February 23, 2023

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TOGETHER WITH

Good Thursday to you. Broadly speaking, the price of U.S. goods & services has increased by 74% since 2000. Can you guess which of the following had the greatest price increase from 2000 to 2022? a. hospital services, b. TVs, c. childcare. Follow the wave 🌊 below for the answer.

The money topics for today are:

The 10-year Treasury is climbing again — what it means for you
Not everyone is buying the bounce
Important things to know this tax season

PERSONAL FINANCE

The 10-Year Treasury Is Climbing Again — What It Means For You

Financial analysts who attempt to decrypt why exactly this irrational machine we call the stock market is doing what it does have cited every potential reason in the book over the last 12+ months to explain the market's erratic behavior. Perhaps the most perplexing of those reasons to new investors? The 10-year Treasury.

So let's break it down

What is it? It's a bond that's backed by the full faith and credit of the U.S. government, guaranteeing regular interest payments plus repayment of the borrowed money in 10 year's time. They're usually bought by institutional investors or investment banks, who then sell them on the secondary market to individual investors or fund managers who allocate them to a range of financial products and accounts. The U.S. government issues other similar securities but with differing maturity dates and yields.
What about yield? It's the current rate bonds would pay investors if they bought them today. And the yield directly influences other interest rates, such as for mortgages. A rule of thumb to remember: a bond's yield and price are inversely related. When demand is high and Treasury prices rise, yields fall, and vice versa.
Treasuries and the economy: The 10-year Treasury yield has become somewhat like the economic barometer. Usually, if the 10-year yield falls, mortgage rates fall, which could strengthen the housing market and therefore the economy. If the future becomes uncertain and investors get worried about the economy, they look for safe-haven investments, which causes Treasury prices to rise and rates to decline.
But there's more: The 10-year Treasury yield also influences a company's borrowing rate: the higher it is, the more expensive it is for a company, potentially reducing their options to grow. When yields fall, it's easier for companies to borrow and expand — serving as a boost for equities.
And your investments? Rising yields usually mean that investors are looking for investments with higher returns but it could also stoke fears that could pull capital away from the market — just as we've been seeing these days.
Where's it at? The 10-year has reached its highest levels since last November as traders continue to worry over the prospects of higher rates. At the time of this writing, the yield on the 10-year Treasury was 3.91%.

So what do you do with this? Add it to your watchlist and give it a glance every now and then while keeping up with the headlines, and you'll be more in the know and smarter than most other investors just for knowing what's causing your tech stocks to drop or the rate on that mortgage you were eyeing to rise.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

How Bonds Work

Investing Basics

6 mins

INVESTING OUTLOOK

Not Everyone Is Buying The Bounce

Last year the S&P 500 ended down over -19%, its 7th worst year ever and the reddest we've seen since 2008. Couple this with the Nasdaq's -33% loss and an -8.74% trimming of the Dow, and you've got a historically rough year.

And yet, the stock market seems to have taken an abrupt U-turn the moment it entered 2023. Indexes are up mightily across the board, and it feels as though the winds have shifted from head to tail as markets welcome a fresh start.

But not so fast. Despite how it seems, not everyone is buying this bounce — in fact, they're selling. Potential threats await on the horizon, and the dollar is taking notice.

Follow the money

Domestic exodus: Despite being up on the year, investors have created a net negative in terms of cash flow into the markets. So far in 2023, investors have drained a net $31B from U.S.-based stock mutual funds and ETFs. This run-off has lasted for 6 weeks now and denotes the longest streak of net weekly losses we've seen since last summer.
International intrigue: So naturally we have to ask ourselves, where is that money going? The answer is elsewhere. During that same 6 week period to start 2023, investors have added roughly $12B to international equity funds, $24B to taxable bond funds, and almost $3B into municipal bond funds.
What's the worry? Not everyone is buying this new year's rally, and you have to wonder why. The reality is that the catalysts that kept markets red in 2022 are still here, and a simple calendar flip isn't going to change that. Investors have taken note of this and appear to be funneling their cash accordingly, at least on the macro.
What's the appeal? Although the western world is mostly projected to resume slow growth this year, other growing markets are expected to rebound. India is expecting a GDP growth rate of 6.8% this year, China 5.2%, Saudi Arabia 7.6%, and many others are expected to top both the U.S.'s expected 0.3% and Europe's 0.8% estimates by a long shot.

What do you make of this? What we can gather from a spec of data like this isn't anything monumental, but rather a noteworthy observation. Numbers like these are indicative of the fact that this isn't exactly a market rally with unabashed confidence behind it, and that there is still a lot of apprehension and headwinds to wade through.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Emotions in Investing

Investing Basics

6 mins

TAXES

Important Things to Know This Tax Season

"Tax season" doesn't exactly have any official start or end, but it's generally agreed that January 1st and the April 15th deadline are what bookend this often dreaded season. Worry not though, we promise not to let the labyrinth of forms, deductions, and rules elude you this year.

In an effort to make tax season simpler, we're highlighting some important things to know about this year in particular. So without further ado, here are today's tax tips:

Filing for free: If your adjusted gross income (AGI) is less than $73,000 for the 2022 tax year, you're eligible to take advantage of the IRS's free file service. However, you might get knocked out of eligibility by one of the IRS's free file partners if you have a need to report self-employment income, itemized deductions, capital gains or losses, and more complex scenarios.
Fewer deductions: Certain deductions like the child tax credit, child and dependent care credit, EITC, and charitable contributions have all returned to their pre-pandemic levels, which are noticeably lower than the bump we saw them get in 2021. This may result in refund shock for some of you.
Long-term gains: If you sold some long-term investments last year, you might be in luck. The lowest-tiered bracket of 0% for long-term capital gains taxes just got a bump — up from $40,000 in 2021 to $41,675 in 2022 and $83,350 for married filers.
Crypto losses: In addition to being able to write off your typical capital losses, which crypto had a lot of in 2022, investors can also potentially reap some deductions if they held crypto on a platform that declared bankruptcy or was declared a ponzi scheme. We'll need to await the results of those bankruptcy proceedings and final declarations before deducting those losses, but it's prudent to get started in preparing all your docs.
On-time contributions: You don't have to contribute to pre-tax accounts before December 31st to reap their benefits. Account holders can actually contribute up to the the stated contributions limit on popular tax-advantaged accounts like an IRA or HSA up until the deadline on April 18th — just make sure you designate those contributions for the 2022 tax year.

Take this related lesson on this topic and earn Dibs 🟡 while you're at it:

Capital Gains & Losses

Taxes

7 mins

🌊 BY THE WAY

🏥 Answer: Prices of hospital services increased over 200% since 2000; childcare increased by over 110%, and the price of TVs has gotten cheaper (Visual Capitalist)

✂️ The U.S. to cut mortgage insurance costs for some new homeowners (Bloomberg)
🌎 ICYMI. The weekly economy roundup (Finny)
👟 Why you should leave a shoe in the hotel room safe (KTLA)
🫒Starbucks calls their new olive oil coffee drinks 'transformational' (CNBC)
🏦 Finny lesson of the day. Learn about or review the basics of bonds:

Investing in Bonds

Investing Basics

5 mins

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Finny is a financial wellness platform. The Gist is Finny's twice-a-week (Tues & Thurs) newsletter covering personal finance, market trends and investing insights. The content team: Austin Payne, Carla Olson. Finny does not offer investment and stock advice.

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