Investments: Earnings Continue to Soar
As we begin the third quarter of 2026, the stock market continues to climb higher amidst war in Iran and a gridlock in the Strait of Hormuz. So, how is the market still reaching all time highs? There are a lot of reasons why, but the biggest reason is, wait for it… AI. If you have watched the news anytime in the last three years you will know that everyone is talking about AI; not only the good and how it will exponentially increase productivity, but the bad as well. Those in the latter camp have highlighted how AI has massively stretched valuations and that the market is in the midst of a bubble that is on the verge of popping. Each side makes a fair point, although each has its own fallacies. Yes, AI has been groundbreaking over the last few years, significantly increasing productivity and, as a result, helping companies expand their margins and increase their earnings and profitability. With the market continuing to bake in a never-ending continuation of the upward trend in earnings, no wonder stock prices continue to climb. However, all good things must come to an end at some point, and that is not inherently a bad thing. A healthy reset of expectations every once in a while never hurt, at least those who were willing to ride out the storm. One thing is for certain: these AI companies are showing real profits that are, in-fact, growing. This is different from the 1999 tech bubble, where a large sum of tech companies were driven by massive amounts of debt. However, AI naysayers make a valid point in arguing valuations have become stretched, as the market currently sits at a premium compared to its historical valuation. So, with all that being said, what should a prudent investor do? Stay invested and diversified, but watch earnings revisions and the Federal Reserve closely. We currently find ourselves in a high-risk bull market, one where inflation remains sticky, valuations are stretched but corporate earnings continue to rise and the economy continues to expand. If earnings start to slow down or the Fed raises rates, things could turn south, so be on your guard.
Sources: Doll’s Deliberations
Planning: 3-Year Gift Lookback
Lifetime gifting can serve as a powerful estate planning tool. However, many people who gift assets away fail to consider the 3-year lookback rule. The common misconception with this rule is that all completed gifts are brought back into one’s estate if they pass within 3 years of the gift. Instead, only a select few transfers will be flagged and brought back into the estate. Generally, the rule applies to transfers involving life insurance, retained rights or powers, and gift taxes that have been paid. Life insurance is usually the most common example. If you were to transfer an existing policy to another person or to an Irrevocable Life Insurance Trust, or ILIT, and pass away within three years, the death benefit may still be included in your estate. This rule also applies to property where you retain the right to use it, receive income from it, or change who benefits from it. Lastly, if you make a taxable gift and pay gift taxes on that gift within 3 years of death, those taxes paid on the gift will be added back to your gross estate total. For families with potentially large taxable estates, these rules reinforce the importance of planning early, as the timing and structure of a gift can be just as important as the gift itself.
