2024 Q4

4th Quarter Market Review & Outlook

As I mentioned previously, this year’s tropical crop of choice was turmeric. If I were to assign a grading system, I would give it a “C” for the amount I was able to grow. For those of you who remember, my crop from the year before was ginger which I would give an “A”. For next year, I may go back to planting ginger, and more of it, since it grew so well in the past. What is the lesson translated to the markets? Sometimes investment choices do not work out as planned, and you may need to adjust for the future.

For all the concerns over the election and inflation, the markets and the economy performed better than expected by the time the ball dropped in Times Square. While profit taking caused markets to stall in December, we still came away with very nice returns amid the backdrop of the Federal Reserve which did a 180 degree turn this fall and started reducing short-term interest rates. In the fixed income piece of the portfolio, our approach to lengthen maturities on individual notes when yields were high, as well as our positions in floating rate securities, helped this area of the portfolio tremendously. Additionally, while the Leading Economic Indicators are still somewhat muted, we are beginning to see some clarity.

Looking ahead, we believe the economy will build on the momentum coming out of 2024 and continue to rise through 2025. While earnings and economic growth may start out slowly, we anticipate they will accelerate as the year progresses. However, we need to keep an eye on inflation, as this may begin to rise again too. The money supply has been increasing since last summer, and because of this we expect to see more consumer and business spending. Increased spending should lead to corporate profits and real GDP growth in 2025.

With the new Trump government taking shape, there are a few areas of the market on which we will be more focused. Namely, we have already been discussing internally the potential impact to the energy, finance, and healthcare sectors. We will look for opportunities as we move forward and the incoming administration’s policies become more clear.

With the expected economic expansion in 2025, the probability of continued government deficit spending, and the risk of inflation re-emerging, we believe Fed policy will need to adjust by the end of the year. While the Fed expects to cut rates twice this year, I would be surprised if we had more than one. Once completed, there could be a temporary period during which the Fed suspends rate cuts, while it determines what impact President Trump’s policies are having on the economy. As a result, fixed income yields may rise, as has been the case over the past few weeks, due to a higher-than- anticipated future interest rate environment.

In closing, we are very pleased with the response of our equity and fixed income portfolios, and we look forward to a 2025 that should see economic expansion after appearing to achieve the illusive soft landing. As usual, there are headwinds we will be facing. Surprise shifts in economic indicators, worsening fundamentals in Europe, and US markets which have already priced in many positive economic attributes to name a few.

If you have any questions, please do not hesitate to contact our office. Also, please check out my quarterly video update which comes out in about a week for additional commentary. You may find this on our website. As always, we thank you for your trust.

Marc Henn, CFP®

CEO & Founder