Year end 2024 Update and Outlook for 2025

The stock market maintained its strong momentum in the fourth quarter, climbing 2.5%, bringing the total gain for the year to 25.0%[1] The quarter ended up positive even as stocks limped into the end of the year as investors tried to assess the financial landscape under a Trump administration.

What the Election means for the Market

The outcome of November’s election could have significant implications for the market. Trump campaigned on market-friendly policies such as reducing regulations and maintaining low corporate tax rates, which could drive growth. However, other proposed measures—such as imposing heavy tariffs on imports and large-scale deportations—pose potential risks, as they could fuel inflation and disrupt various industries. In response, the Federal Reserve may counterbalance these inflationary pressures with higher interest rates.

Uncertainty remains around which policies the new administration will implement. However, Trump’s financial appointments, which include experienced Wall Street professionals, may help temper more extreme policy moves. Additionally, given Trump’s apparent view of the stock market as a measure of his success, significant market downturns could prompt adjustments in his approach.

Fed Announcement

The Federal Reserve played a key role in shaping market expectations throughout the year, cutting interest rates three times for a total reduction of 1%, with the final cut in December bringing rates to 4.33%. However, despite continued signs of cooling inflation, the Fed signaled a more cautious outlook, suggesting fewer rate cuts ahead. This shift prompted markets to adjust expectations for 2025, with anticipated rate cuts falling from four to just one, resulting in higher long-term rates and some downward pressure on asset prices.

Portfolio Positioning

In light of these developments, we have made strategic adjustments to our portfolios which could better align with evolving market conditions. On the equity side, we have reduced exposure to China and high-growth stocks, which can be more vulnerable to rising interest rates. Instead, we have increased allocations to industrials and financials, sectors that could stand to benefit from domestic economic policies and deregulation. In fixed income, we have shortened bond durations to better manage interest rate risks in a potentially volatile environment.

We remain committed to maintaining a well-diversified portfolio and will continue to monitor market conditions closely, adjusting our strategy as necessary to navigate the shifting landscape.

LA Fires

Another devastating natural disaster has impacted the U.S., and many people are in urgent need of assistance. For those looking to help, here is a list of reputable charities and organizations actively providing aid on the ground. Using a Donor Advised Fund (DAF) is an effective way to contribute while also maximizing tax benefits. DAFs are simple to set up and use—if you’re interested in opening one, I’d be happy to offer guidance.

American Red Cross is engaging in wildfire relief efforts to shelter families, serve meals, support emergency responders, provide medical care and deliver emergency relief supplies.

Baby2Baby is providing diapers, food, formula and critical hygiene items to children and families impacted by the fires.

Los Angeles Fire Department Foundation is providing critical equipment, technology and emergency resources to support LAFD crews battling the fires.

Los Angeles Regional Food Bank is providing emergency food assistance to families and residents impacted by the fires blazing across LA County. 

On a more uplifting note, there was a picture that went viral of Philadelphia Eagles star receiver A.J. Brown reading a book on the sidelines during their last playoff game. The book he was reading was “Inner Excellence,” by Jim Murphy.  In it he describes the four daily goals.

1.    Give the best of what you have that day.

2.    Be present. Being in the place where there’s no concern for self, no concern for the outcome

3.    Be grateful. Look for he smallest moments, three a day, that were gifts for you. The smaller the better.

4.    Focus on your routines and only what you can control.[2]

While it is a book that focuses on Sports Psychology but can be useful for us all.

[1] https://www.nasdaq.com/articles/third-quarter-2024-review-and-outlook

[2] https://www.nytimes.com/2025/01/13/sports/football/aj-brown-reading-inner-excellence-book-murphy.html

Third Quarter 2023 Update and Outlook

The stock market declined in the third quarter after a strong start to the year.  The S&P 500 dropped 3.3% but, as of the end September, the S&P 500 Index had notched a 13.0% gain for the year. The big worry at the beginning of the year was an impending recession.  Fast forward nine months, and the economy has displayed remarkable resilience, leading some analysts to believe that we may evade a recession and experience a "soft landing."  

One of the main reasons for the recent weakness in stocks has been the increase in long-term interest rates.  While the Fed controls the short end of the curve and has raised rates from zero to 5.50%, buyers and sellers in the market determine the long-term rates.  Since July, the longer dated yields have moved from 3.75% to over 5%. 

Long-term bond rates are instrumental in valuing assets. Two or three years ago, income producing assets were highly sought after, as interest rates were incredibly low.  Today, however, these assets are devalued as they compete with these more attractive bond yields. 

While long-term rates have pushed down stock prices, this weakness may be an opportunity.  If inflation continues to drop, the economy dips into recession, or geopolitical risks increase, long term rates could drop. This reversal could support asset prices in the months to come.  

The Fed has been waging war against inflation since March of 2022 and seems to have the upper hand. The Consumer Price Index has dropped from 9.1% in July of 2022 to 3.7% in September[1]. Drilling down on some of the inflation numbers makes the numbers look even better, as the lagged effect of a dropping housing market has not yet fed into these inflation numbers.

The economy, while resilient, has shown signs of weakening. Home builders’ sentiment has been dropping since the middle of the year and is the lowest level since January. [2] Also, the Leading Economic Index (“LEI”) has been trending lower and points to lower economic activity. In the chart below, there is a strong correlation between a low LEI and economic recession, which are shown in the gray areas.

As for global risks, it is hard to separate the investing from the terrible and horrific events in Israel and mourn the loss of innocent civilians, but it does reinforce a focus on investing in the US and other stable regions.

The opportunity we see in these higher rates has shifted our portfolio allocations. We had been focused on shorter duration bonds for income, thinking this was the better risk/reward option.  Now with higher rates out the yield curve, we have been allocating more into longer duration bonds.

[1] https://ycharts.com/indicators/us_consumer_price_index_yoy

[2] https://www.nahb.org/news-and-economics/press-releases/2023/10/mortgage-rates-well-above-7-percent-continue-to-hammer-builder-confidence

Disclosures: Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.  Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The future performance of an investment or strategy cannot be deduced from past performance.

Happy New Year and Checklist for 2019

Well, we made it!  The calendar clicked over to the New Year which is the traditional time to look back on your accomplishments of the past year and reevaluate areas that need help.  Why do we need such an arbitrary date to make us take stock of things? It seems like we should be doing this all the time, but sometimes it takes a new year to wake us up and see the things that we need to work on.  Maybe all the reasons to procrastinate are over (the holidays ARE such a busy time!) and everyone is talking about goals and resolutions for the new year.

If your finances are on the list of areas that you feel needs attention, you should consult with an Investment Advisory Representative that is associated with a Registered Investment Adviser. Investment Advisers registered with the SEC or a state securities regulator are fiduciaries and are subject to the duty of loyalty and due care with their clients. They must place the client’s best interests above their own and are typically compensated by asset management fees.  While a host of professionals call themselves “financial advisors” including insurance agents/representatives and stock brokers, they do not operate under the fiduciary standards and are generally compensated on a transactional basis. It is important to find a Financial Advisor that has the knowledge and philosophy that matches you and your family’s needs. 

As we start the New Year, here are some ideas that most of us should consider.

New Year’s Checklist

•          Check your 401-k contributions. The annual amounts have increased to $19,000 and, if you are 50 or older, to $24,000. 

•          Are you earning interest on your cash?  Most banks are still paying miniscule amounts of interest on savings accounts. With the Fed having raised interest rates 9 times (cue Ferris Bueller), you have better options like money-market accounts or CDs.

•          Review your IRAs to make sure beneficiaries are listed and accurate.

•          Review your will (you have one, right?) and ensure your beneficiaries and choice of executor are up-to-date.

•          And in the words of Ferris – “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.

Hope you and your families have a healthy and prosperous 2019!

Adam

Advisory services offered through APG Capital Asset Management, a Member of Advisory Services Network, LLC.

Phone: 713-446-3233  Website: www.apgcap.com

All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC. Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.  The information and material contained herein is of a general nature and is intended for educational purposes only.  This material does not constitute a recommendation or a solicitation or offer of the purchase or sale of securities.  The future performance of an investment or strategy cannot be deduced from past performance.  As with any investment or investment strategy, the outcome depends upon many factors including: investment objectives, income, net worth, tax bracket, risk tolerance, as well as economic and market factors.  All economic and performance data is historical and not indicative of future results.  All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.