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By Brett Freese
When most investors are pricing in a “down economy” and a “down market”, we get set up for the opposite to happen. That is what happened this past November and December. It is hard to stay invested when most media voices are calling for a painful down market. This should be a wake up to us all (even everyday investment professionals) that we should be strategic with what the market gives us, but most importantly “stick to the long-term plan.”
Economic & Investment Highlights:
- The Federal Reserve (Fed) has kept the Fed Funds rate the same since the July 2023 meeting. The most recent big change is that the Fed is now telling the market that they are leaning towards cutting rates 3 times in 2024 for a total of 75 bps. With the 2024 election on the horizon, the Fed would prefer not to make major interest rate moves in an election year so as not to be perceived as pro or anti the current President. Always keep in mind that The Federal Reserve has a dual mandate to achieve both stable prices and maximum sustainable employment.
- Inflation: Price increases are slowing down to more normal rates, but the pain of the last two years rise in rents, food, insurance, automobiles, furniture and other things will impact spending for the average household for a long time. In light of a historic low in unemployment, it would be very wise to continue to watch union growth and salary increases for possible inflation growth in some product and service businesses.
- Fiscal Policies – It is time for the President and Congress to create and implement wiser spending bills and for us voters to elect those willing to slow down (or better yet stop) the growth in our budget deficit. It is time for all parties to come together and have a balanced budget for the stability and longevity of our country’s economic strength. It is easy to complain and criticize, it is hard to be part of the solution.
- Recession Risks: We continue to ask the question: Where do we go from here? No landing, soft landing, moderate landing, hard landing? The market is now pricing in a soft to no landing scenario, but we need to be aware of the possibility of both inflation picking back up and a faster slow down than predicted. Just like a sports team has to be in the present, the “what next” has to be prepared for as well.
- Geopolitical Risks: The continued war in Europe and Gaza, China’s ever-changing policies (including debt levels and tensions over Taiwan), the Red Sea attacks, and other challenges will continue to keep the financial markets on their toes.
- Artificial Intelligence (AI) has been a great topic of investment discussion in 2023 and will continue into 2024. The perceived winners and losers of such disruptive technology will constantly be updating.
- Most of the major stock indices were all up this past quarter (see “Market Scorecard” below).
- Gold was up approximately 11.38% price per ounce, but the broad basket of commodities was down 4.33% for the last 90 days. Oil was down 14.93% for the quarter and down 10.32% over the last 12 months.
- Bitcoin was up 56.06% for the quarter. Many investment firms have filed for investment instrument approval from the SEC. They have been turned down in the past, but there seems to be more confidence that approvals are coming very soon along with increased regulation.
Historical Stock Market Declines:
Market declines and inclines rarely look the same or even feel the same, but they do happen and the ups and downs are a part of the process – It is important to have a plan/strategy so emotions don’t dictate buying or selling.
A 5% or greater loss occurs about 3 times a year
A 10% or greater loss occurs about once a year
A 15% or greater loss occurs about once every 2 years
A 20% or greater loss occurs about once every 3.5 years
Please know that when stock prices go down the “market collapse gurus” receive the most air time. Likewise, when stock prices go up all the “bull market gurus” talk about how the market will continue to be up BIG. Please know that most “gurus” are great with hindsight to justify how important it is to have their voice heard.
Market Scorecard for the last 13 weeks ending 12/31/2023:
US Equities:
+ 11.69% S&P 500 (Index of the largest US publicly traded companies)
+ 13.84% Large Cap Growth – Morningstar Category
+ 9.68% Large Cap Value – Morningstar Category
+ 12.75% Russell 2000 Growth (Index of Small-cap growth US publicly traded companies)
+ 15.26% Russell 2000 Value (Index of Small-cap value US publicly traded companies)
International Equities:
+ 12.13% Foreign Large Growth – Morningstar Category
+ 8.66% Foreign Large Value – Morningstar Category
+ 12.17% Foreign Small/Mid Growth – Morningstar Category
+ 9.76% Foreign Small/Mid Value – Morningstar Category
Bonds:
+ 5.66% U.S. Aggregate Bond (Index representing intermediate term investment grade bonds in the U.S.)
+ 7.86% Corporate Bond – Morningstar Category
+ 2.86% Short Government – Morningstar Category
+ 6.35% Muni National Bond Intermediate Index – Morningstar Category
Other:
+ 11.38% Gold Price
+ 56.06% Bitcoin
– 4.33% Commodities Broad Basket – Morningstar Category
Current Annual Money Market Rates ending 12/29/2023:
5.28% Schwab Value Money Market
5.08% Schwab Treasury Money Market
Market Indicators:
Inflation:
3.24% as of 12/01/23 (Up 0.06% from 3.18% on 9/1/23 and Down 5.34% from 8.58% in June 2022)
Unemployment:
3.7% as of 12/8/23 (Down 0.1% from 3.8% in September 2023)
Fed Funds Target Rate:
5.25 – 5.50% as of 12/22/23 (Same rate of 5.25 – 5.50% of 9/20/23)
Suggested Next Steps:
- Understand that market cycles are normal. The markets go up and down in mostly unpredictable directions and amounts. Many times, the ups and downs of investments seem to make sense only after they happen, however, market prediction is very difficult. (i.e. the next stock market crash has been predicted every year since 2008).
- Your investments are just one factor in the success of your life, money, and purpose. Make sure that you are confident in your full financial plan, so you can successfully have an amazing ROL (Return on Life).
- Your investment allocation and diversification are important factors in both risk management and future returns. Therefore, if you have questions about your investment plan, please schedule a phone or in-person meeting with your TrustWell Financial Advisor(s).
