Week of December 30, 2024

Key Points for the Week

• Consumer sentiment rose for the fifth consecutive month. • U.S. stock indices finished higher last week. • 2024: A Year in Review

Current Trends & News is a weekly financial recap curated by SPC Financial®’s team of wealth management and tax-integrated advisors.* We monitor and explore the intricacies of the financial world and share insights into market developments.

Economic Update

As we near the end of 2024, U.S. consumers were feeling optimistic. Every month the University of Michigan Survey of Consumers conducts about 600 interviews with American households, asking interviewees about their personal finances, business conditions, and buying conditions.

In December 2024, the Index of Consumer Sentiment was up 3.1 percent month to month, and 6.2 percent year to year.

Consumer sentiment rose for the fifth consecutive month…reaching its highest value since April 2024. Buying conditions exhibited a particularly strong 32 [percent] improvement, primarily due to a surge in consumers expecting future price increases for large purchases…Broadly speaking, consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving; sentiment is currently about midway between the all-time low reached in June 2022 and pre-pandemic readings.

Survey of Consumers Director Joanne Hsu

Individual investors, on the other hand, were feeling less bullish than they did earlier in the month. The AAII Investor Sentiment Survey found that investors’ outlook shifted in December. Investors became more uncertain, and a higher percentage reported feeling bearish.

Investor sentiment is often considered to be a contrarian indicator.

Although investors would like to imagine that their decisions are rational, most have bought at near-highs due to fear of losing out on gains and sold at near-lows due to fear of further losses. This herd behavior is called market sentiment; when market sentiment is low, the majority believes the market will fall, while high market sentiment means that the majority feels the market will rise in value. However, sometimes, the market will move against the sentiment of the majority. Therefore, many professional money managers use market sentiment as a contrarian indicator, buying when sentiment is pessimistic and selling when sentiment is optimistic.

AAII website

Last week, major U.S. stock indices finished higher, and yields on longer maturities of U.S. Treasuries rose. The benchmark 10-year U.S. Treasury yielded 4.62 percent at the end of the day on Friday.

This Week in the Markets

The foundation of long-term investing success is understanding how markets behave in the long run. Understanding the bigger picture helps tune out the noise, avoid some potential big mistakes, and stay on target to reach long-term goals.

As we close out 2024 and launch into the new year, here are a few things all investors should keep in mind in 2025.

Pullbacks are Perfectly Normal

In August 2024, global markets crashed on fears over the yen carry trade unwinding. Knowing that Japan was having its worst day since the 1987 crash and US futures were down overnight made a lot of investors anxious.

In the end, the S&P 500 pulled back 8.5% from peak to trough, the largest drawdown of the year. Take note though that since 1980 the largest drawdown of the year has averaged 14.2%. If most investors went into each year expecting a double-digit correction as uncomfortable but perfectly normal, they probably would not get so worried when it happens. If it does not happen at all in a year then all the better, but the odds of it happening the next year increase. In the end, 23 of the previous 44 years saw a double-digit correction, with 13 of those 23 years still finishing positive.

Stocks gain about 9% on average, but a little-known secret is that something near the average return rarely ever happens, in fact, much larger moves, both higher and lower, are quite common. Incredibly, going back to 1950 stocks had ‘about an average year,’ with a return between 8% and 10%, only four times, and the average return in an up year is 17.6%.

While stocks have gone up quite a lot in the long run, it is still perfectly normal for them to go down in the short run.

Historically, the average year sees more than seven 3% dips and more than three mild corrections of 5% of more a year. In fact, it is perfectly normal to see a 10% correction as well, as one happens on average once a year.

What Matters Is Time in the Market, Not Timing the Market

Time can be an investor’s best friend. Each year will have some scary headlines. On any random day the odds of stocks being higher is about a coin flip at 53%. A full week? 56.6%. A full month? 60.4%. A year? 71.2%. Five years? 80.8%. 10 years? 90.4%. And over 20 years stocks have never been lower.

Sure, no one wants to buy something and wait 20 years to feel really secure about gains, but imagine what the returns could be should you buy when stocks were in a correction or bear market? They get much better. There is an old saying that it is all about time in the market, not timing the market, and this is something all investors should remember.

Do not Mix Politics and Investing

A lot of people did not like President Obama and stocks did great. A lot of people did not like President Trump and stocks did well. A lot of people did not like President Biden and stocks started slowly, but soared the past two years. This is obviously a bigger deal in election years and mid-term years, but it is still important to remember every year.

2024: A Year in Review

Upside from productivity growth meant expansion for the US economy in 2024

Real GDP growth will likely be between 2.5 – 3.0% in 2024, boosted by productivity growth that is running quite a bit higher than what we saw from 2005 – 2019.

Cyclical headwinds from fixed investment faded, especially amid easing rates

Headwinds from the investment side of the economy to faded as interest rates eased in anticipation of Fed cuts, especially housing. Business sentiment improved as rates pulled back with continued growth in manufacturing construction and equipment spending on the back of fiscal programs like CHIPS and IRA. Housing was positive in Q1 but started to fade as mortgage rates stayed elevated. There was not much of a boost in business sentiment (except post-election), but manufacturing did add to GDP growth after the first quarter.

Inflation Pulled Back

Inflation measured by the Fed’s preferred metric, core PCE, was running at 3.2% year over year 12 months ago, and it is at 2.8% now (core CPI pulled back from 4% to 3.3%).

The Federal Reserve cut interest rates 3-4 times in 2024

The Fed cut interest rates 3 times in 2024 by a total of 1%-point. When inflation pulled back, it allowed the Fed to start cutting interest rates.

Forward earnings grew along with profit margins

Next 12-month earnings for the S&P 500 were at $242/share a year ago, and it is currently around $272. Forward margins are also at record highs of around 13.5%.

The bull market continued in 2024

The bull market was supported by all of what was previously listed ¬— a strong economy, rate cuts, and earnings growth — but also the fact that historically, election years do better.

Mid and small cap stocks underperformed large caps

An above-trend economy, easing rates, growing earnings, and more attractive valuations ultimately did not lead to mid and small cap stocks outperforming large caps in 2024.

A Reminder About Scams

Scams usually start with a phone call, email, text, or another form of communication. The person typically claims to be from an agency or organization you know – or one that sounds like it might benefit you, such as the National Sweepstakes Bureau or a lottery.

The person may know your name and address. They may give you their official title or an identification number. No matter how official they seem, you can be confident it is a scam if the person contacting you:

• Indicates there is a problem with your benefits. • Asks you to pay to receive a prize. • Suggests that paying will increase the chance of winning. • Requests financial information, such as a bank account or credit card number. • Pressures you to act immediately. • Tells you to pay using a specific method, such as a gift card or cryptocurrency.

If this happens, remember that the Social Security Administration, the Internal Revenue Service, Medicare, and your bank do not call, email, or text to ask for money or personal information. They do not demand that you pay immediately, and they do not accept payment by gift card, prepaid debit card, cryptocurrency, or another untraceable form of money transfer.

When you suspect a scam:

• Hang up or close the message. Do not respond in any way. • Remain calm. • Think back over the call. Write down any personal information you may have inadvertently shared. • Report the scam. Contact the Federal Trade Commission at ReportFraud.ftc.gov. You may also want to report the incident to your state’s attorney general or your local consumer protection agency. • Share your knowledge. Talk with family, friends, and neighbors about your experience so they know what to look out for.

When you receive a digital message, no matter how official it seems, do not click on any links. Do not give or confirm any personal information, including your name, birth date, phone number, address, email address, place of birth, driver’s license, passport, or Social Security numbers, bank or other account numbers, and PIN numbers.

Being skeptical can keep you safe. Remove yourself from the situation. Do not share information. If you feel anxious and need to confirm that it was a scam, contact the organization using a method provided on their official website.

How To Avoid Tax Scams

Below is a link to a video provided by the IRS to help avoid tax scams:

https://www.youtube.com/@irsvideos

If you have any questions, please contact us.

Did you Know? This Week in History

January 3, 1924: King Tut’s Sarcophagus Uncovered

Two years after British archaeologist Howard Carter and his workmen discovered the tomb of the Pharaoh Tutankhamen near Luxor, Egypt, they uncovered the greatest treasure of the tomb—a stone sarcophagus containing a solid gold coffin that held the mummy of Tutankhamen.

When Carter first arrived in Egypt in 1891, most of the ancient Egyptian tombs had been discovered, although the little-known Pharaoh Tutankhamen, who had died when he was a teen, was still unaccounted for. After World War I, Carter began an intensive search for “King Tut’s Tomb,” finally finding steps to the burial room hidden in the debris near the entrance of the nearby tomb of King Ramses VI in the Valley of the Kings. On November 26, 1922, Carter and fellow archaeologist Lord Carnarvon entered the tomb, finding it miraculously intact.

Thus began a monumental excavation process in which Carter carefully explored the four-room tomb over four years, uncovering an incredible collection of several thousand objects. The most splendid architectural find was a stone sarcophagus containing three coffins nested within each other. Inside the final coffin, made of solid gold, was the mummy of the boy-king Tutankhamen, preserved for more than 3,000 years.

Weekly Focus

When we love, we always strive to become better than we are. When we strive to become better than we are, everything around us becomes better too.

Paulo Coelho, Author

Go out on a limb. That is where the fruit is.

Jimmy Carter, 39th President of the United States