The past week in markets summarized in two short headlines.
1. Mixed Reading, Bitcoin Up, Natural Gas Down
The stock market had a positive start to the week, with major U.S. stock indexes rising more than 1%. However, this upward momentum was short-lived, as new data on inflation put a damper on the market. The S&P 500 slipped 0.2% on a total return basis for the week, while the Dow remained essentially flat, and the NASDAQ added 0.6%.
Mixed readings on inflation have fueled concerns that the U.S. Federal Reserve may extend its rate-hiking cycle longer than expected. Tuesday’s Consumer Price Index release showed a smaller-than-expected decline to an annual inflation rate of 6.4%, which was still quite high. This led to concerns that the Fed may need to raise interest rates to curb inflation. A separate report on Thursday indicated that prices charged by industrial suppliers rose more than had been forecast, adding to these concerns. However, it’s not all bad news on the economic front. U.S. retail sales in January rose 3% on a seasonally adjusted basis, the largest monthly increase in nearly two years. This is a positive sign that consumer spending is rebounding after a dip in November and December.
In the world of cryptocurrencies, Bitcoin has had a volatile few months. As recently as three months ago, it was trading below $16,000. However, this week it climbed around 14%, rising above $24,000 for the first time since last August. Ten months ago, it traded as high as $48,000, so it has a long way to go to reach its previous highs.
Turning to Europe, the price of natural gas fell to the lowest level since late 2021 on Friday, continuing a decline that began last summer. This is good news for European consumers, who had feared an energy crisis this winter due to the war in Ukraine. Mild temperatures in the first half of winter also helped keep prices low.
Overall, the economic landscape is mixed, with both positive and negative indicators. The rising retail sales are a good sign for the economy, but the high inflation rate remains a concern. The volatility of Bitcoin is a reminder that cryptocurrencies can be unpredictable. Meanwhile, the falling natural gas prices in Europe are a relief for consumers, who had feared an energy crisis. It’s important to keep a close eye on these economic trends and indicators to make informed decisions.
2. Tiktok and Taxes
As tax season approaches, many Americans are turning to social media for tax advice, but experts are cautioning that some of these tips may be misleading or completely inaccurate. The hashtag #taxes has trended on TikTok in recent weeks, with tax-related content generating over 41 million views on the platform. However, tax professionals are worried that these short videos, which often oversimplify the nuances of tax deductions and credits, could lead to confusion and even result in costly mistakes.
One popular trend on social media is “secret tax tips” and “deductions you didn’t know,” which can range from using your car as a tax expense to deducting 100% of business entertainment expenses in 2022. However, these tips are not always accurate, and some could be completely wrong. For example, while one influencer shared that he deducted a $125,000 luxury vehicle for business purposes, it’s important to note that vehicles must have a sound business purpose and that the purchase must be ordinary and necessary to be eligible for depreciation under IRS guidelines.
While some tax content on social media may apply to certain taxpayers, other advice is simply incorrect. For example, one video on TikTok taught viewers how to transfer real estate gains to cryptocurrencies tax-free through a 1031 exchange. However, the IRS rejected cryptocurrency as property used in the 1031 exchange in 2021.
Despite the potential risks, many Americans are turning to social media for financial advice. According to the 2022 Insurance Barometer Study by Life Happens, 53% of respondents turned to social media for financial advice last year, compared to just 25% in 2019. Nearly 80% of millennials and Gen Z relied on social media for financial guidance, according to Forbes Advisor.
While not everyone has access to a tax professional, there are reliable resources available, such as the IRS website. Experts advise taking what you hear on social media with a grain of salt and double-checking the information with a credible source before making any tax-related decisions. And for those who still need assistance, seeking out a reputable tax professional may be the best option to ensure accuracy and avoid costly mistakes.
Mixed market readings as inflation concerns and Bitcoin rises while natural gas falls. The US stock market had a positive start but was dampened by inflation concerns, while Bitcoin experienced a rise of around 14%. Europe saw a decline in natural gas prices. Meanwhile, tax season has led many Americans to social media for tax advice, with TikTok generating over 41 million views for tax-related content. However, experts warn that some of the advice on social media may be inaccurate and suggest seeking credible sources for accurate information to avoid costly mistakes.