Day: September 11, 2024

(Bloomberg) — Traders are further unwinding bets linked to Donald Trump winning the White House after he suffered what many pundits called a clear defeat in last night’s crucial debate with rival Kamala Harris.

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Trump Media & Technology Group Corp. shares tumbled 14% and Bitcoin, an asset that’s been embraced by the former president, retreated slightly. A Bloomberg gauge of the dollar fell as much as 0.3% before recovering. A strong dollar has become somewhat associated with Trump given his plan to penalize countries moving away from the currency.

Meanwhile, green energy shares gained on speculation that Democrats would bring more funding for the transition to renewables, with the Invesco Solar ETF adding about 3%.

While the moves in a handful of assets deemed likely to benefit from a Trump win offer a signal that positioning is tilting in favor of Harris, strategists warned against reading too much into the price action. The race remains very close and some of the moves could be explained by shifts in the outlook for the US economy.

“Markets seem to have awarded Harris a victory,” wrote Francesco Pesole, a currency strategist at ING Bank. “In FX, a Trump win is associated with a stronger dollar, which is trading on the soft side across the board.”

The odds of the Democratic party candidate winning the election increased on the betting website PredictIt to 56%, compared with 53% before the debate. Wall Street has been adjusting its election bets for the past few weeks, tracking Vice President Harris’ rise in the polls.

One factor complicating any market interpretation of the debate was the report on US consumer prices also landing on Wednesday. With the Federal Reserve widely expected to cut interest rates next week, some strategists said the impact of monetary policy should outweigh any speculation on US politics.

What Bloomberg’s Strategists Say:

“The main markets takeaway from all the political analysis is that it would be financial folly to have conviction on who will win this election that’s still eight weeks away. Never mind worrying how you actually profit from knowing that answer, given the lack of clarity over what policy each candidate would be able to implement quickly, and the debate over how assets would subsequently react.”

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— Mark Cudmore, MLIV Executive Editor in Singapore

Read more here.

Shares of Trump Media, which operates Truth Social and counts the presidential candidate as its top shareholder, have at times traded as a proxy for Trump’s election odds, rising sharply after an assassination attempt in July, when there was a sharp rise in betting-market odds of him winning a second term. Other times, it’s traded like a volatile meme stock, swinging wildly on little to no news or fundamental changes to its underlying business.

The company is also facing the expiration of a lockup period, which could take place as soon as Sept. 19 and enable insiders — including Trump himself — to start selling shares.

Trump Media Shares Slide After Debate as Lockup Expiry Looms

At Citigroup Inc., strategists pointed dollar weakness as an indication that Harris bested Trump in the debate, but added that the currency will stay strong heading into November given that tariffs remain a central plank of Trump’s economic platform.

“We still expect the election will remain close enough in the coming weeks that markets will maintain some premium for Trump policies,” wrote strategists including Daniel Tobon at Citigroup. “It remains to be seen if voters agree with betting and financial markets.”

Jefferies International’s Mohit Kumar echoed the caution around trades tied to a specific candidate and said the debate didn’t produce a clear winner. Even so, he said Harris did better than expected and her policies would likely focus less on tax cuts and fiscal expansion than Trump.

In the view of Saxo Bank, it’s still a challenge to price in a Harris trade, especially because the Democrats will likely face a split Congress.

“Harris’ rising prominence could have notable effects across various sectors,” wrote Charu Chanana, global market strategist at Saxo. “Many of the other ‘Trump Trades’ such as a weaker Chinese yuan or traction in defense stocks could take a backseat.”

(Updates market pricing throughout.)

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I’m in my first year of required minimum distributions of $36,000, which is causing me to be taxed on my $33,000 in Social Security benefits. What is a good strategy to reduce my RMDs below $25,000 so my Social Security benefits do not become taxable? Would taking a lump sum from my pre-tax IRA and paying the taxes make sense to avoid the yearly taxable event with my Social Security benefits? Would gifting money to my children/grandchildren (thereby reducing the RMD base) have negative tax consequences for my children/grandchildren? Would it have a positive tax benefit for me?

– Laura

This is a great question Laura, and there are a few strategies that might help you reduce the long-term tax bill on your Social Security benefits. Let’s first explore how Social Security income is taxed and then get into the options available to you.

Do you need additional help managing your RMDs or tax liability in retirement? Consider speaking with a financial advisor today.

How Are Social Security Benefits Taxed?

Whether your Social Security income is taxed, and how much of it is taxed, depends on your tax filing status and your other income. The first step is determining your provisional or “combined income,” which is simply the sum of the following three variables:

If you’re single, you would be subject to the following tax thresholds:

• If your combined income is less than $25,000, none of your Social Security benefits are taxed

• If your combined income is between $25,000 and $34,000, up to 50% of your Social Security benefits are taxed

• If your combined income is greater than $34,000, up to 85% of your Social Security benefits are taxed

If you are married and file jointly, the following limits apply:

• If your combined income is less than $32,000, none of your Social Security benefits are taxed

• If your combined income is between $32,000 and $44,000, up to 50% of your Social Security benefits are taxed

• If your combined income is greater than $44,000, up to 85% of your Social Security benefit is taxed

Keep in mind that the 50% and 85% limits are not tax rates. They simply reflect the maximum portion of your Social Security benefits that could be subject to tax. The taxable amount is then added to your other income and the regular income tax rates and brackets are applied. (A financial advisor may be able to help you plan for Social Security, and this free matching tool can help you find an advisor.)

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Strategies for Managing Taxes on Your Social Security Benefits

When it comes to your question about reducing your RMD so your benefits aren’t taxable, you’ll want to pay attention to your overall marginal income tax rate and the points at which a greater percentage of your Social Security benefit is taxed.

For example, if you can move yourself into a situation where only 50% of your Social Security is taxed instead of 85%, that could be advantageous. The same is true if you move from 50% to 0%. If you can’t move between those thresholds, there may not be much for you to do.

In your case, assuming that your RMDs are the only income you have aside from Social Security, there are two main strategies that I would consider.

1. Accelerate IRA Income

Let’s assume that you’re already at or near the point where 85% of your Social Security benefits are being taxed. In that case, taking more out of your IRA this year, as you suggested, could be a helpful strategy. You would increase your current tax bill, but you could potentially reduce future RMDs to the point where only up to 50% of your Social Security benefit is taxed in future years.

One way to do that would be to withdraw extra money and use it for whatever you’d like. Maybe there’s a home project that you’d like to tackle, or maybe, as you suggested, you’d like to give money to your children or grandchildren. You wouldn’t get a tax break for the gift, but they wouldn’t face any negative tax consequences either. Just keep the annual gift tax exclusion ($18,000 in 2024) in mind, as well as the lifetime exemption limit ($13.61 million in 2024).

Another option, and potentially the most tax-efficient route, is to convert some of that traditional IRA money to a Roth IRA. The conversion amount would still be taxable as income, but it would reduce future RMDs and get the money into a Roth, where it could grow tax-free and no longer be subject to RMDs.

Any of these strategies would require a close eye on your total taxable income and how it affects your marginal tax rate. If you can do this in a way that reduces the future taxability of your Social Security benefits without pushing you into higher tax brackets now, you could certainly save yourself some money over the long term. (But if you need additional guidance regarding this strategy, a financial advisor may be able to help.)

2. Make Qualified Charitable Distributions

Another option with the potential for a more immediate benefit is to make what’s called a qualified charitable distribution (QCD). This is when you contribute money to an eligible charity directly from an IRA. The charitable contributions both satisfy your RMD requirement and reduce your taxable income, which would reduce the amount of your Social Security benefit that gets taxed.

This is a good strategy to consider if you don’t need the money and there’s one or more charities that you want to support. However, while it will reduce your tax bill, it will still leave you with less money overall than simply paying the taxes you would otherwise owe. (And if you need help with tax planning and strategic giving, consider working with a financial advisor.)

Next Steps

Taxes are always worth considering as part of your financial planning, but they are only one part of the bigger picture. What matters most is that you have the money you need to support the life you want to live.

The strategies above could support those personal goals by reducing your long-term tax bill, making it easier to pay for the things you care about. It’s also possible to take them too far, reducing your tax bill at the cost of not having the money you need when you need it. Keep this all mind as you consider your options moving forward.

Social Security Planning Tips

• A financial advisor can help you plan for Social Security and integrate your benefits into a retirement income plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

• Understanding how your claiming age affects your Social Security benefits is vital to making an informed decision about when to start collecting. Remember, waiting until age 70 will increase your benefits by up to 32% while claiming as early as 62 will result in as much as a 30% lifetime benefit reduction. However, the right decision for you may come down to simply how long you expect to live.

• Keep an emergency fund on hand in case you run into unexpected expenses. An emergency fund should be liquid — in an account that isn’t at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation. But a high-interest account allows you to earn compound interest. Compare savings accounts from these banks.

• Are you a financial advisor looking to grow your business? SmartAsset AMP helps advisors connect with leads and offers marketing automation solutions so you can spend more time making conversions. Learn more about SmartAsset AMP.

Matt Becker, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email AskAnAdvisor@smartasset.com and your question may be answered in a future column.

Please note that Matt is not a participant in the SmartAsset AMP platform, nor is he an employee of SmartAsset, and he has been compensated for this article.

Photo credit: ©iStock.com/Luke Chan, ©iStock.com/mphillips007

The post Ask an Advisor: How Do I Reduce My RMD to Just $25k So My Social Security Isn’t Taxed? appeared first on SmartReads by SmartAsset.

The Nasdaq Composite (NASDAQINDEX: ^IXIC) closed in correction territory on Aug. 2, meaning it had fallen at least 10% from its bull market high. Worrisome labor market data factored heavily into the drawdown. The U.S. added fewer jobs than analysts anticipated in July, and unemployment reached its highest level since 2021.

However, investors have good reason to be optimistic. The index tends to bounce back quickly. During the last 15 years, the Nasdaq has returned an average of 21.9% during the 12 months following its first close in correction territory. The implied upside is approximately 22% by August 2025 because the index has traded sideways since entering a correction last month.

Of course, past performance never guarantees future results. But Wall Street analysts forecast sizable gains for Amazon (NASDAQ: AMZN) and Zscaler (NASDAQ: ZS).

• Amazon has a median 12-month price target of $220 per share, implying 26% upside from its current share price of $174.

• Zscaler has a median 12-month price target of $220 per share, implying 38% upside from its current share price of $159.

Here’s what investors should about these Nasdaq stocks.

Amazon: Wall Street forecasts 26% upside

Amazon has a strong presence in e-commerce, digital advertising, and cloud computing, and the company is gaining share across all three markets. In e-commerce, Amazon will account for 40.4% of online retail sales in the U.S. this year, up 80 basis points from last year, according to eMarketer.

In digital advertising, Amazon will account for 13.9% of digital ad spending in the U.S. this year, up 140 basis points from last year, according to eMarketer. And in cloud computing, Amazon Web Services accounted for 32% of cloud infrastructure and platform services spending in the second quarter, up 100 basis points from the previous quarter, according to Synergy Research Group.

Amazon reported decent financial results in the second quarter, though the company narrowly missed top-line estimates. Revenue increased 10% to $148 billion, but Wall Street expected revenue to grow half a percentage point faster. However, GAAP earnings still increased 94% to $1.26 per dilute share, easily topping the 58% growth analysts anticipated.

Missing second-quarter revenue estimates alone may not have caused a problem, but management also forecasted slower growth in the third quarter. Specifically, the midpoint of guidance implies 9% revenue growth, which is slightly below the 11% growth analysts anticipated. The stock fell sharply on the news and it has yet to rebound.

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But investors are missing the big picture. Amazon is gaining market share across its core businesses, and Wall Street expects the company to grow earnings at 23% annually over the next three years. That estimate makes the current valuation of 42 times earnings look reasonable. Those figures give a PEG ratio of 1.8, which is well below the three-year average of 2.9. In that context, investors should feel confident buying a small position in this growth stock today.

Zscaler: Wall Street analysts forecast 38% upside

Zscaler is a cybersecurity company that specializes in zero trust network access. Its security service edge (SSE) platform solves three major problems inherent to traditional perimeter-based solutions. First, it provides a better user experience because web traffic is inspected in the cloud rather than private data centers, which prevents bottleneck-based performance issues.

Second, it frees businesses from the burden of buying expensive on-premises security appliances. Third, it improves threat detection because Zscaler has more data than non-security companies. It uses that information to train artificial intelligence models, creating a network effect whereby every data point enhances its ability to detect and stop attacks.

CEO Jay Chaudhry recently highlighted that advantage. “We are training our AI security models with vast amounts of data generated by over 400 billion daily transactions on our platform to deliver superior threat detection. We are leveraging AI to automatically classify data and enforce policies for better data loss prevention.”

Zscaler reported better-than-expected financial results in the fourth quarter of fiscal 2024 (ended July 31). Revenue increased 30% to $593 million and non-GAAP net income jumped 38% to $0.88 per diluted share. CEO Jay Chaudhry said the company set a record for new and upsell business during the quarter, driven in part by emerging products for AI analytics and digital experience monitoring.

However, management provided disappointing guidance that caused the stock to fall over 17% following the report. Revenue growth is projected to decelerate to 20% in fiscal 2025. But that reflects temporary headwinds arising from higher-than-expected turnover in the sales organization last quarter. Hiring and training sales reps will take time, according to CFO Remo Canessa. But the company’s go-to-market capabilities should improve toward the second half of they year.

Meanwhile, the drawdown creates a buying opportunity for patient investors. Wall Street expects Zscaler’s revenue to grow at 21% annually over the next three years. That makes its current valuation of 10.9 times sales look reasonable. In fact, Zscaler shares haven’t been that cheap in 15 months.

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(Bloomberg) — A rally in some of the world’s largest technology companies pushed stocks away from session lows in a volatile session that had traders digesting faster-than-anticipated inflation data.

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The S&P 500 was little changed after a slide that topped 1.5% earlier Wednesday. Nvidia Corp. climbed 4% to lead gains in chipmakers. Financial, energy and industrial shares remained under pressure. Treasury yields edged up on bets the Federal Reserve will move gradually with rate cuts. Swap traders priced in a 25-basis-point Fed cut at next week’s gathering and see only a small chance for a half-point reduction.

Crypto, Prison Stocks Slide, Renewables Gain After US Debate

“While we’ve seen a slight pullback in stocks as of late with choppy earnings and economic data, we would expect more smooth sailing post this initial Fed rate cut and post-election, as uncertainty fades and investors start to price-in 2025 earnings,” said Skyler Weinand at Regan Capital.

The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago, Bureau of Labor Statistics figures showed Wednesday. The three-month annualized rate advanced 2.1%, picking up from 1.6% in July, according to Bloomberg calculations.

The S&P 500 hovered near 5,490. The Nasdaq 100 rose 0.6%. The Dow Jones Industrial Average slipped 0.5%. The Russell 2000 Index lost 0.3%. The KBW Bank Index slumped 1.3%.

Treasury 10-year yields advanced one basis point to 3.65%. The dollar fell. Oil climbed as Hurricane Francine ripped through key oil-producing zones in the US Gulf of Mexico, prompting traders to cover bearish bets.

“The firmer-than-expected core inflation print will make it harder for Jerome Powell to deliver a 50 basis-point cut in September,” said Krishna Guha at Evercore. “We continue to think a starter 50 basis-point cut is the right play and might even now win out. But the odds have moved against this, and risks to markets and the soft landing are higher as a result.”

Guha noted that if the Fed doesn’t cut rates by 50 basis points next week, it will possibly do that in November.

The inflation report has long been the most critical number in the market, but it has recently been overtaken by the concern for a cooling job market and recession worries, according to Jakob Westh Christensen at eToro.

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“Going forward, the risks are clearly weighted toward slowing growth and a deteriorating labor market, and that’s why there are still four 25 bps cuts priced in with only three meetings left in the year,” said Chris Zaccarelli at Independent Advisor Alliance. “If the economy continues to slow – and not drop into an abrupt recession – the Fed will be able to cut at a measured, 25 basis-point per meeting pace.”

To David Russell at TradeStation, while the latest inflation numbers aren’t “runaway dovish,” they confirm the cooling process remains in effect. Attention could now shift from the Fed as a catalyst toward earnings and the election cycle, he noted.

“This isn’t the CPI report the market wanted to see,” said Seema Shah at Principal Asset Management. “The number is certainly not an obstacle to policy action next week, but the hawks on the committee will likely seize on today’s CPI report as evidence that the last mile of inflation needs to be handled with care and caution.”

Key events this week:

• Japan PPI, Thursday

• ECB rate decision, Thursday

• US initial jobless claims, PPI, Thursday

• Eurozone industrial production, Friday

• Japan industrial production, Friday

• U. Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 1:07 p.m. New York time

• The Nasdaq 100 rose 0.6%

• The Dow Jones Industrial Average fell 0.5%

• The MSCI World Index was little changed

• The Russell 2000 Index fell 0.3%

• KBW Bank Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index fell 0.2%

• The euro was little changed at $1.1019

• The British pound fell 0.3% to $1.3042

• The Japanese yen rose 0.3% to 142.01 per dollar

Cryptocurrencies

• Bitcoin fell 0.1% to $57,510.5

• Ether fell 0.9% to $2,356.19

Bonds

• The yield on 10-year Treasuries advanced one basis point to 3.65%

• Germany’s 10-year yield declined two basis points to 2.11%

• Britain’s 10-year yield declined six basis points to 3.76%

Commodities

This story was produced with the assistance of Bloomberg Automation.

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Analyst Profile

Joe covers the Communication Services sector and selected software technology stocks for Argus. In 2010, he was named #5 Stock Picker for Telecom Services in the Wall Street Journal’s Best on the Street Analyst Survey. In 2008, Joe was named #1 Stock Picker for Media: U.S. by the Financial Times and was second in the Wall Street Journal’s Best on the Street Analyst Survey for Telecommunications: Fixed Line. For more than a decade, Joe worked with Technicolor Inc., where he focused on financial and legal issues. He received his Masters in Business Administration from Fordham University in New York, where he concentrated in Finance. He earned a BA in International Affairs from the George Washington University, and spent three years with the Peace Corps in Talgar, Kazakhstan, developing an English Language resource center and teaching students. Joe is a CFA charterholder.

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