The Markets

What moves financial markets? The short answer is: Lots of things!

Almost one hundred years ago, Benjamin Graham and David L. Dodd wrote, “the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.” Today, the same holds true. Stock prices are influenced by many factors. Here are three examples:

1. Market trends. Last year, companies with strong momentum characteristics—meaning their prices were trending higher—generally did well. “The main rationale behind momentum investing is that once a trend is well-established, it is likely to continue,” reported the Corporate Finance Institute.

 The idea may seem contrary to the primary rule of investing, sell high and buy low, but the approach is backed by academic research. It “captures the tendency for market trends to persist for a while, whether it’s because more investors are jumping in or are late to absorb new information,” reported Justina Lee of Bloomberg. As one researcher told Lee, “Momentum investing is great until it’s not.”

2. Investor sentiment. Emotion plays a significant role in stock market volatility. For example, last week, we saw a relief rally. Asian stocks rose and the Standard & Poor’s (S&P) 500 Index hit a new high because the news was less bad than investors had expected. Isabelle Lee, Lu Wang, and Phil Serafino of Bloomberg explained:

“Despite the protectionist threats of the campaign trail, Trump held off on imposing levies on key trading partners this week, and just last night delivered his most mollifying message yet to China by saying that he would rather not have to use tariffs against the world’s second-biggest economy. Cue a relief rally across markets.”

3. Company fundamentals. Graham and Dodd recommended fundamental analysis to identify stocks with good value. Investors who rely on fundamental analysis study companies’ financial statements, and consider assets and liabilities, revenue and expenses, earnings and cash flow, and other factors. Then they do some math to evaluate the company’s value using various measures like the price-to-earnings ratio. In theory, a company with a low share price relative to its earnings is a good value.

No one knows how markets will perform over the short term. That’s one reason it’s important to hold a diversified portfolio. Owning investments that perform differently in various market conditions helps manage investment risk and may smooth returns over time.

Last week, major U.S. stock indices rose. The S&P 500 moved higher over the week, the Dow Jones Industrial Average gained 2.2 percent, and the Nasdaq Composite rose 1.7 percent, reported Paul R. LaMonica of Barron’s. Yields on U.S. Treasuries were relatively steady.

PLANNING FOR REQUIRED MINIMUM DISTRIBUTIONS. If you save for retirement in a qualified plan, such as a 401(k) plan or an IRA, the government currently requires you to take withdrawals from these accounts during retirement. The withdrawals, known as required minimum distributions or RMDs, are taxable so it’s a good idea to plan ahead and avoid unexpected tax consequences.

Here is some basic information about RMDs. It is offered with the caveat that RMDs have complex rules. It’s important to talk with your financial or tax professional before taking action.

If your 73^rd birthday is in 2025, your first RMD must be taken by April 1, 2026. Your second RMD by December 31, 2026, your third RMD by December 31, 2027, and so on.

If you delay your first distribution until April 1, 2026, then you will need to take two RMDs in the same year.

If you have multiple 401(k) plan and IRA accounts, you typically must calculate the RMD for each one of them. You can, however, withdraw the entire amount from a single account.

If you’re still working at age 73, you don’t have to take an RMD from your workplace retirement plan account (as long as the plan allows it). This exception does not apply to traditional IRAs. You must take RMDs from traditional IRAs, even if you’re still working.

If you inherit an IRA from a spouse (after 2019) who already reached age 73, you will normally need to take an RMD for the year of death, if your spouse did not already take one. If your spouse dies before age 73, you may be able to keep the inherited account, roll it over into your IRA, or withdraw the money in a lump sum or over a period of time.

 If you inherit an IRA from someone other than your spouse (after 2019), usually the funds must be completely withdrawn from the account within 10 years. RMDs may be required if the person from whom you inherited the account was already taking RMDs. There are some exceptions.

 If you miss an RMD deadline or you don’t withdraw the full amount, penalties are steep. The penalty tax is 25 percent of the amount you failed to withdraw. If you correct the issue within two years, the penalty tax is lower.

If you own a Roth IRA or Designated Roth account in workplace plan, you do not have to take RMDs—unless you inherited the account. In that case, RMD rules usually apply.

Again, the rules governing RMDs are complex, and calculating RMDs is not always straightforward. If you would like help, or you have questions, please get in touch. 

Weekly Focus – Think About It
“Never wear anything that panics the cat.”
—P.J. O’Rourke, comedian

The Markets

As the markets turn.

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.

Jacob Sonenshine of Barron’s reported, “Stocks jumped after this week’s inflation data. The problem is that there’s 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…”

Inflation wasn’t 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,” reported Connor Smith of 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. Jurrien Timmer of Fidelity explained why we may see significant volatility this year:

“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. And it doesn’t 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’s been weighing on the market isn’t likely to go away anytime soon, and could be a recurring feature of the year ahead.”

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

THE COSTLIEST NATURAL DISASTERS IN U.S. HISTORY. The Los Angeles wildfires were still burning when this was written, and it’s 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.                                                                                                                       

Weekly Focus – Think About It
“[Jimmy Carter] had the courage and strength to stick to his principles even when they were politically unpopular…Fifty years ago, he was a climate warrior who pushed for a world where we conserved energy, limited emissions, and traded our reliance on fossil fuels for expanded renewable sources. By the way, he cut the deficit, wanted to decriminalize marijuana, deregulated so many industries that he gave us cheap flights and, as you heard, craft beer. Basically, all of those years ago, he was the first millennial. And he could make great playlists…”
—Jason Carter, grandson of former U.S. President Jimmy Carter

The Markets

Bond yields are rising—and they have investors’ attention.

Last year, the United States Federal Reserve (Fed) lowered the federal funds rate by one percent. (The federal funds rate is the interest rate the Fed charges banks. It influences other interest rates.) This shift in Fed policy made a lot of people happy.

• Companies, business owners, and consumers cheered because Fed rate cuts typically lower borrowing costs. As a result, rates on business loans, home equity loans, auto loans and credit cards tend to move lower.

• Stock investors were enthusiastic because lower borrowing costs can reduce companies’ expenses and increase profits, and that can lift stock prices higher. Since the stock market moves in anticipation of future events, rate cut expectations are already reflected in many companies’ stock prices.

• Prospective homebuyers were optimistic. Fixed mortgage rates are linked to the yield of the 10-year U.S. Treasury note, and they hoped it might also move lower.

Bondholders were more skeptical. Even as the Fed was cutting the federal funds rate, yields on longer maturities of U.S. government bonds were moving higher—not lower. One reason is that economic data—including last week’s strong jobs report—continue to confirm that economic growth and inflation are exceeding expectations. As a result, the Fed may be inclined toward fewer rate cuts in 2025.

“For stocks, higher bond yields imply no increase in price/earnings ratios and possibly some contraction from current levels,” reported Randall W. Forsyth of Barron’s. Changing expectations for Fed actions and company performance is likely to shift analysts’ outlook for stock market performance.

There is a second reason for the divergence in Fed actions and government bond yields, according to economist Mohamed El-Erian, a columnist for Bloomberg. He explained that key government bond yields in advanced economies “are widely regarded as the most accurate gauge of the economic outlook, including growth, inflation and central bank policies.” In his opinion, “Yield increases show that investors are closely watching whether advanced economies have the ability to deal with high debt and rising borrowing costs.” 

Last week, major U.S. stock indices moved lower, and yields on longer maturities of U.S. Treasuries continued to rise.

HOW MUCH DO YOU KNOW? Last year, Pew Research asked adults across the United States how much they knew about personal finance, a topic that includes “managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, and retirement, tax, and estate planning,” reported Will Kenton of Investopedia.

More than half (54 percent) of those who participated in the survey said they knew a great deal or a fair amount about personal finance. However, the results varied widely depending on the demographic attributes considered. For example, knowledge about money appears to increase with age, reported Khadijah Edwards of Pew Research Center. For example:

Ages 18 to 29:             41 percent know at least a fair amount

Ages 30 to 49:             47 percent know at least a fair amount

Ages 50 to 64:             60 percent know at least a fair amount

Ages 65 and older:      67 percent know at least a fair amount

Extrapolating that result suggests that about two-thirds of Americans may know a fair amount about personal finance as they approach retirement. Many survey participants learned what they knew about money from family and friends. Others said they relied on:

• The internet,
• A college or university course,
• Media (news, documentaries, and books), and
• Elementary or high school classes.

When asked about various issues related to finances, respondents were more confident in their ability to accomplish some tasks than others. For example, participants were confident they could:

• Find their credit report 75 percent
• Make a monthly budget 59 percent
• Develop a plan to pay off debt 57 percent
• Create a plan to save money 56 percent
• Build an investment plan to grow wealth 27 percent

If you have friends or family members who would benefit from knowing more about how to manage, save, and invest money, gifting a subscription to a personal finance publication could make a difference. You’re also welcome to share our contact information. We help people pursue their financial goals. 

Weekly Focus – Think About It
“Real knowledge is to know the extent of one’s ignorance.”
  —Confucius, philosopher

https://www.newyorkfed.org/markets/reference-rates/effr

https://www.investopedia.com/terms/f/federalfundsrate.asp

https://www.bankrate.com/mortgages/federal-reserve-and-mortgage-rates/

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202501

https://www.bls.gov/news.release/empsit.nr0.htm

https://www.barrons.com/articles/bond-yields-stocks-markets-c547ed93?mod=hp_LEDE_C_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-13-25_Barrons_Bond%20Yields%20Rising%20A%20Problem%20For%20Stocks_6.pdf)

https://www.bloomberg.com/opinion/articles/2024-12-30/bond-vigilantes-are-putting-governments-on-notice (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-13-25_Bloomberg_Bond%20Vigilantes%20Putting%20Govs%20on%20Notice_7.pdf)

https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-13-25_Barrons_Data_8.pdf)

https://www.investopedia.com/terms/p/personalfinance.asp

https://www.pewresearch.org/short-reads/2024/12/09/roughly-half-of-americans-are-knowledgeable-about-personal-finances/

https://www.goodreads.com/quotes/63437-real-knowledge-is-to-know-the-extent-of-one-s-ignorance

The Markets

Consumers were more optimistic. Investors were less so.

As we neared 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,” reported survey 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.

Source: AAII Investor Sentiment Survey

Investor sentiment is often considered to be a contrarian indicator. The AAII website explained, “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, more often than not, 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.”

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.

IDIOMS DON’T SAY WHAT THEY MEAN…If you’ve ever “cried wolf,” “gone the extra mile,” or “had butterflies in your stomach,” then you’re familiar with idioms—phrases that don’t mean what they say. They’re used to “add color” to communications, making what’s said or written more memorable. The English language has a lot of idioms about money. Test your knowledge of money idioms by taking this quiz.

1. Someone says, “You can take it to the bank.” What they mean is you should:
   1. Make a deposit.
   2. Proceed with caution, it may be a scam
   3. Believe a statement is true and accurate
   4. Understand that a venture will generate a lot of money

2. If someone is ‘living on a shoestring,” they have a very limited budget. Which of the following may explain how the saying originated?
   1. Shoestrings are thin and break easily
   2. Peddlers once made a living by traveling town to town selling shoelaces
   3. British prisoners would lower a shoe by its laces through cell windows hoping someone would give them money
   4. All of the above

3. If you believe that a new product or service will do well you might say it will:
   1. Break the bank
   2. Put cash on the barrelhead
   3. Sell like hotcakes
   4. Hop on the gravy train

4. When people offer aid to a person or group in need, they are:
   1. Striking while the iron is hot
   2. Following the herd
   3. Playing the long game
   4. Offering a helping hand

Weekly Focus – Think About It
“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

Answers: 1) c; 2) d; 3) c; 4) d

Sources:
http://www.sca.isr.umich.edu
https://data.sca.isr.umich.edu/fetchdoc.php?docid=24774
https://www.aaii.com/sentimentsurvey (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/12-30-24_AAII%20Investor%20Sentiment%20Survey_3.pdf)
https://www.aaii.com/journal/article/contrarian-indicators
https://www.barrons.com/market-data (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2024/12-30-24_Barrons_Data_5.pdf)
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202412
https://www.goodreads.com/author/quotes/566.Paulo_Coelho
https://grammarist.com/idiom/bank-on-it-and-take-it-to-the-bank/
https://library.wbi.ac.id/repository/293.pdf
https://www.merriam-webster.com/dictionary/shoestring#h2
https://www.merriam-webster.com/dictionary/hotcake
https://www.merriam-webster.com/dictionary/helping%20hand

The Markets

U.S. stocks thrive amid turmoil.

The performance of the U.S. stock market is striking. Last week, the Standard & Poor’s (S&P) 500 closed at a record high for the 57^th time this year, reported Rita Nazareth of Bloomberg. Here are some of the notable factors that sent stocks higher last week:

Political upheaval overseas. A declaration and cancellation of martial law in South Korea and the toppling of the French government roiled financial markets overseas, making United States markets attractive. “The political chaos spanning Seoul to Paris this week is reinforcing why many investors have chosen to stick to American markets,” reported Simon Kennedy and Phil Serafino of Bloomberg.

A powerful technology rally. Spending and excitement around the potential of artificial intelligence (AI) continue to delight investors. Both the communication services and information technology sectors are expected to report double-digit earnings growth during the last three months of 2024, reported John Butters of Factset. 

Rising company profits have been driven by higher spending. “While the ROI [return on investment] of any given AI project remains uncertain, one thing is becoming clear: CIOs [chief investment officers] will be spending a whole lot more on the technology in the years ahead. Research firm IDC projects worldwide spending on technology to support AI strategies will reach $337 billion in 2025—and more than double to $749 billion by 2028,” reported Paula Rooney of CIO.

Continued U.S. economic strength. Employers added 227,000 new jobs in November. That was well above the 200,000 forecasted, reported Barron’s. Stocks rose on the news, and so did expectations that the Federal Reserve will lower interest rates again at its December meeting. Lower rates are typically good for companies because they often lower the cost of borrowing and lead to higher spending.

By the end of the week, the S&P 500 and Nasdaq Composite Indexes were higher. The Dow Jones Industrial Average finished lower as it has less exposure to technology stocks, according to Barron’s, and more significant exposure to a large health insurance company that saw its stock price fall sharply after the assassination of its chief executive officer last week, reported Caroline Valetkevitch of Reuters. Treasury bonds gained last week, too, as yields moved lower on expectations of a Fed rate cut.

When any asset class experiences significant gains during the year, it’s important to review your investment allocations and make adjustments to maintain the risk profile that makes you most comfortable. Rebalancing also helps investors follow an important investment strategy: buy low and sell high.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

‘TIS THE SEASON FOR CYBERCRIME. While scammers and cybercriminals are always on the take, people tend to be particularly vulnerable to fraud amid the whirlwind of winter holiday shopping, giving, and travel. In a recent survey, 82 percent of participants reported they had experienced online scams from “encountering a deceptive advertisement to receiving a fake shipment notice or request from a fraudulent charity,” according to Jennifer Sauer of AARP Research.

During 2023, losses from internet crime totaled $12.5 billion. It’s a staggering sum—and may wildly underrepresent the actual amount taken. The FBI’s 2023 Internet Crime Report stated, “…when the FBI recently infiltrated the Hive ransomware group’s infrastructure, we found that only about 20 [percent] of Hive’s victims reported to law enforcement.”

Common 2024 holiday scams
In 2024, cybercriminals have become more aggressive and more devious, according to the FBI. The top schemes this holiday season include scammers:

• Posting websites and social media ads offering goods at unusually low prices,
• Soliciting donations for fake charities,
• Encouraging “investment” through phony cryptocurrency platforms,
• Selling fake gift cards to be used for donations or time-sensitive purchases, and
• Offering fake gift cards and event tickets on social media to steal personal data.

Here’s how to protect yourself
Being aware of the risks is the first step toward protecting yourself from cybercrime. The FBI and Lars Daniel of Forbes offered tips for protecting yourself this holiday season. They include:

• Resist temptation. Do not click on links received via e-mail, text, or messaging apps. If you receive a communication that a delivery has been delayed or there was an issue with a payment or something else has happened, don’t click on the link provided. Go to the company’s website or app to check.
• Verify before sharing, donating, or paying. If you receive a communication from a charity or financial institution you know, take time to verify the contact is truly from the organization. Cybercriminals can fake real numbers on caller ID and send messages that lead you to fake websites. One way to verify is to contact the organization directly with a phone number or email found on its official website, an account statement, or the back of a credit or debit card.

 Be wary of urgent requests. Holidays are often pressure-filled. Scammers often create a false sense of urgency, encouraging people to act without thinking carefully. Before you respond to an urgent and unexpected request, take time to think, research, and verify. Also, remember that government and law enforcement agencies will never ask that payments be made over the phone, via email, or through gift card purchases.

Any time you’re asked to share personal information, think carefully about who is asking and whether they should have the information. If you have any questions about how to protect yourself this holiday season, please get in touch.

Weekly Focus – Think About It
“We are all now connected by the Internet, like neurons in a giant brain.”
—Stephen Hawking, physicist and cosmologist

Sources:

https://www.bloomberg.com/news/articles/2024-12-05/stock-market-today-dow-s-p-live-updates?itm

https://www.bloomberg.com/news/newsletters/2024-12-04/south-korea-france-make-the-case-for-sticking-to-us-markets

https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_120624A.pdf [Page 10]

https://www.cio.com/article/3601606/cios-to-spend-ambitiously-on-ai-in-2025-and-beyond.html

https://www.bls.gov/news.release/empsit.nr0.html

https://www.barrons.com/livecoverage/november-jobs-report-data-today?mod=hp_LEDE_C_1

https://www.barrons.com/livecoverage/stock-market-today-120624/card/tech-stocks-leave-the-dow-in-the-dust-iTLLzgA626V7ivhHLcxL?

https://www.reuters.com/markets/us/futures-stall-after-wall-streets-record-high-closing-2024-12-05/#:~:text=UnitedHealth’s%20(UNH.N)%20%2C,opens%20new%20tab%20fell%201.1%25.

https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202412

https://www.aarp.org/pri/topics/work-finances-retirement/fraud-consumer-protection/holiday-shopping-scams-2024/

https://www.ic3.gov/AnnualReport/Reports/2023_IC3Report.pdf [Pages 3 and 7]

https://www.fbi.gov/contact-us/field-offices/sanfrancisco/news/fbi-san-francisco-warns-of-holiday-scams-targeting-shoppers-and-donors

https://www.forbes.com/sites/larsdaniel/2024/12/03/fbi-warning-online-holiday-shopping-scams-could-ruin-your-2024-season/

https://parade.com/living/stephen-hawking-quotes