THE WEEK ON WALL STREET
Stocks were mixed last week as investors parsed market-moving news nearly every trading day—from an unsettling AI update to White House news to Q4 corporate reports. The S&P 500 Index fell 1.00 percent while the Nasdaq Composite Index slid 1.64 percent. Meanwhile, the Dow Jones Industrial Average rose, picking up 0.27 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, added 0.75 percent.
FACT OF THE WEEK
On February 2, 1887, Groundhog Day, featuring a rodent meteorologist, is celebrated for the first time at Gobbler’s Knob in Punxsutawney, Pennsylvania. According to tradition, if a groundhog comes out of its hole on this day and sees its shadow, it gets scared and runs back into its burrow, predicting six more weeks of winter weather; no shadow means an early spring.
Groundhog Day has its roots in the ancient Christian tradition of Candlemas, when clergy would bless and distribute candles needed for winter. The candles represented how long and cold the winter would be. Germans expanded on this concept by selecting an animal—the hedgehog—as a means of predicting weather. Once they came to America, German settlers in Pennsylvania continued the tradition, although they switched from hedgehogs to groundhogs, which were plentiful in the Keystone State.
In 1887, a newspaper editor belonging to a group of groundhog hunters from Punxsutawney called the Punxsutawney Groundhog Club declared that Phil, the Punxsutawney groundhog, was America’s only true weather-forecasting groundhog. The line of groundhogs that have since been known as Phil might be America’s most famous groundhogs, but other towns across North America now have their own weather-predicting rodents, from Birmingham Bill to Staten Island Chuck to Shubenacadie Sam in Canada.
In 1993, the movie Groundhog Day starring Bill Murray popularized the usage of “groundhog day” to mean something that is repeated over and over. Today, tens of thousands of people converge on Gobbler’s Knob in Punxsutawney each February 2 to witness Phil’s prediction. The Punxsutawney Groundhog Club hosts a three-day celebration featuring entertainment and activities.
MARKET MINUTE
A Choppy End to JanuaryThe week started on a down note with news that a Chinese artificial intelligence (AI) startup had made a breakthrough, which put pressure on a wide range of tech stocks. The tech-heavy Nasdaq fell 3 percent for the day, but the Dow Industrials ended the trading session slightly higher. Stocks were under pressure again mid-week as investors waited on news from the Federal Reserve. The Fed voted to hold firm on short-term interest rates. Even though the decision was widely expected, markets were under pressure again after the Wednesday afternoon announcement.
Stocks rallied Thursday but reversed course Friday afternoon as traders adopted a more “risk-averse” position going into the weekend. There was a bit of anxiety knowing that the new administration’s tariffs on Mexico and Canada were scheduled to take effect on Saturday. Interestingly, it was the Dow Industrial’s fourth-straight week outperforming both the S&P and the Nasdaq.
Black Swan EventIt’s hard to overstate how much the markets were caught off guard by Monday’s news related to the success of a new AI startup based in China. What unsettled investors was the company’s claim that it developed a competitive AI model that performs as well as its Western counterparts at a fraction of the cost. As the week progressed, markets started to process the news and began to evaluate whether it was truly a “black swan” event or just another development in the fast-moving world of AI.
FINANCIAL STRATEGY OF THE WEEK
What's So Great About a Rollover?
Changing jobs can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.
Some people choose to roll over these funds into an Individual Retirement Account, and for good reason. About 35% of all retirement assets in the U.S. are held in IRAs, and 62% of traditional IRA owners funded all or part of their IRAs with a rollover from an employer-sponsored retirement plan.
Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Generally, you have four choices when it comes to handling the money in a former employer's retirement account.
1. You can cash out of the account. However, if you choose to cash out, you may be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½.
2. You may be able to leave the funds in your old plan. However, some plans have rules and restrictions regarding the money in the account.
3. You can roll over the assets to your new employer's plan if one is available and rollovers are permitted.
4. You can roll the money into an IRA. Rollovers may preserve the tax-favored status of your retirement money. As long as your money is moved through a direct "trustee-to-trustee" transfer, you can avoid a taxable event. In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.
Rollovers can make it easier to stay organized and maintain control. Some people change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.
Keep in mind that the Internal Revenue Service has published guidelines on IRA rollovers. You generally cannot make more than one rollover from the same IRA within a one-year period. You also cannot make a rollover during this one-year period from the IRA to which the distribution was rolled over.
An IRA rollover may make sense whether you're leaving one job for another or retiring altogether. However, how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance, and financial goals.