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3 Reasons Investors Can Be Thankful This Holiday Season

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After a historic year, investors have much to be thankful for this holiday season. Despite periods of uncertainty around the Federal Reserve, the presidential election, and geopolitical conflicts, the stock market has delivered exceptional returns in 2024. With only a few weeks left in the year, the S&P 500 has gained 26.7% with dividends year-to-date, the Dow 19.5%, and the Nasdaq 27.4%. International stocks have also performed well, with emerging markets advancing 9.0% and developed markets 4.8%. Economic growth has exceeded expectations, with inflation returning to pre-pandemic levels, unemployment still low, and GDP growing steadily.

Financial markets have performed well this year

Just as many express gratitude in their personal lives, the holidays are a good time to do so in our investing and financial lives. This is important because investors tend to focus only on what can go wrong. Even after two strong market years, there is no shortage of concerns on issues such as market fundamentals, the direction of the economy, the size of the national debt, global instability, and more.

While past performance is no guarantee of future success, what history shows is that staying focused on the long run is the best way to achieve financial goals. Over the course of days, weeks and months, markets can fluctuate significantly just as they did in April and August, or in 2020 and 2022. However, over longer time horizons, markets have tended to rise due to the strength of economic growth. What can investors pause to appreciate this holiday season?


First, the U.S. stock market has demonstrated impressive strength in 2024. This is due to robust corporate earnings, better-than-expected economic conditions, and improving investor confidence. The accompanying chart shows that except for one quarter, the last two years have experienced steady market returns. While technology and AI stocks have led the way, many other sectors have contributed this year. In fact, most parts of the market are positive year-to-date, and eight of the eleven S&P 500 sectors have generated double-digit returns.


The strong bull market since the end of 2022 does mean that valuations are no longer as attractive. The price-to-earnings ratio for the S&P 500 is now 22.3, nearing both recent highs and the dot-com peak of 24.5.


Rather than a reason to avoid the stock market, stretched valuations are a reminder to hold a properly constructed portfolio. Owning stocks, or any risk asset, needs to be balanced with asset classes such as bonds to achieve portfolio goals. The end of the year is a perfect time to review your asset allocation, especially after this year’s market movements.


Inflation is returning to normal levels

Second, investors can be thankful that inflation rates have slowed to pre-pandemic levels. While this does not mean that prices will fall for most everyday necessities, including food and rent, it is a positive sign, nonetheless. This is especially true for investment portfolios since they are sensitive to interest rates, which are directly affected by inflation.


Normalizing inflation has allowed the Federal Reserve to begin cutting policy rates for the first time since early 2022. Much of this year’s stock market volatility was the result of investors guessing when and by how much the Fed would do so.


In the end, trying to determine the exact timing was far less important than understanding the general trend of lower short-term interest rates. Thus, for investors with long time horizons, constructing a portfolio based on these factors, rather than the trends that have driven markets over the past several years, is more important than ever.


The economy and job market remain strong

Finally, for everyday individuals, there is perhaps nothing more important from an economic standpoint than the strength of the job market. The fear as the Fed raised rates was that the economy would face a “hard landing” – i.e., bringing inflation down would cause a collapse in hiring.


Fortunately, this did not occur. Unemployment is still near historically low levels and job gains have been steady. Wages have also risen, although not as fast as overall inflation. The accompanying chart shows that the economy has created 28.6 million new jobs since the pandemic, far eclipsing the previous level. While job gains differ from sector to sector, this means that many consumers are in a healthy financial position.


More broadly, the U.S. economy continues to demonstrate remarkable resilience, with real GDP growing at an annualized rate of 2.8% in the most recent quarter. This is largely due to the strength of consumer spending, which has contributed greatly to overall growth. While this can’t last forever – consumers have largely spent their excess savings from the past few years and debt levels are rising – the hope is that lower rates, clarity around tax policy, and increased business investment will continue to support the economy.


The bottom line? Markets never move up in a straight line, and this year was no exception. Still, returns have been historically strong despite periods of volatility. This holiday season, investors should focus on the positives and ensure that their portfolios are aligned with their long-term financial goals.

5 Insights for Long-Term Investors in the Second Half of 2024

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As we enter the second half of the year, it’s important for long-term investors to maintain perspective on the major events that drive markets. Despite ongoing economic uncertainty, the stock market has experienced a strong rally as investors anticipate the first Fed rate cut and the rally in artificial intelligence stocks continues. During the first six months of the year, the S&P 500 gained 15.3% with dividends, the Nasdaq 18.6%, and the Dow Jones Industrial Average 4.8%. The 10-year Treasury yield declined from its April peak of 4.7% to 4.4%, allowing the overall bond market to be roughly flat on the year. International stocks have performed better as well, with developed markets generating 5.7% and emerging markets 7.7%.



This strong performance may have caught some investors off guard while others may not have been properly positioned to take advantage of the upswing across many asset classes. This is because market sentiment can often turn on a dime, especially when there is so much investor and media focus on short-term events. For example, the recession that was anticipated at the beginning of the year has not yet occurred and there are signs that inflation, which ran hotter than expected for a few months, is beginning to improve.



Of course, the market’s focus will now shift toward major events in the second half of the year. Perhaps the most notable is the upcoming presidential election. As investors prepare to cast their ballots in November, they will also wonder what each political party could mean for their portfolios and financial plans. Investors will also watch the timing and number of Fed rate cuts closely since lower rates are generally positive for both stocks and bonds.

While the outcome of these events is uncertain and introduces new risks, the first half of the year is a reminder that overreacting to day-to-day headlines, at the expense of long-term underlying trends, can often result in poor investment decisions. History shows that it’s important to separate our personal feelings around politics from our financial decisions in order to stay invested, diversified, and disciplined. Below are five key facts all investors should keep in mind to stay levelheaded through the rest of 2024 and beyond.

1. The market continues to reach new all-time highs

On its way to a 15.3% gain in the first half of the year, the S&P 500 has achieved over 30 new all-time highs. While this is positive, it can also make many investors nervous. When the market is in uncharted territory, it’s easy to worry that it may be “due for a pullback.”



The reality is that price swings are an unavoidable part of investing and the market will certainly pull back at some point. However, the timing of these declines is difficult if not impossible to predict. At the same time, major stock market indices will naturally spend a significant amount of time near record levels during bull markets, as shown in the accompanying chart. Trying to time the market tends to be counterproductive for this reason.



This year, artificial intelligence stocks – particularly Nvidia – have contributed greatly to market returns with the Information Technology and Communication Services sectors gaining 28.2% and 26.7%, respectively. However, other sectors have more recently begun to benefit as well with Energy, Financials, Utilities, and Consumer Staples all experiencing rallies of around 10%. All told, 10 of the 11 sectors are positive on the year. While it’s unclear where large-cap technology stocks may go from here, staying diversified allows investors to benefit from a wide variety of sectors.

2. With inflation cooling, the Fed is on track to cut rates later this year

Investors have been anticipating the first rate cut of the cycle since the beginning of the year. This has not only driven returns, but is one reason markets have swung so much when new economic data has caused expectations to shift.



The accompanying chart shows the possible path of the federal funds rate based on the Fed’s latest projections. At its last meeting, the Fed cited strong job gains and low unemployment as indicators of solid economic activity but emphasized that “inflation has eased over the past year but remains elevated.” Fortunately, the latest inflation data in May showed a significant deceleration that has preserved the possibility of a rate cut this year.



Many of the additional rate cuts that investors previously expected have simply been pushed into next year and will depend on the economic data over the next six months. Regardless of the exact timing and path of Fed rate cuts, these projections represent a reversal of the emergency monetary policy actions that began in early 2022.

3. Steadier rates support the bond market

The path of interest rates has been highly uncertain over the past few years due to inflation, economic growth, and the Fed. Higher rates have defied the expectations of investors and economists, creating a challenging environment for the bond market, since rising rates push down bond prices.



After hotter-than-expected readings in the first quarter of the year, the latest Consumer Price Index data showed no change in overall prices in May for the first time in almost two years. Core CPI rose 0.2% in May, or 3.4% year-over-year, a healthy deceleration from the previous month’s 3.6% pace. Other data, such as the Personal Consumption Expenditures index that the Fed favors, and the Producer Price Index, have shown similar patterns.



These developments, along with new Fed guidance, have pushed rates lower in recent days, supporting bond prices. The Bloomberg U.S. Aggregate Bond Index, a measure of the overall bond market, is nearly flat on the year after declining as much as 4% in April. This is in sharp contrast to 2022 when bonds fell into a bear market during the historic jump in interest rates, before stabilizing and rebounding in 2023.

4. Many investors remain on the sidelines in cash

In times of market uncertainty, investors often seek the safety of cash. This has been true over the past several years as markets have swung due to the pandemic, geopolitical events, Fed rate hikes, inflation, gridlock in Washington, technology trends, and more. Additionally, interest rates on cash are at their highest levels in decades, making it appear that there are attractive “risk-free” returns.



While cash is important, it can become problematic when investors hold too much cash. This is because cash is not truly risk-free for two important reasons. First, inflation quietly erodes the purchasing power of cash over time. So even if yields appear to be high, the real value of your money could decline.



Second, the prospects for cash will only worsen if and when the Fed does begin to cut rates. Investors would be forced to reinvest their cash either at lower interest rates or in stocks and bonds whose prices would most likely have already risen.

5. The presidential election is heating up

Coverage of the presidential election is heating up. While elections are an essential way for Americans to help shape the direction of the country as citizens, voters and taxpayers, it’s important to vote at the ballot box and not with investment portfolios.



History shows that markets can perform well under both major political parties. As the accompanying chart shows, the economy and stock market have grown over decades regardless of who was in the White House. What mattered more across these periods were the ups and downs of the business cycle.



Of course, politics can impact taxes, trade, industrial activity, regulations, and more. However, not only do policy changes tend to be incremental, but also the exact timing and effects are often overestimated. Thus, it’s important to focus less on day-to-day election poll results and more on the long-term economic and market trends. Ideally, investors concerned about the impact of specific policies on their financial plans should speak with a trusted financial advisor.



The bottom line? Investors should keep these five factors in mind as we head into summer. As always, it’s important to maintain a long-term perspective to achieve investing goals. Working with a trusted financial advisor can help you navigate through an uncertain future and be prepared for changes in the economy and stock market through the rest of 2024.

Some Investors Think Trading Around Election Outcomes Makes Sense

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Some investors think trading around election outcomes makes sense. Covering the modern period for the S&P 500, investing only when a Republican was in the White House, a $10K initial investment in 1961 would have grown to more than $102K by 2023. On the other hand, the same $10K initial investment would have grown to more than $500K, investing only when a Democrat was in the White House. Some might stop the analysis there and conclude that staying out under Republican presidents and being in under Democratic presidents is a winning strategy.

But the real moral of the story is told with the final bar. The same $10K initially invested in 1961 would have grown to more than $5.1M by just staying invested, without regard for the political party in power.

Source: Schwab Center for Financial Research with data provided by Morningstar, Inc.

Personal Financial Planning for your Biggest Investments

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If you are like most folks, in your mind the word “investment” usually refers to your mutual fund holdings, or your 401k or IRA account. However, “investment” is a broad term that refers to a number of aspects of your life. Here are some of the biggest investments you have, that you might not be aware of, in your personal financial planning.

Your Career

Take a step back and look at your career. Do you enjoy what you do? Are you fairly compensated for the work you provide? Have you looked at your benefits recently? If you do not have a good benefit package, you can end up having problems while you are working, and when you stop working.

There are several ways to save for financial independence, but working with an employer’s retirement package is one of the best options. Not only should you look at the level at which you are investing, but the amount your employer matches. The other thing to consider with your job is the health insurance and life insurance programs you are being offered. Are you given a low rate for insurance? Can you buy an adequate and appropriate amount of coverage? 

Talk to your employer about your current benefit package to make sure you are not paying more than you should. Talk about other benefits like tuition reimbursement, credit unions, and corporate travel discounts to capitalize on these savings and enhance your personal financial planning.

This is an important aspect of personal financial management, as you need to know where your money is going, and what your employer is doing to help you.

Your Health

Do you take the time to work out each day? If you have a list of excuses as to why you cannot exercise, or you cannot give up the junk food for healthy options, you can easily hurt yourself financially. Healthier eating and living a healthier lifestyle is a smart part of personal financial planning as can help to shield you from excessive medical expenses.

Your Relationships

How do you fare with your personal relationships? Are you happy with your marriage? Are you happy with the relationships you have with your loved ones and friends? You need to improve your relationships to boost your health and overall well-being. If you must go through a divorce, you can face significant costs, which can take years to recover.

Money Behavior

Another investment you might not be aware of is the way you spend money. If you are an impulse buyer, you can end up spending more for a product than it is truly worth. If you can cut $5 from daily expenses and invest it at 6%, you can end up with $300,000 after 40 years! This shows the importance of a single dollar and why you need to have smart investment management to save money for your future.  Being wise with your money is a critical practice when it comes to achieving financial confidence. Learn how to manage all these different areas of your life to have a happier life, free of debt and stress.