Week of January 20, 2025

Key Points for the Week

• Core inflation moved lowed in December. • Reported 4th quarter company earnings started off strong. • The U.S. economy and stock market has seen strong growth over the last two years.

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

Last week, investors breathed a sigh of relief when the latest price data showed core inflation, which excludes volatile food and energy prices, moved lower in December.

Investors has been worried because economists forecasted inflation would be stickier in December, reported Frank Lee of Morningstar. If that proved out, the Fed might have stopped lowering the federal funds rate, which would have had adverse implications for company performance and stock prices. So, when core inflation dropped to 3.2 percent year over year, investors celebrated.

Some think the celebration might be premature.

Stocks jumped after this week’s inflation data. The problem is that there is not a lot to love in the numbers. The reality is that inflation remains well above the Federal Reserve’s 2 [percent] goal. The average headline [Consumer Price Index] has been 2.7 [percent] in the past three months, above the 2.6 [percent] average for the three months that ended in September. So, the trend of inflation, when considering a larger sample size of results, is inching higher, not lower…The result is that the Fed is unlikely to reduce interest rates aggressively. The federal-funds futures market now expects just one interest-rate cut this year…

Jacob Sonenshine, Barron’s

Inflation was not the only reason investor optimism surged last week, though. Fourth quarter earnings season—the time when management lets investors know how the companies performed in the prior quarter—got off to a strong start.

Big Banks set a positive note earlier this week, while [a large semiconductor company] sparked further enthusiasm among chip stocks. Things will only heat up in the weeks ahead, as Wall Street sizes up results from the market's heaviest hitters.

Connor Smith, Barron’s

We should all be prepared for markets to be volatile this year.

While last week delivered attractive gains overall, the week before stock and bond markets moved in the opposite direction.

While I continue to believe we are in a bull market—with rising earnings poised to pull the weight of the market still higher—this recent volatility could be a sign of things to come. Later stages of a bull market tend to be more volatile. It does not take as much to disrupt the market’s mojo when valuations like price-earnings (PE) ratios are high, as they have been. But moreover, I believe the interest-rate angst that is been weighing on the market is not likely to go away anytime soon, and could be a recurring feature of the year ahead.

Jurrien Timmer, Fidelity

Last week, major U.S. stock indices rose sharply, and yields on longer maturities of U.S. Treasuries fell.

This Week in the Markets

As we look ahead to 2025, we know the impact of high inflation in 2022 and the higher interest rates that came with it are still relevant. We have seen it in global elections, where incumbents have been rejected across the political spectrum. We have seen it in consumer sentiment surveys, which have improved but remain well below pre-pandemic levels despite 3.0% annualized real GDP growth over the last two years.

Fortunately, whatever the global mood, markets have been able to tune out much of the noise. The S&P 500 has now had strong gains for two years in a row, and the U.S. economy has seen two solid years of growth. In fact, real GDP has grown at an annualized pace of 3.0% over the last two years (through the third quarter of 2024), which is faster than the 2017-2019 pace of 2.8%.

The economy is on solid footing right now—thanks to strong income growth, solid household balance sheets, and strong recent labor productivity growth. That does not mean there are not potential risks. Elevated interest rates, even in the face of Fed cuts, could be a big risk to the economy. Higher rates are mostly a function of stronger growth expectations, but it is hurting sectors like housing, manufacturing, and investment spending.

There is a lot of policy uncertainty ahead, both on the monetary and fiscal side. The Fed is expected to cut rates, but they are going to follow the data, and the pace of cuts is uncertain. On the fiscal side, the incoming Trump administration and Congress will have to work out the details of tax policy, and the administration will have to finalize a strategy around tariffs.

There may be an opportunity for a virtuous cycle of economic activity that can help sustain strong economic growth, but the opportunity is also easily squandered, making a potential policy mistake a key risk for the expansion not achieving its full potential. That could result in more volatile markets in 2025 than what we saw in 2024.

The Costliest Natural Disasters In U.S. History

The Los Angeles wildfires were still burning when this was written, and it is not yet possible to understand the full economic impact of the event. Last week, AccuWeather “increased its preliminary estimate of the total damage and economic loss to between $250 billion and $275 billion,” reported Monica Danielle. A week earlier, the estimate had been $52 billion to $57 billion.

If the new forecast holds up, it puts the wildfires at or near the top of the list of costliest natural disasters in the United States. Not including the wildfires, six of the top 10 events have happened over the past decade. Here are the top 10, as listed in AARP.org using data from the National Oceanic and Atmospheric Administration (NOAA). (All dollar figures were adjusted for inflation.)

1. Hurricane Katrina, 2005, Louisiana, Mississippi, and Alabama: $201.3 billion
2. Hurricane Harvey, 2017, Texas: $160.0 billion
3. Hurricane Ian, 2022, Florida: $160.0 billion
4. Hurricane Maria, 2017, Puerto Rico, St. Croix, and U.S. Virgin Islands: $115.2 billion
5. Superstorm Sandy, 2012, New Jersey, New York, and other states: $ 88.5 billion
6. Hurricane Ida, 2021, Louisiana and other states: $ 84.6 billion
7. Hurricane Helene, 2024, Florida, western North Carolina: $ 78.7 billion
8. Hurricane Irma, 2017, Florida, South Carolina, and U.S. Virgin Islands: $ 64.0 billion
9. Hurricane Andrew, 1992, Florida: $ 60.5 billion
10. United States drought/heat waves, 1988-1990, 11 U.S. states: $ 54.6 billion

In 2024, there were 27 weather and climate events that inflicted damage of $1 billion or more. Since 1980, there have been 403 events of that magnitude, with a total price tag of more than $2.9 trillion, reported NOAA.

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.

IRS Urges Taxpayers to Not Fall Prey to “Ghost Tax Preparers”

A common problem seen during tax season, “ghost preparers” pop up to encourage taxpayers to take advantage of tax credits and benefits for which they do not qualify. These preparers can charge a large percentage fee of the refund or even steal the entire tax refund. After the tax return is prepared, these “ghost preparers” can simply disappear, leaving well-meaning taxpayers to deal with the consequences.

While most tax professionals offer quality service, these ghost preparers and other unscrupulous preparers try to take advantage of people and should be avoided at all costs. The IRS encourages people to use a trusted tax professional, and IRS.gov has important information to help people choose a reputable, accredited practitioner.

Warning Signs to Look Out For

Most tax return preparers provide honest, high-quality service. But some may cause harm through fraud, identity theft and other scams. Paid preparers must sign and include a valid preparer tax identification number (PTIN) on every tax return. A ghost preparer is someone who does not sign tax returns they prepare. These unethical tax return preparers should be avoided, especially if they refuse to sign a complete paper tax return or digital form when filing electronically.

Taxpayers are also encouraged to check the tax preparer’s credentials and qualifications to make sure they are capable of assisting with the taxpayer’s needs. The IRS offers resources for taxpayers to educate themselves on types of preparers, representation rights, as well as a Directory of Federal Tax Return Preparers with Credentials and Select Qualifications to help choose which tax preparer is the best fit.

Some of the warning signs of a bad preparer include:

• Shady fees. Taxpayers should always ask about service fees. Shady tax preparers can ask for a cash-only payment without providing a receipt. They are also known to base their fees on a percentage of the taxpayer’s refund. • False income. Untrustworthy tax preparers may also invent false income to try to get their clients more tax credits or claim fake deductions to boost the size of the refund. • Wrong bank account. Taxpayers should also be wary of a tax preparer attempting to convince them to deposit the taxpayer’s refund in their bank account rather than the taxpayer’s account.

Good preparers ask to see all relevant documents like receipts, records, and tax forms. They also ask questions to determine the client’s total income, deductions, tax credits and other items. Taxpayers should never hire a preparer who e-files a tax return using a pay stub instead of a Form W-2. This is also against IRS e-file rules.

Report Fraudulent Activity and Scams

The IRS highly encourages people to report tax return preparers who deliberately prepare improper returns and any activity that promotes improper and abusive tax schemes.

To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242 – Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.

Mail: Internal Revenue Service Lead Development Center MS7900 1973 N. Rulon White Blvd. Ogden, UT 84404 Fax: 877-477-9135

Alternatively, taxpayers and tax practitioners may send the information to the IRS Whistleblower Office for possible monetary award.

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 23, 1957: Toy Company Wham-O Produces First Frisbee

On January 23, 1957, machines at the Wham-O toy company rolled out the first batch of their aerodynamic plastic discs—now known to millions of fans all over the world as Frisbees.

The story of the Frisbee began in Bridgeport, Connecticut, where William Frisbie opened the Frisbie Pie Company in 1871. Students from nearby universities would throw the empty pie tins to each other, yelling “Frisbie!” as they let go. In 1948, Walter Frederick Morrison and his partner Warren Franscioni invented a plastic version of the disc called the “Flying Saucer” that could fly further and more accurately than the tin pie plates. After splitting with Franscioni, Morrison made an improved model in 1955 and sold it to the new toy company Wham-O as the “Pluto Platter”–an attempt to cash in on the public craze over space and Unidentified Flying Objects (UFOs).

In 1958, a year after the toy’s first release, Wham-O—the company behind such top-sellers as the Hula-Hoop, the Super Ball, and the Water Wiggle—changed its name to the Frisbee disc, misspelling the name of the historic pie company. A company designer, Ed Headrick, patented the design for the modern Frisbee in December 1967, adding a band of raised ridges on the disc’s surface–called the Rings–to stabilize flight. By aggressively marketing Frisbee-playing as a new sport, Wham-O sold over 100 million units of its famous toy by 1977.

Today, at least 60 manufacturers produce the flying discs—generally made of plastic and measuring roughly 20-25 centimeters (8-10 inches) in diameter with a curved lip. The official Frisbee is owned by Mattel Toy Manufacturers, who bought the toy from Wham-O in 1994.

Weekly Focus

Winning is a habit. Unfortunately, so is losing.

Vince Lombardi, American Professional Football Coach

I can calculate the movement of stars, but not the madness of men.

Isaac Newton, English Polymath