements used to manage health insurance deductibles and out-of-pocket costs and let you save for your future health care expenses.

• Contributions are deductible or are from pretax wages. For 2025, the cap on deductible or pretax HSA is $4,300 for account owners with self-only coverage and $8,550 for family coverage.
• Individuals who are 55 or older can put in additional $1,000 into their HSAs.
• Earnings inside an HSA build up tax-free for the account owner. The account is not a use-it-or-lose-it rule like flexible spending accounts.
• Any withdrawals that are used to pay medical expenses are not taxed.
• At age 65, HSAs become a retirement account lifting the medical only expenditures rule.

But it’s important to note that the Consumer Financial Protection Bureau recently reported that there are some downsides to HSAs. One is fees - the major trustees that offer HSAs charge lots of fees and costs to account owners and employers. Money that is placed in the accounts earns a low interest rate. Even though account owners can invest in higher-earning funds, only 7% of all HSAs have funds in investments. Finally, employers are looking for less expensive premiums and are pushing the HSA option to employees.

Using the Dependent Care Credit for Summer Day Camp Summer

Did you know that summer day camp costs for your child qualify for the dependent care credit. Camps for sports, math, theater, robotics or general fun are all included. Unfortunately, the cost of summer school, tutoring programs or overnight camps is not eligible. 

There are rules for taking the credit: The child must be under age 13, and the expenses must be incurred so the parents can work (or look for a job). 

Children Who Just Graduated from College

Do you have a child who has graduated from college and is starting a full-time job this summer or fall? Here’s a tip. Have them use part-year withholding to boost their paycheck and have less tax withheld. The standard federal tax withholding tables assumes that workers will earn a full year’s income when figuring how much income tax to take out. This part-year method is for people employed 245 or fewer days in a year and sets the withholding according to what is earned during the part of the year when working. Have your college graduate ask their new employer for this in writing.

Tax Exempt Summer Jobs for Students

If your child is a high school or college student with a summer job, and owed no federal income tax for 2023 and does not expect to owe any taxes for 2024, they can avoid federal income tax withholding from their paycheck. Just have them write “Exempt” below step 4(c) of the W-4 and fill out steps 1(a), 1(b) and (5).

Family Caregiving – Caring for Mom & Dad as They Get Older 

According to The National Institutes of Health, which is a part of the U.S. Department of Health and Human Services, 59% of adults between the ages of 85 and 89 receive a family caregiver’s help. That rises to 76% for those 90 or older.

Taking on the role of a caregiver can be a rewarding experience. You are stepping outside of yourself to help and serve a loved one. But it will require sacrifice, and it can be emotionally draining. If you ignore your own needs, it can exact a toll on your own health.

The Financial Side

According to Medical News Today, Medicare pays for caregivers when a person is under the care of a doctor, a doctor has certified a person as homebound, or the care delivered is through a written plan that’s regularly reviewed by a doctor.

Medicare may cover eligible home health services such as medically necessary part-time skilled nursing care, physical therapy, occupational, speech, and language therapy, and part-time home health aide services.

Covered home health services also include medically necessary part-time or intermittent skilled nursing care.

Medicare does not pay for 24-hour-a-day care at your home, home meal delivery, homemaker services (like shopping and cleaning) unrelated to your care plan, and personal care that helps you with daily living activities (like bathing, dressing, using the bathroom), when this is the only care you need.

Veterans or Family Members of a Veteran

Are you eligible for the Program of Comprehensive Assistance for Family Caregivers?

You may be eligible if you and the veteran you’re caring for meet these requirements.

Eligibility requirements for the family caregiver:

You must be at least 18 years old, and at least one of these must be true for you:

• You’re a spouse, son, daughter, parent, stepfamily member, or extended family member of the veteran, or
• You live full-time with the veteran, or you’re willing to live full-time with the veteran if we designate you as a family caregiver.

For the Veteran:

The veteran you care for has a

• VA disability rating (individual or combined) of 70% or higher,
• The veteran was discharged from the U.S. military or has a date of medical discharge,
• The veteran needs at least six months of continuous, in-person personal care services.

Medicaid may be an option, but please be aware that eligibility may be severely restricted by your income or assets.

Spotting Trouble Before Trouble Enters Your Home

Avoid hiring a caregiver who isn’t qualified, or worse, puts your loved one in a dangerous situation. If you have ever engaged with a caregiver, it’s an ever-present worry, but the risk can be minimized by taking a few simple precautions.

What are the signs of a dangerous caregiver?

Let’s review several red flags provided by the Institute on Aging.

1. Your applicant refuses to supply references, a home address, or submit to a background check. This is a huge red flag. Avoid this applicant!
   
   
2. The person moves often. Unless there is a reasonable and legitimate explanation, this could be a sign they may be evading law enforcement, state homecare regulations, or both.
   
   
3. A family member or friend may appear to be the solution, but is that person in over their head? Past elder care experience isn’t a substitute for education, training, certification, licensure, bonding, and proof of insurance.
   
   
4. Follow your gut. Does something seem out of place? If so, you are under no obligation to hire that person.

What if you have thoroughly researched a candidate, and they are now assisting your senior, but something feels amiss? Let’s review some of the danger signs.

1. Your senior has unexplained illnesses, infections, or bruises. You may have a dangerous caregiver if medical history doesn’t explain these problems.
   
   
2. Is your loved one anxious or nervous around their caregiver? Does he or she seem to be afraid of their caregiver? The caregiver may be threatening your loved one in your absence.
   
   
3. Look for signs of neglect. Is the home a mess or dirty? Is the aide always watching T.V. or not paying attention to your senior? Is your senior hungry or cold? These are signs of neglect.

Those looking for employment may have the best of intentions, but the Institute on Aging notes that good intentions should be “backed up with a clean criminal record, affiliation with a reputable agency, and a safe, secure feeling you get when you leave your senior in their hands.”

Scams

Scams targeting individuals 60 and older caused over $3.4 billion in losses last year. That’s up about 11% from 2022, according to the FBI.

Remind your loved one about online scams and fraudsters claiming to work for the IRS, Social Security, and Medicare.

Common schemes include romance scams, tech support scams, and the sweepstakes winner scam.

Be careful and be alert.

If you have additional questions or feel overwhelmed, we want you to know that you are not alone, and we would be glad to provide you with additional resources.

Faith-Focused Investing

We’re committed to helping you experience financial contentment and peace through a plan that’s right for you. Part of planning, however, is understanding how you want to live and what you want to do. Whether you want to spend time with family, or volunteer to make the world a better place, we help you prepare to spend your time, talents, and resources on what matters most to you.

Implementing faith-based investing begins just like any other investment management process – we’re looking for great investments!

I hope you’ve found this review to be educational and helpful. Our goal is to be a guide to you as you run the race and keep the faith. 

"There is an appointed time for everything, and a time for every affair under the heavens. A time to give birth, and a time to die; a time to plant, and a time to uproot the plant." Ecclesiastes 3:1-2

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