Happy 4th of July! Hope you are all doing well and enjoying your holiday weekend. The market closed off for another positive week. U.S. stocks rose on Thursday, with the S&P 500 and Nasdaq Composite hitting fresh record highs. A trade deal with Vietnam and a better-than-expected jobs report fueled market optimism. The Dow is now less than 250 points away from an all-time high. Michael Madsen passed away yesterday. I have broken down this week’s update using quotes from his iconic Mr. Blonde character in Reservoir Dogs.
“Hey what’s goin’ on? Can you hear that?” – Mr. Blonde
Mr. Blonde delivers that line to his torture victim while dancing to Stuck in the Middle With You. Today the Trump administration is doing some dancing after torturing the final few hold out Republicans into changing their votes. There may have been clowns to the left and jokers to the right but enough of Congress was stuck in the middle to push through the “One Big Beautiful Bill”. The bill includes a new tax deduction for individuals who are already 65 or will turn 65 this year.
The deduction is not at all related to Social Security (SS) despite being touted as the elimination of tax on SS. It’s an additional deduction if you are of age whether you are collecting SS or not. The rules related to taxability of SS have NOT changed; they are still looking at your countable income. What the legislation does is provide an additional deduction which is substantial. It is, however, not universal. The new deduction is $6,000 for individuals and $12,000 for couples starting in the year you turn 65. It has an income test so not everyone will get it. The deduction starts phasing out for those who earn over $75,000 ($150,000 for couples) and phases out completely at $175,000 for individuals and $250,000 for couples. The tax break expires in 2028 when President Trump leaves office. The new tax law adds another layer of tax planning.
If you were planning on doing sizable Roth conversion over the next 4 years, you may want to try and stay under the $75,000 threshold to qualify for the additional deduction. Since this deduction may only be around for 4 years, planning to maximize its impact is important. If you haven’t started SS yet and you are 65 it could make sense to delay your SS and take money from retirement assets to better capitalize on the tax deduction. Doing that would not only grow your SS in future years, but it could also mitigate the size of future Required Minimum Distributions, providing you more control over your tax bracket in later years.
“Are you gonna bark all day, little doggie, or are you gonna bite?” – Mr. Blonde
The first half of 2025 was marked by a lot of barking. The Trump administration’s threats and rhetoric caused policy uncertainty. The question now is are they going to bite, the 90-day tariff pause expires on July 9. This week the U.S. reached an agreement with Vietnam, reducing the tariff rate to 20% (40% on goods that are shipped but that don’t originate from Vietnam). That is down from the 46% announced in early April. It is certainly possible that we will get a slew of trade deals done in the next few days. I still don’t think that will be the case. The market rally has been linked to the recent trend of de-escalation of trade tensions. I believe this rally is a bit too optimistic. Although tariff rates have declined from their peak levels, they remain a central focus of President Trump’s agenda and are poised to rise significantly.
The toned-down rhetoric we have seen over the past couple months is more related to Trump not wanting to mess up the passage of his signature legislation. Now it has passed. I expect the President to not only step up his barking and unlike April I expect the U.S. to bite. I see a scenario where the tariffs go back on and stay on for an extended period for any nation that didn’t come to the table with what the administration deems as a remotely suitable offer. This could cause a bit of a drop in the highs we are seeing now in the market. Expect stock market volatility to increase, however, the direction overall should remain positive because the largest companies in the stock market continue to grow their earnings at astronomical rates, thanks in large part to artificial intelligence.
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