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2024 Year in Review: Lessons Learned & Navigating Uncertainty in Investing

Written by Minich MacGregor Wealth Management on . Posted in Featured, News, Posts, Uncategorized.

Every January, we here at Minich MacGregor Wealth Management look back on the year that was. What were the highlights? What were the “lowlights”? What events will we remember? Most importantly, what did we learn? Then, we send a Year in Review message to our clients that encapsulates it all. We thought you might be interested in seeing it this year, too.

When we ponder the last twelve months, the theme of 2024, to us, is the importance of being able to operate under uncertainty. Here’s what we mean.

When the year began, there were several question marks hanging over the economy, the markets, and the nation as a whole. Each question mark, on its own, was important. Putting them all together made it extremely difficult for investors to know how the year would play out, which way the markets would go, or how the economic climate would evolve. In other words, there was a great deal of uncertainty. Let’s go through a few of the most important question marks one by one.

Which Way Will Inflation Go? The New Year kicked off with a positive outlook. Consumer prices had fallen significantly toward the end of 2023, and the expectation was that the trend would continue. But inflation rarely moves in a straight line. The inflation rate hovered around 3.1% in January, but by March, it was back to 3.5%.1  Inflation, it seemed, was still “sticky.”

This wasn’t pleasant news for the markets, because it dashed any hope that the Federal Reserve would cut interest rates in the spring. And the longer interest rates remained elevated, the more people worried about the possibility of a recession. As a result, the markets experienced a short-but-sharp dip in April.2 

Fortunately, the angst was short-lived. Over the next six months, inflation fell to 2.4% — the lowest since February of 2021, and awfully close to the Fed’s goal of 2%.1  That led to a long-awaited event in September, when we finally got some clarity on the second question mark:             

When Will Interest Rates Start to Come Down? Interest rates — the Fed’s primary tool for combatting inflation — began the year at 5.3%.3  That was the highest they’d been since early 2001. But while higher rates are effective at bringing prices down, the reason is because they cool down the economy. But if rates remain too high for too long, that coolant can ice over — and freeze the economy with it. Because of this, and because lower rates tend to juice the stock market, investors had been waiting with bated breath for any signs that rates were on the verge of coming down. Finally, in September, it happened: The Fed announced the first rate cut. Another one followed in October, and a third in November. By the end of the year, rates were down to 4.6%.3  That’s still historically elevated, but it’s a step in the right direction. That’s because we were also getting a positive answer to the third question mark:

Will the Economy Grow, or Slow? Predicting a recession has become something of a parlor game for economists. It’s not hard to understand why. Historically, raising rates to pull down inflation has almost always led to a recession. It’s called a hard landing, and it happens when prices come down so much that most businesses experience a major drop in revenue, causing them to lay off workers. Since unemployed people tend to spend less money, the economy contracts and enters a recession.

Despite years of dire predictions, this worst-case scenario never came true. Our gross domestic product, which measures our country’s total economic activity in a given period, grew by 1.6% in the first quarter, 3% in the second, and 3.1% in the third.4  As of this writing, we don’t have firm data for Q4 yet, but it’s estimated to be around the same.5 

Against all odds, for now, it seems we’ve achieved something rare: A soft landing.  

What About the Election? The fourth question mark was perhaps the least important as far as the markets were concerned, but it was also the one that got the most headlines: The November election.

Elections always create uncertainty, of course. Who will our next president be? What policies will they enact? How will they help or hurt my personal situation? History suggests that it doesn’t really matter which party controls Washington as far as the markets are concerned, but despite that, we do often see volatility leading up to the election itself. But that didn’t really happen this year. Other than a slight, brief dip at the very end of October, there was not a lot of volatility before the election, nor right after.6  Which brings us to our final question mark:

How Will the Markets React to All This? For investors, this was the biggest question mark of all. It’s always the biggest question mark of all. How would the markets react to the roller coaster of inflation? How would they react if it took longer for interest rates to drop? What about the election?

Well, now we know the answer to that, too. The S&P rose over 23% for 2024.7  When you couple that with the 24% gain we saw in 2023, it’s the best two-year performance in the index since 1997-98. The Dow, meanwhile, gained nearly 13%, and the NASDAQ over 28%.7   

Because we are looking back, because we know the answers to all these questions, it’s hard to remember the uncertainty that crept up at different points in the year. Nevertheless, uncertainty existed — and the investors who could handle it, benefited. The ones who could not, did not. We’re very happy to say that our clients belonged to the first group, but we know many people who didn’t.

Throughout the year, especially early on, we would often hear acquaintances of ours say things like, “I’m not getting into the markets until after the election.” Or “I’ll wait until interest rates come down to make a decision.” “Inflation is still too high for me, so I’ll think about it next year,” also popped up from time to time. In other words, many investors find it difficult to operate under uncertainty. Any question mark causes them to defer decisions and delay actions. Uncertainty can cause people to shut down, circle the wagons, and “turtle up.” As a result, two things happen:

  1. They miss out on the kind of year we just experienced in the markets.
  2. They don’t move forward to their financial goals.

Uncertainty is a fact of life, and as investors, we will always be dealing with question marks. Some years, there are more question marks than others, and that can certainly make things stressful. Of course, when we’re faced with uncertainty, it’s always good to slow down, take our time, and consider our options carefully. But it’s not good to become stagnant, hesitant, or fearful. It’s never good to procrastinate.  

Scientists have often held that one of the hallmarks of intelligence is the ability to make judgments under uncertainty. The ability to plan ahead even with limited information, and then adjust your plan as you learn. This is something that our team strives to do every day for our clients. We consider what we know and what we don’t. We try to identify possible outcomes and events, not to predict which will happen — which is impossible — but to prepare for as many as we can. From there, we determine what choices must be made now, which choices can be made now, and which should not be made now. Finally, we review the options that come with each choice, and which work best for each client based on their specific goals, needs, and situation.

It doesn’t mean everything will always go the way we want it to. It doesn’t mean we won’t occasionally experience setbacks. It does allow us to operate under uncertainty…which means we can always help our clients continue to work towards their dreams and financial goals.     

That’s what financial planning is all about. And that, to us, is the lesson to take from 2024.

Of course, there will be question marks in 2025, too. Here are just a few:

  • Is the inflation roller coaster truly over? Consumer prices ticked back to 2.6% in November, and there are some indications that they may rise higher still in the coming months.
  • President-elect Trump has promised to levy across-the-board tariffs against China and many other countries. What effect will those tariffs have on the economy, especially inflation?   
  • Will interest rates continue to fall, or will they remain where they are for a while? In its most recent statement, the Fed projected only two cuts for 2025.8 
  • Much of the market’s performance over the last two years has been generated by tech companies, especially those investing in AI. However, to date, many AI companies are valued far above what they are actually earning. Will that change in 2025? Will the hype continue?     

Here at Minich MacGregor Wealth Management, we’ll continue to study these issues…and even though you are not currently a client, we will update you as we get answers. But while there will always be question marks, we remain confident in our direction and in our ability to keep moving forward — whether the horizon is clear or blurry, the sky blue or gray.

So, that’s 2024! We hope it was a wonderful year. On behalf of our entire team, we look forward to making 2025 even better. As always, please let us know if you have any questions, or if we can ever help you and your family the way we help our client families. Have a Happy New Year!

Sources:
1 “12-month percentage change, Consumer Price Index,” U.S. Bureau of Labor Statistics, https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm
2 “U.S. Equities April 2024,” S&P Dow Jones Indices, https://www.spglobal.com/spdji/en/documents/commentary/market-attributes-us-equities-202404.pdf
3 “Federal Funds Effective Rate,” Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/FEDFUNDS
4 “Gross Domestic Product,” U.S. Bureau of Economic Analysis, https://www.bea.gov/data/gdp/gross-domestic-product
5 “GDP Now,” Federal Reserve Banks of Atlanta, https://www.atlantafed.org/cqer/research/gdpnow/archives
6 “S&P 500 ends 5-month rally with October downturn,” S&P Global, https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/s-p-500-ends-5-month-rally-with-october-downturn-86066097
7 “S&P 500 posts 23% gain for 2024,” CNBC, https://www.cnbc.com/2024/12/30/stock-market-today-live-updates.html
8 “Fed cuts key interest rate but signals elevated inflation is likely to persist,” https://www.nbcnews.com/business/economy/federal-reserve-interest-rate-cut-december-2024-much-economy-rcna184586

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Picture of a Melting Snowman

Michelangelo’s Snowman

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

One cold January morning in 1494, the citizens of Florence, Italy woke up to an extremely rare sight: Their city was covered in snow. 

Snow is uncommon in Florence, and this was no mere coating of powdered sugar.  There was so much snow that kids today would probably grab their sleds and hightail it to the nearest hill.  So much snow that trucks with plows would be required just to keep the roads clear. 

It’s impossible to know how most Florentines reacted to their new winter wonderland, but we do know what one person thought.  When Piero de Medici, perhaps the wealthiest and most powerful man in Florence looked out that morning and saw his courtyard covered in snow, he decided to commission an artist. The artist in question was young, barely nineteen, with a permanently disfigured nose.  But his name would become famous throughout Europe, and the world has never forgotten it.   

His name was Michelangelo, and his task was as surprising as it was simple: Build a snowman.

Given the sculptures Michelangelo produced later in life, it’s reasonable to assume that his was the most beautiful snowman ever made.  (At least one other artist wrote that it was very beautiful.)  But we have no way of knowing exactly what Michelangelo’s snowman looked like…because it melted. 

It’s ironic to think of a great work of art so impermanent that it could literally melt.  It almost seems like a waste.  Why go to all that trouble creating something beautiful, knowing it will never last?  But we don’t think it was a waste.  In fact, when we ponder the story of Michelangelo’s snowman, we think there’s something meaningful we can take from it. 

Every January, many of us set New Year’s resolutions.  We make promises to ourselves about the goals we want to achieve and the ways we want to improve.  Go there, become this, do that.  But we all know that resolutions don’t always last.  Often, we may follow through on them for a month, or a season, or even a year…until life interrupts us.  When that happens, we often move onto other things, leaving our resolutions to melt away. 

But that doesn’t mean our resolutions were a waste.  It doesn’t mean the work we put into them was worthless. 

Think what often happens even when we fall short of our resolutions:

  1. Sometimes, we return to our resolution months or years later, now armed with more knowledge and the experience gained from our first attempt.  Everything we need, in other words, to actually achieve it this time.
  2. Sometimes, we may not achieve everything we set out to do, and yet our lives still become better for the attempt.  A person may not lose the 20 pounds they wanted, but the 10 pounds they did lose helped their blood pressure drop and their knees feel better.  A person may not quite learn how to speak French, but in the process, discover they have a real love and ability to cook French food.
  3. Sometimes, even half-finished resolutions may lead us to the things we are truly meant to do.  Maybe you won’t “write in your journal every day” like you wanted, but instead learn you have a flair for writing and decide to write something else.  Maybe you won’t get that promotion you wanted…but instead get a different job that you end up loving more than you ever thought possible. 

Whenever we set goals and resolutions, whenever we lift our eyes up and aim just a little higher, we are shaping our lives into our own works of art.  Sometimes they don’t last – but the beauty is not in their permanence.  It’s in the ways they enrich our lives. The ways they help us get just a little closer to where we want to go…and become just a little more like who we want to be. 

Michelangelo’s snowman melted.  We don’t know what it looked like.  But we do know that he created something beautiful.  Something that enriched both his life and the lives of those who saw it, even if only for a little while. 

And we know something else, too.  We know what came after. 

For just ten years later, Michelangelo created a new sculpture, one that we can hope will never be lost to temperature or time.

It was the statue of David.

As we enter a New Year, we wish you best of luck with your goals and resolutions.  Please let us know if there is ever any way we can help you achieve them.  But most of all, we wish you joy in the journey.  May your resolutions get you ever closer to where you want to go…and become stepping stones and practice runs for whatever works of art you’re destined to create.

Happy New Year!   

Winter Tips to Save Your Home and Wallet

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

Winter may bring snowy landscapes and cozy evenings by the fire, but it can also bring unexpected challenges for your home and budget. To make this season more about enjoying the cold and less about battling it, follow these practical tips to protect your space, save energy, and stay comfortable.

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Questions You Were Afraid to Ask # 15

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

The only bad question is the one left unasked. That’s the premise behind many of our posts. Each covers a different investment-related question that many people have but are afraid to ask.

In recent posts, we’ve been breaking down some of the more common bits of financial jargon that you are likely to hear in the media.  In this message, let’s look at: 

Questions You Were Afraid to Ask #15:
What’s the difference between Large Cap, Mid Cap, and Small Cap stocks?

If you’ve ever researched a stock or listened to talking heads in the media, you’ve probably heard terms like “large cap stocks” before.  You may also have seen these terms when reviewing your 401(k).  If so, you’ve probably wondered what the word “cap” even means. 

A stock’s “cap” refers to its market capitalization.  This is the total market value of a company’s available stock shares.  In essence, it is a quick and easy way to determine how valuable the market perceives a company to be. 

To determine a company’s market cap, investors look at all the shares the company has made available and then multiply that number by its current stock price.  For example, let’s say the ACME Corporation has twenty-five million available shares with a current stock price of $50.  Twenty-five million multiplied by fifty is 1,250,000,000, so ACME’s market cap is $1.25 billion.

Now, this number doesn’t mean anything on its own.  It’s when you compare it to other companies that distinctions can be made.  That’s where the terms large, mid, and small come in.

There is no single agreed-upon definition of what makes a company large-cap versus mid-cap, or mid-cap versus small-cap.  But generally speaking, many investors break down these categories like this:

  • Large-Cap: Market value over $10 billion
  • Mid-Cap: Market value over $2 billion
  • Small-Cap: Market value over $250 million

So, in our example, ACME Corporation would be classified as a small-cap company. 

Some investors will make further distinctions.  For instance, you may sometimes see the term mega-cap, which is for companies with a market value over $200 billion.  At the other end of the spectrum, micro-cap refers to companies with a market value of less than $250 million. 

When people think about the stock market, they often think in terms of a specific index, like the S&P 500.  But different indexes often only contain companies above a specific size.  For example, the S&P 500 contains the five hundred biggest companies in the overall market. That means it only includes mega- and large-cap stocks.  Another popular index, the Russell 2000, contains only small-cap companies. 

One reason market cap matters is because it gives you more information about a stock than you can get just from its price.  For example, imagine two companies that each have a stock price of $75.  The first company has fifty million total shares available.  The second company has a billion shares.  That meansthe first company has a total market capitalization of $375 million.  The second company’s market cap, on the other hand, is $75 billion.  So, despite having the same price per share, the first company is a small-cap stock, and the second is a large-cap stock. 

Why is this important for investors to know? Because a stock’s cap can dramatically affect both its potential risk and potential reward. 

Generally speaking, large-cap stock companies are not going to grow as fast as a small-cap stock company can.  That’s because the former simply doesn’t have as much room for growth.  Large-cap companies tend to be older and more well-established. As a result, any future growth will likely be slow and steady rather than fast and explosive.  Small-cap companies, on the other hand, still have the potential to become large-cap companies in the future.  That means their potential for growth — and thus, reward — is greater. 

That said, large-cap companies have also tended to be more stable.  They have stronger financial situations, greater brand recognition, and more revenue.  That makes their stock price less vulnerable to market volatility.  Meanwhile, small-cap companies, even if they’re growing fast, may not technically be making any profit at all.  Their financial situation may be much weaker. That makes them much more vulnerable…and much riskier for investors. 

Of course, these are all just generalizations.  Large-cap companies can sometimes experience fast growth or even fail, of course.   Mid- and small-caps can thrive for years.  But as a general rule, there is an inverse relationship between a stock’s capitalization and both its risk and return.  Understanding that relationship is critical to making good investment decisions! 

So, that’s market capitalization in a nutshell.  Next time, we’ll look at a related bit of jargon: Blue chip stocks versus penny stocks.  Until next time! 

1 “Market Cap Explained,” FINRA, https://www.finra.org/investors/insights/market-cap

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Happy Thanksgiving

Written by Minich MacGregor Wealth Management on . Posted in Uncategorized.

🦃🍂 HAPPY THANKSGIVING 🍂🦃

Today, we pause to reflect on all we’re grateful for—family, friends, and the moments that bring us together.

Here at Minich MacGregor Wealth Management, we are thankful for our relationships with our clients and for the opportunity to help you however we can.

We wish you a day filled with love, laughter, and, of course, delicious food!

Honoring Our Heroes: A Heartfelt Thank You This Veterans Day

Written by Minich MacGregor Wealth Management on . Posted in Posts.

Most of us know somebody who’s served in the military or did so ourselves. For those who haven’t, it can be difficult to understand what it’s like to serve. It’s easy to forget the many sacrifices that our service men and women make. Hopefully, we all take the opportunity this Veterans Day to thank our soldiers, both past and present, for the courage they show(ed) in the face of the unimaginable. So, if you see a soldier, or someone who once was a soldier, please say:

Thank You.

Thank you for all that you do, and the sacrifices you’ve made. Thank you for leaving your friends and the comforts of home. Thank you for risking your lives, so that we can enjoy ours. Thanks for giving up the small moments in life: inside jokes, Super Bowls, backyard barbeques, and fishing trips. Thank you for allowing us to have our small victories, homecoming games, homeruns, touchdowns, dance recitals, first kisses, and first drinks. Thanks for giving us the opportunity to sleep soundly in our beds; to go to work and provide a life for our families.

Thank you for being dignified and respectful while representing our nation. Thank you for having your fellow soldiers’ backs; for suffering, bleeding, and in far too many cases, dying for our way of life. Thank you for being willing to endure cold nights, cold food, hard cots, and blisters. Thank you for coming home and doing your best to fit in, to not jump when a pot falls on the floor, or when the neighbors set off fireworks. Thank you for going through more than you thought possible. Thank you for your lost friends and comrades. Thank you for all the things we understand, and for everything we don’t.

Happy Veterans Day!

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Questions You Were Afraid to Ask #14

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

The only bad question is the one left unasked. That’s the premise behind many of our posts. Each covers a different investment-related question that many people have but are afraid to ask.

To begin this post, we’d like to ask you a question: Have you ever seen an episode of Star Trek?  If so, you know the writers often use something called “technobabble.”  You’ll hear terms like dilithium core, temporal convergence, tachyon fields, and more.  It’s obvious, of course, why the writers would do this.  As the show takes place in the future, technobabble is a quick and easy way to make the characters seem smarter and more technologically advanced than we are today.   

The media has its own form of technobabble.  If you’ve ever watched CNBC, for example, you’ve probably heard many instances of “financial jargon.”  Words that sound complicated and intimidating, and that you almost never hear in everyday conversation.  Many do have meanings, and some are very important – but they can often be bandied about by professionals in order to sound sophisticated. 

Sophistication is all well and good, but not when it comes at the expense of clarity.  So, over the next few posts in this series, we want to break down some common bits of financial jargon that you are likely to hear in the media, what they mean, and why they do — or do not — matter. 

Questions You Were Afraid to Ask #14:
What do stock ratings mean?   

Buy.  Sell.  Hold.  Overweight.  Outperform.  Strong, weak, reduce, accumulate.  These are just some of the ratings you’ll often see attached to specific investments, usually stocks.  Financial websites love to list them.  Talking heads on TV love to recite them.  But what are they?

A rating is an analyst’s recommendation on what to do with a particular stock.  Typically, an analyst will research a company by reviewing financial statements, talking with leadership, and surveying customers.  Some analysts will also study broader economic trends to try and estimate how the company will be affected by the overall economy.  Other analysts may rely heavily on algorithms and mathematical models.  Whatever their method, these analysts then prepare a report that discusses how they see the company’s stock performing in the near future. 

Inside that report is a rating.  Their advice, distilled down to a single word or phrase, on what their clients should do with the stock in question.  The three most basic ratings are: buy, sell, and hold. 

Buy and sell are fairly obvious.  They are recommendations to buy the stock — or buy more of it — or to sell whatever shares you already own.  “Hold” essentially means to sit tight.  If you already own shares in the stock, don’t buy any more, but don’t sell, either. 

So far, so simple.  But here’s where things can get a little tricky.  Since there is no standardized way to rate stocks, pretty much every financial firm will have its own system.  That’s why you’ll often see many variations and degrees of those three basic ratings.  For example, think of buy, sell, and hold as umbrella terms.  Beneath the buy umbrella, you may sometimes hear terms like moderate buy, overweight, outperform, market perform, add, or accumulate.  Under sell, you may see reduce, underweight, underperform, weak hold, moderate sell. 

“Moderate” essentially means to buy or sell more shares of the stock, but not too much.  Same for add/reduce.  Over/underweight and over/underperform means the analyst believes the stock will perform somewhat better or worse than the overall market.  Weak hold is basically a push – it’s probably fine to hold onto your shares, but you can sell if you want to. 

Sometimes, if an analyst uses all these variations, then a simple buy or sell can then take on a new meaning.  That’s why you’ll sometimes see the terms strong buy or strong sell.  This indicates the analyst believes you should either buy or sell as much of the stock as you possibly can. 

So, now you know what stock ratings mean.  But do they matter? 

Imagine you’re shopping online for a new coffee maker.  What’s the first thing you’d see?  Likely, it would be a list of coffee makers with some sort of numerical rating next to each based on all the customer reviews.  Now, would you buy the first machine that has a good rating?  Probably not.  What you would do is look at the first machine with a good rating, and then go from there. 

For regular investors, that’s essentially what stock ratings are good for.  They provide a handy place to start.  A quick reference.  A way to weed out the stocks you don’t want to look at immediately versus those you do.  But you shouldn’t ever make decisions based solely on those ratings.  Because, like the customer ratings online, they don’t tell the whole story. 

It’s important to remember that a stock rating is just the opinion of one analyst.  Others may have different opinions.  Also, because there’s no standardized rating system, one analyst’s “buy” might be another’s “hold.”  An “underperform” at one place might be a “strong sell” at another.  And while analysts can be very smart and experienced, rating is not an exact science and can be often used more as a marketing pitch than as a truly objective evaluation. 

Finally, stock ratings are not specific to you.  Consider the coffee maker analogy.  One machine might have a rating of 4.3 stars; a second might be 4.0.  But when you read the reviews closely, you might see the higher-rated machine is versatile but complicated.  The lower-rated machine can’t do as much, but it’s fast and easy – perfect for that quick cup before work.  If that’s what you want, the “lower-rated” machine might be better.  Stock ratings are similar.  They don’t address your goals, your risk tolerance, your timeline.  And that’s why they should never be used as a substitute for having your own customized investment plan. 

So, that’s the skinny on stock ratings.  Next month, we’ll look at another stock term: Big Caps vs Small Caps.  Have a great month!

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Q4 Market Outlook for 2024

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

Our 2024 Q4 Market Outlook: looking back on the 3rd quarter, then looking ahead to what could impact the markets over the next few months.

Image of how the markets did and news impacting the market.

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Q3 Market Recap

Written by Minich MacGregor Wealth Management on . Posted in News, Posts.

It’s always great to start a message with the words, “The markets finished the quarter at an all-time high.”  Fortunately, that’s the case this time around.  The S&P 500 rose 2% in September, and 5.5% for the entire quarter.  The Dow, meanwhile, gained 8.2% in Q3.  Both indices set new records along the way.1 

So, let’s do a quick recap of why the markets performed the way they did over the last three months.  Then, we’ll tell you what we think might be the most interesting storyline from an investor’s perspective.  We’ll finish with a few things to keep an eye on as we draw closer to the end of the year. 

July

The quarter began with the markets already rebounding from a bout of volatility in early Q2.  This was driven by good news regarding inflation, with consumer prices dropping to 3% in June.2  That led to renewed optimism that the Federal Reserve would finally cut interest rates sometime in the summer.  But as July started making way for August, the skies over Wall Street began to turn cloudy.  The optimism of a future rate cut shifted into concern that maybe, just maybe, the Fed had already waited too long.  

August

This concern was primarily driven by rumblings in the labor market.  Unemployment has been trending upward for some time now, and in July, the jobless rate rose to 4.3%.3  While that’s not a high number in a historical context, it was still higher than most economists expected. And it prompted investors to wonder whether future rate cuts would be enough to prevent unemployment from rising higher still, which could trigger a recession. 

Just as investors were chewing over this unpleasant bit of data, the markets were hit by another interest rate whammy – this time, from overseas.  While our rates have been at 40-year highs in recent times, Japan has kept their rates extremely low.  Because of this, many investors were using a tactic called the yen carry trade.  This involves borrowing Japanese currency at an absurdly cheap rate, then converting that cash into a stronger currency.  With that stronger currency, investors could then buy U.S. securities, essentially at a discount.  It’s been a popular tactic, but it unraveled in early August with the news that Japan was finally raisinginterest rates at the same time the U.S. was preparing to decrease theirs.  That meant the yen was stronger in value than before.  As a result, many investors were forced to quickly sell off the assets they bought before having to pay higher interest rates on the money they borrowed.  This triggered a short but massive selloff across the entire globe. 

All this was unpleasant, but thankfully, short-lived.  By the end of August, the markets had completely regained what they had lost.  Still, a sense of uneasiness remained, because September had arrived – historically, the worst month of the year for the markets. 

September

True to form, the markets began the month with another dip.  Besides worrying about unemployment, investors were also mulling over the future of artificial intelligence.  (More specifically, the companies that have invested heavily in it.)  AI-related hype has been one of the biggest drivers of the current bull market, but far more money has been poured into AI than has flown out of it.  Some analysts raised the question of whether the new technology is all it’s cracked up to be, and whether it will truly return enough value to shareholders to justify its costs. 

But then came the news everyone had been waiting for. The August jobs report was modestly positive, indicating that unemployment was basically unchanged.  (In other words, still higher than anyone would like, but not picking up momentum, either.)  And the latest inflation report was even better: Inflation had fallen to 2.5%.4  The lowest mark since early 2021…and very close to the Fed’s goal of 2%.  A rate cut was now all but certain.  And on September 18, it finally happened.  The first cut in over four years, to the tune of 0.50%.4  Based on this, the markets continued to climb, finishing the quarter at record highs. 

So, an action-packed quarter, with plenty of twists and turns.  But as much fun as it is to say, “record highs,” that may not even be the best news to come out of Q3. 

Warren Buffett once said that interest rates act like gravity on valuation — meaning they pull stock prices down, or at least prevent them from rising too high.  But despite higher rates, stocks have been in a bull market for the past two years.  How can this be? 

When we talk about “the stock market,” we tend to think of it as a single entity.  But that’s far from the truth.  As its name implies, the S&P 500 is made up of five hundred different companies, and the broader stock market contains thousands.  At any given time, some of those companies are rising in value while others are falling.  When more companies rise than fall, the markets do well, and vice versa.  But sometimes, you don’t need a lotof companies to rise in value. You just need a handful to rise so much, they drag the overall value of the index along with it.  That’s been the case for much of the past two years.  Most of the market’s rise has been driven by a handful of tech giants, thanks to the AI boom we mentioned.  But for the majority of companies on the stock market, growth has been much more modest.  Interest rates act like gravity, remember?

One of the most interesting storylines is that this trend reversed last quarter.  More than 60% of companies in the S&P 500 rose higher than the overall index in Q3.5  (For the previous quarters, it was only around 25%.)  And the Russell 2000 index, which contains lots of smaller companies, rose by 9.3% for the quarter.5  All this suggests that the bull market is widening in breadth, which is a positive indicator for the future.  (The broader a market incline, the longer that incline tends to last.) 

Now, with all that said, there are still some question marks on the horizon that we need to keep an eye on.  While geopolitics rarely has a sustained impact on the markets, conflict in the Middle East could inject turbulence into oil prices, which do affect the markets to a degree.  Volatility can always spike in the weeks before and after a presidential election.  And the biggest question mark is unemployment.  Can the Fed actually achieve a soft landing, avoiding a recession as they continue cutting rates?  These are the questions that only the future can answer. 

For these reasons, it’s important we remain prudent with our investment decisions in the short-term…while always keeping our focus on the long-term.  In the meantime, enjoy the upcoming holiday season!  And as always, please let us know if you have any questions or concerns.  Our door is always open.   


SOURCES:
1 “S&P 500 ekes out record closing high,” Reuters, www.reuters.com/world/us/wall-st-eyes-lower-start-data-loaded-week-powells-comments-awaited-2024-09-30/
2 “Inflation falls 0.1% in June from prior month,” CNBC, www.cnbc.com/2024/07/11/cpi-inflation-report-june-2024.html
3 “Job growth totals 114,000 in July,” CNBC, www.cnbc.com/2024/08/02/job-growth-totals-114000-in-july-much-less-than-expected-as-unemployment-rate-rises-to-4point3percent.html
4 “Fed slashes interest rates by a half point,” CNBC, www.cnbc.com/2024/09/18/fed-cuts-rates-september-2024-.html
5 “Broadening gains in US stock market underscore optimism on economy,” Reuters, www.reuters.com/markets/us/broadening-gains-us-stock-market-underscore-optimism-economy-2024-09-30/

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Q4 Financial Checklist

Written by Minich MacGregor Wealth Management on . Posted in Posts.

As we enter the fourth and final quarter of the year, it’s time once again to talk about checklists. Because if there’s any time to use them, it’s now!  After all, …   

He’s makin’ a list
and checkin’ it twice
He’s gonna find out if you’re naughty or nice.
“Santa Claus is Comin’ to Town” — J. Fred Coots & Haven Gillespie

Now, we apologize for putting Christmas music into your head when we’re still a couple of months away.  But we do it to make a point: Checklists are so important, even Santa Claus uses them!  And if they’re good enough for Kris Kringle, they’re good enough for us. 

As the year winds down, there are many things we can do to strengthen our finances and move closer to our long-term goals.  So, to help you close out 2024 with a flourish and build momentum to next year, we’ve created a short “Q4 Financial Checklist.”  It contains five tasks to accomplish before the end of the year. 

Now, don’t worry!  None of these items are difficult.  One or two may not even apply to you; others you may have done already.  But if you put them all together, we think you’ll find they will go a long way to making your finances — and your holidays — just a little merrier and brighter.

As always, please let us know if you need help or have questions about any of these.  In the meantime, we wish you a great fourth quarter!

Q4 Financial Checklist for 2024
Tip: Print this out and stick it on the fridge or somewhere else it will be seen.  That way, you can check off the items one by one as you complete them!
– – –  – – –  – – –  – – –  – – –
  •  Budget your holiday expenses
The upcoming holiday season is a great boost for morale as the days get shorter and the weather gets colder.  But they can also be a huge drain on our wallets. In fact, the average consumer spends $1,650 to celebrate the winter holidays!1 From presents to food to decorations, holiday expenses can pile up quickly, eat into savings, and even cause people to take on more debt. But all of that can be avoided with just a little planning. 
Take time to budget exactly how much you want to spend on each holiday by determining what your needs will be well in advance. Begin by looking at last year’s spending to figure out if there are ways to save or cut back.  Next, start determining how many people are coming to Thanksgiving dinner. And be sure to check that one box in the garage before buying yet another set of holiday lights. You get the idea. Then, decide exactly how you’ll pay for each holiday expense. Will you pull money from savings? Use a credit card? From there, you can set a specific spending limit for each expense, keeping costs down while also spending more on the things you truly care about around the holidays. 
  • Review your insurance needs
November is Open Enrollment season in the U.S.  That means it’s a good time to review your current insurance coverage and examine if you have any gaps in coverage that need to be filled or if there are less expensive alternatives out there.  For those nearing retirement, this is also an opportunity to look at additional types of coverage beyond standard health insurance, like Disability and Long-Term Care Insurance. 
  • Check for opportunities to harvest your tax losses
As we approach the end of the year, it’s wise to look back and see all the ups and downs we experienced in the markets this year — and the ups and downs you’ve probably experienced in your portfolio. As you know, when you sell an investment that has increased in value, you must pay taxes on your capital gains. But when you sell an investment that has decreased, you can declare a capital loss. A loss can often be used to offset the taxes you pay on your capital gains, thus reducing your overall tax bill. This is known as tax-loss harvesting, and when done accurately and consistently, it can increase your after-tax returns by 1%.2 Over time, this can make a big difference! So, as the year winds down, take time to review your outside investments for opportunities to harvest your tax losses. As always, let us know if you need any help.  
  • Consider your charitable contributions
These days, more and more people are starting to think of investing not just as a way to help themselves, but to help their communities.  That’s especially true around the holiday season.  But charity isn’t just about giving back.  It can bring tax benefits, too!  In fact, there are several charitable gifting strategies that investors can take advantage of.  But it’s important to start thinking about this sooner rather than later if you want to be savvy about it.  A few things for you to consider:
1) Have you maxed out your charitable donations for the year?
2) Are you planning on contributing cash, stock, or other assets? 
3) Can you take advantage of a Qualified Charitable Distribution (QCD)? 
If you have any questions about this or need help game-planning your own charitable contributions, please let us know. We would be happy to help. 
  • Review this year’s goals and plan for next year’s
It’s crazy to think that we’re only one quarter away from a new calendar year! Because 2025 is just around the corner, now is the time to review how you’ve progressed on your goals this year so you can accurately plan for what needs to be done next year. What goals are you behind on at that need to be reprioritized? What new goals do you have? By doing this now, you can finish 2024 strong and start 2025 hot out of the gate.   
 

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