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    0 Vericrest Insights - June 2025

      Data are in… and May didn’t disappoint.   The S&P 500 closed May up 6.2%, its best month since November 2023—and the strongest May showing since 1990. Cue the shoulder shrug from the Fed, but markets are clearly saying something.   The big surprise last week? A stunning collapse in the trade deficit, pointing to a possible 4% GDP growth rate in Q2—nearly double the 2% consensus. Economists everywhere quietly updated their forecasts and pretended that was the plan all along.   Geopolitical risks haven’t gone anywhere. China’s potential backtracking on its recent Geneva promises reignited Trump’s rhetoric and rattled markets just enough to notice. While current tariff levels are baked in, any escalation would be a downside risk. With potential Supreme Court involvement looming over executive tariff authority, this could be less about economics and more about constitutional law. Fun! But as always, markets care more about earnings and economic growth than about political grandstanding.   On the labor front, jobless claims are steady in the 220,000 range—not too hot, not too cold. Inflation is trending lower, though Walmart’s CEO could’ve chosen his words more wisely before casually tossing “higher prices” out there.   Home prices are up nearly 20% since 2021. Redfin reports a median sale price of $394,000 in late May, with monthly mortgage payments averaging $2,860—just $25 shy of a record high. Yet sellers now outnumber buyers by 33.7%, shifting the power dynamic. Translation: it might finally be okay to ask for the washer and dryer. Still, many would-be buyers are sidelined by high prices, economic uncertainty, and a strong attachment to their sub-3% mortgage rates.   Speaking of uncertainty, The Fed remains on hold. With the 10-Year yield hovering in the 4.50%-4.75% range, we are not yet at levels that signal true stress from a deficit standpoint. And the inflation picture continues to improve. The PCE deflator came in at or slightly below expectations – yet another argument for eventual easing, though the Fed seems content to wait it out.   All in, the market’s resilience—despite tariffs, politics, and scattered CEO gaffes—reflects investor optimism in the fundamentals: solid consumer spending, strong productivity, and stabilizing inflation. If this is what “uncertainty” looks like, investors seem pretty comfortable with it.     The Age-Wealth Multiplier Here’s why time in the market matters more than timing the market.   The age-wealth multiplier is the factor by which a dollar invested at a certain age grows by retirement, assuming a consistent annual rate of return. Put another way, it's how many times your money multiplies from the time you first invest it until retirement (assuming age 65).   Here is how the value of $1 compounds by age 65 (assuming a 10% annual rate of return): Invest at age 20, and every $1 grows to $72.89 Wait until 30, and it only grows to $28.10 Wait until 40, and it shrinks to $10.83 By age 50, that same dollar only becomes $4.18   Another way of looking at it: To match the future value of $1,000 invested at age 20 (which would grow to $72,890), here’s how much you’d need to invest at later ages: Age 30: $2,593.74 Age 40: $6,727.50 Age 50: $17,449.40   We know that we can’t control investment returns, but we can control when we start investing—and starting sooner makes all the difference. We’re not talking Warren Buffett levels of investing here—just something. Even if it’s 1% of your salary into a 401(k) or $50 a month into a Roth IRA, those small, consistent decisions compound in a powerful way over time.   No matter the age of the investor I hear the same phrase time and again: “I wish I had started sooner.” That always resonates.   And while we can’t turn back the clock, we can absolutely take action now—or help someone else do the same. This might not be relevant for you personally—but it could be for a child or grandchild who’s just starting out. If so, share this with them. One conversation could make a lifetime of difference.     For Further Reading   The Unexpected Reason Home Prices Could Drop Soon https://money.com/home-prices-could-drop-high-rates-low-demand/   Americans believe real estate, gold are the best long-term investments. They’re wrong, advisors say https://www.cnbc.com/2025/05/08/real-estate-and-gold-vs-stocks-best-long-term-investment.html   Can I stop my Social Security benefits if I decide to take early retirement? https://www.marketwatch.com/story/can-i-stop-my-social-security-benefits-if-i-decide-to-take-early-retirement-9f10e805?st=D8sHaA&reflink=desktopwebshare_permalink   Why This Stock Market Makes So Many of Us Want to Scream https://www.wsj.com/finance/investing/why-this-stock-market-makes-so-many-of-us-want-to-scream-fffd75d4?st=YLkg8Q&reflink=desktopwebshare_permalink  

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    0 Vericrest Insights - May 2025

    Happy Cinco de Mayo! What a tumultuous month in the equity markets, marked by the biggest stock declines since the early days of the Covid pandemic, huge single-day surges and similar swings in other investments, such as U.S. Treasuries. Despite the violence of the daily shifts, the monthly changes in major indexes were muted, with the S&P 500 falling less in April than it did in March.  The markets have rebounded strongly over the past week-and-a-half (the S&P 500 has been up for nine days in a row through last Friday, which is the longest winning streak in the index's history in more than 20 years), holding ground despite the lingering cloud of uncertainty surrounding tariffs and trade negotiations. While tariffs and dollar weakness are stirring short-term concerns (a “tariff tantrum”), long-term inflation expectations remain firmly anchored, setting a strong case – some economists believe – for the Federal Reserve to begin cutting rates. Core PCE (Personal Consumption Expenditures) is sitting near a multi-year low of 2% – exactly at the Fed’s target. Despite political rhetoric around tariffs and inflation, the data tells a clear story: long-term inflation expectations are stable. Earnings reports are a mixed bag but, so far, show surprising resilience. CEOs across industries — from airlines to industrials — are navigating uncertainty by tweaking pricing and diversifying supply chains. The biggest drag on sentiment remains tariffs, which are making forecasting and operations a mess. That said, the hard data hasn’t cracked: jobless claims are still low, and consumer spending isn’t flashing any warning signs. According to economist and Wharton Professor Jeremy Siegel….“Could it worse? Yeah, it can get worse. We could get a major bear market. I don't think we're going to get there because I think Trump is going to relent, but the longer-term holds and even the shorter-term holds on average have been really good.” Providing reason for investors to hope – and to Professor Siegel’s point – the Trump administration has taken several steps to soften its trade policies. Those include its 90-day pause of “reciprocal” tariffs and its exemption of tech products from its steep duties on Chinese imports. Meanwhile, Fed Chairman Jerome Powell has the un-enviable job of making sense of where things are headed – specifically jobs and inflation. Yes, inflation is always lurking in the background, but the bigger question is whether these new tariffs will actually shift long-term expectations – or just cause a temporary bump. And that’s what really matters for Powell and the Fed. They aren’t just watching CPI; they’re watching what we think about CPI five years from now. Here are some of the data points they are continuing to watch: NY Fed 1-Year Inflation Expectations: 3.6% (March 2025). Up from 3.1% in February, marking the highest level since October 2023. University of Michigan 5-Year Inflation Expectations: 4.4% (April 2025). Increased from 4.1% in March, reaching the highest level since June 1991. 5-Year Breakeven Inflation Rate: 2.29% (April 30, 2025). A market-based measure indicating expected inflation over the next five years. Consumer Price Index (CPI): 2.4% YoY (March 2025). Down from 2.8% in February, indicating a cooling in overall inflation. Atlanta Fed Wage Growth Tracker: 4.3% (March 2025). Remained steady from February, reflecting consistent wage growth. These indicators suggest that while short-term inflation expectations are rising, long-term expectations and actual inflation measures remain relatively stable. Wage growth continues at a steady pace, contributing to the overall economic outlook. So short-run inflation may tick up, no doubt. But the long-run data? It’s not showing a lasting effect.   What investors need to know about the volatility index (the VIX) In an investing context, volatility is the frequency and magnitude of price movements. While most investors probably associate volatility with painful market declines, in reality, it’s a two-sided coin, as it’s a function of price gains as well. The more dramatic the market’s price swings are, the higher the level of volatility. Price changes occurring within the span of a trading day reflect what’s known as intraday volatility. This is where the VIX comes in. The VIX is a barometer of investors’ expectations as to how much market uncertainty lies ahead over the next 30 days as measured by fluctuations in prices for options on the S&P 500 index; put succinctly, it is the most watched measure of U.S. stock market volatility. As investor concerns about higher tariffs have escalated over the past several weeks, the VIX more than doubled in April, closing on April 4 at its highest level in nearly five years. That was just the start; on April 7, the VIX finished with a 4% rise for the day, after climbing as much as 32% at one point only to briefly drop 15% hours later.   Market volatility can test any investor’s fortitude, and many respond by trading in and out of the market amid its gyrations – an absolute faux pas for a long-term investor. The challenges of such an approach are easily observable during periods of turbulence. For instance, in 2020, just before the S&P 500 Index hit a low point on March 23, it may have seemed to many investors to be a good time to sell, as the market then appeared as if it could go nowhere but down. As it turned out, the index surged after reaching that low and had tacked on significant gains since then. And investors who sold at this point lost out on the gains. It’s important for investors to understand that market volatility comes and goes – this is a feature of functioning markets. The recent instability may ultimately prove to be a mere bump in the road for investors who consider staying in the market for the long haul. And as we know, trying to time it right is not a wise strategy for long-term investors.   Now is the Time A period of heightened uncertainty like the one we’re going through now can be an opportune time to revisit both your overall investment allocation and financial plan. Are you taking on too much risk? Not enough risk? Are there specific investments that are good to be in during times like this? Meeting with a trusted financial professional to review financial goals and follow a plan can help you make the most of what may continue to be a challenging situation.   The Oracle of Omaha Those who regularly read our newsletter know the affinity we have for Warren Buffett, the CEO of Berkshire Hathaway. Yes, he is arguably the world’s most successful investor, but we love him for his intangibles, such as his humility, quick wit, long-term thinking, and uncanny ability to explain complex financial ideas in plain English. He’s the rare billionaire who still lives in the same house he bought in 1958 and writes annual letters that are more entertaining than most bestsellers. This past weekend, during Berkshire’s annual meeting, Mr. Buffett announced he will retire as chief executive at the end of the year. After standing applause from the audience of around 40,000, he joked: "The enthusiasm shown by that response could be interpreted in two ways." At 94, Warren Buffett continues to exemplify humility, long-term thinking, and the ability to distill complex financial concepts into accessible wisdom. During the 2025 Berkshire Hathaway Annual Meeting, Buffett emphasized the importance of remaining rational and avoiding herd mentality, especially amid market volatility. He advised investors to focus on long-term gains and not let fear or greed dictate decisions. (Hmmmm…..sounds like a familiar approach to investing.) For a more in-depth look at Buffett's remarks and the full meeting, you can watch the complete session here: https://youtu.be/1LWBphTImy4 Wishing you and your families a happy spring!   Bill

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    0 Vericrest Insights - April 2025

    We are going to start off with some perspective…. “I need to get out now and wait until the market comes back.” "I'll wait until the market pulls back before I add more." These are examples of investors who do not have an overall plan. When investors talk like this – and, worse yet, make investment decisions like the – it’s clear that they do not have an overall plan. In fact, their “plan” changes with each passing market gyration. much does the market need to come back?” or “How much does the market need to drop?”  5%? 10%? 20%? 35%? More?!?!    Why Financial Planning Matters Now Well, we know that, on average, we're going to see a  5% correction about twice a year 10% correction about every 18 to 24 months 15% correction about every three years 20% or more about every six years So what do we do about it? Well, we should be investing according to what we need our assets to do. Your investment timeframe and your own personal ability to tolerate risk will ultimately drive the conversation and the investment decision. Think about it. There's a big difference between a retiree who needs those funds for current income and a 25-year-old who has 40+ years to let compounding growth do its thing. But what about a 30-year-old who wants to buy a house this year and has $150k saved? What about a family of 5 who is changing careers and wants to take some time off before they jump into their next adventure? What about the 45-year-old who is saving aggressively to retire in 10 years? Or the 67-year-old who is retiring at the end of the year and will begin taking monthly distributions. These investors cannot all allocate the same way. And this is where financial planning helps to figure this out – while taking into account the ups and downs of market cycles. What can derail a plan, however, is letting the emotional weight of anxiety and fear dictate investment decisions.    Missing the Best Days Costs You Big  Avoiding the market’s downs may mean missing out on the ups as well. Seventy-eight percent of the stock market’s best days have occurred during a bear market or during the first two months of a bull market.  Here’s something more to consider: If you missed just the 10 best trading days in the S&P 500 over the past 20 years, your total returns would be cut in half. And missing the best 30 days would have reduced your returns by 83%! The kicker? Many of those best days occur in the depths of a market downturn, when most people are too scared to invest.  Market Commentary The first quarter of 2025 saw rising trade tensions and geopolitical uncertainty upset markets. While both the U.S. labor market and U.S. consumer spending remain solid, a deterioration in growth expectations has emerged at the same time as inflation expectations have risen. From a monetary policy standpoint, the Federal Reserve continues to signal a “data dependent” path, but the likelihood of aggressive easing has diminished. Elevated inflation expectations, driven largely by proposed tariffs, have pushed the “Fed put” further out of reach. The Fed is unlikely to act preemptively unless there is clear evidence of labor market weakness or a sharp tightening in financial conditions. Market pricing, which once anticipated up to five rate cuts in 2025 (!) has recalibrated to reflect a more cautious stance. In response, markets have moved aggressively to reprice these risks, with U S equities and the dollar undergoing a sharp sell-off. After posting new highs in February, the S&P 500 Index fell by 10 through the end of the quarter. As of the writing of this note, the uncertainty around the tariff issue is still driving market gyrations – the market does not like uncertainty. Another reason for stock market fragility is that valuations are no longer cheap. The S&P 500 Price-to-Earnings (P/E) ratio, for instance, is 20.2 times next-12-month earnings, which is above the long-term average. In this environment, diversification across various market segments, including value stocks, international equities, and fixed income, can help manage risk while positioning portfolios for long-term growth.   Portfolios We rebalanced our portfolios this week, so you should be receiving those trade confirmation notifications. Our portfolios continue to remain modestly tilted to U.S. stocks relative to bonds and continue to favor companies with attractive yield and profitability metrics. While valuations on market cap-weighted indexes remain elevated compared to history, the broader market (mid/small caps) remain priced at a meaningful discount to large growth stocks. European equities have seen a tailwind from a surprising, post-election fiscal pivot in Germany. The passage of an infrastructure and defense bill represents a meaningful shift in policy and as a result, GDP forecasts for the Euro area increased markedly. In U.S. fixed income, Treasury yields have generally been a good hedge for risk assets over the course of the quarter. In credit markets, spreads have widened modestly, as volatility in equity markets has negatively impacted sentiment. The sharp rise in economic policy uncertainty suggests that further tightening in credit conditions could emerge if recession fears intensify. Uncertainty, moderate economic growth, and slower than expected disinflation have kept the Fed in check so far, but mounting growth concerns have raised expectations for more rate cuts later this year. We continue to have our largest fixed income holdings in U.S. bonds (AGG) and mortgage-backed securities – two allocations that have driven our performance vs. equities. Going forward, we will continue to keep an eye on the Fed, and make adjustments accordingly. Lastly, and most importantly, we should point out that in spite of all the headlines and volatility over the past few weeks, little damage has been done to diversified portfolios. Yes, you can log in and take a look :) Sure, portfolio allocations concentrated in aggressive growth have taken a big hit. That’s to be expected. But looking at Morningstar benchmarks for balanced portfolios across the risk spectrum, thanks to the strong returns of core bonds, international equities, and dividend-paying equities, the year-to-date performance of most well diversified portfolios is still close to flat for the year. In other words – nothing to get excited about. So, while the current situation certainly bears monitoring, and we will, we should all try hard not to overreact prematurely to what is really just normal volatility, albeit triggered by some abnormal developments. As always, I am available to answer any questions you may have. And as always, I appreciate your trust in me. Hope you and your family enjoy the spring!   Additional Reading Here are some articles that I have found both interesting and relevant. 3 Reasons to Stay Invested Right Now 10 Habits of Financially Successful People 12 States with the Lowest Property Taxes: 2025 Is Domino’s pizza inflation-proof?  

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    0 Vericrest Insights - March 2025

    If you read or watch any sort of financial news, you’ve, no doubt, seen/heard prognosticators talk of the current valuation of the stock market – are we at the precipice of a market correction? To assess whether the stock market, specifically the S&P 500, is overvalued, we can look at its forward-looking price-to-earnings (P/E) ratio and compare it to historical levels. The forward P/E ratio measures the current market price of the S&P 500 index divided by the expected earnings per share over the next 12 months, based on analyst estimates. It is a widely used metric to gauge whether stocks are priced reasonably relative to their future earnings potential. As of last week, the S&P 500 forward P/E ratio is around 22.2, based on recent data from late 2024 and early 2025 trends. Historically, this is on the higher side. For context, the 5-year average forward P/E is approximately 19.6, the 10-year average is about 18.1, and the 20-year average sits closer to 15.8. Over the past 25 years, the forward P/E has rarely exceeded 22, with notable peaks at 24.4 in March 2000 (during the dot-com bubble) and 22.2 in April 2021. So, the current level is in the upper range—higher than most historical averages but not at an all-time extreme. What does this mean? A forward P/E of 22.2 suggests investors are paying $22.20 for every $1 of expected earnings over the next year, which is about 13% above the 5-year average and 23% above the 10-year average. This premium could indicate optimism about future earnings growth, possibly driven by sectors like technology, which often carry higher valuations. However, it also raises questions about whether those earnings expectations are realistic—since the forward P/E relies on projections, it can inflate if analysts overestimate or deflate if they miss the mark. Historically, elevated forward P/E ratios don’t always signal an imminent crash, but they do suggest the market might be stretched. For instance, in November 2024, the forward P/E hit 22.2, the highest in over three years, yet the market continued to climb, supported by projections of record-high earnings for 2025 (around $274-$275 per share). Back in 2000, though, a peak of 24.4 preceded a major correction. Keep in mind, that this P/E ratio doesn’t just exist in a bubble - underlying conditions such as interest rates, economic growth, and earnings delivery all play a major role. Right now, the market isn’t screaming “bubble” like it did in 2000, but it’s not cheap either. Compared to historical norms, the S&P 500 is trading at a premium, which could mean less room for error if earnings disappoint or economic headwinds pick up. On the flip side, strong growth expectations could justify it if companies deliver. It’s a mixed bag—overvalued by some measures, but not wildly so. The S&P 500 has recently pulled back from its mid-February highs – roughly 5% off its all-time high – putting it in what some call “correction territory” (typically a 10% drop, though it’s not there yet based on these numbers). The shift isn’t a full-blown crash but a choppy consolidation, testing investor nerves after a two-year bull run. And we do expect continued market volatility, given the current landscape, and there are a few key drivers that could keep the S&P 500—and the broader market—on edge. Volatility often stems from uncertainty, and right now, there’s plenty of that to go around. Concerns over the rapid pace of artificial intelligence investment, coupled with tariffs, government budget reductions, and lackluster consumer sentiment data, have fueled uncertainty in the stock market. For example, the Magnificent Seven tech stocks, key drivers of market gains in 2024, have dropped approximately 7% from Election Day through Friday afternoon. There’s a growth scare echoing last summer’s jitters—soft economic data might be spooking markets. December 2024 GDP growth was solid at 2.3%, but if January or February numbers (not fully out yet) show a slowdown in consumer spending or business investment, that could explain the wobble. The Fed’s pause on rate cuts in January, holding rates at 4.25%-4.50%, adds pressure—Powell’s “no hurry” stance means no quick relief for borrowing costs, and sticky inflation (PCE at 2.6% in December) keeps the heat on. Markets had priced in more cuts; this recalibration could be rattling confidence. If inflation ticks back up—maybe from energy prices or wage pressures—the Fed could tighten more than expected, squeezing stock valuations (higher rates discount future earnings more heavily). Conversely, if they cut too aggressively and signal economic weakness, that could spook markets too. Traders react to every Fed whisper, and that back-and-forth keeps volatility alive. Additionally, geopolitical risks are simmering. Trade tensions, conflicts, or disruptions (think Middle East flare-ups or China-U.S. friction) can rattle supply chains and commodity prices—oil, semiconductors, you name it. The market’s been resilient, but it’s not immune. A single headline can swing sentiment overnight. Tariffs are dominating headlines—25% on Mexico and Canada were delayed, but a 10% hike on Chinese goods hit in February, and talk of metals tariffs or broader “reciprocal” measures looms. The U.S. Trade Policy Uncertainty Index spiked in January to near-record levels, per Schwab’s February 13 update. This “headline risk” can freeze business spending and jolt sectors like manufacturing or tech, which rely on global supply chains. The dollar’s 10% surge in 2024, with more strength expected if tariffs stick, is already shaving 2% off 2025 revenue forecasts for U.S. multinationals, per some analysts. So, the shift right now? A market stepping back from euphoria, grappling with policy fog, sticky inflation, and a reality check on growth and earnings. It’s not a collapse—resilience persists, and a rebound could hit if data firms up—but the easy gains of 2024 might be over. Volatility’s the name of the game until clarity emerges on tariffs, Fed moves, or Q1 results.   ---   Warren Buffett’s 2024 Investing Playbook: Stay the Course Those who have been reading my newsletters know my admiration for Warren Buffett, and his 2024 Berkshire Hathaway shareholder letter, released on February 22nd, offers more timeless wisdom for investors. In it, Buffett emphasizes patience and reinforces the value of staying the course, urging a focus on long-term growth—like America’s economic resilience—over reacting to short-term volatility. This underscores the importance of discipline, avoiding impulsive moves, and seeking quality investments at fair valuations. Buffett also admits to past mistakes, counseling swift action to correct errors, a reminder to regularly reassess portfolios without clinging to losing positions, while his confidence in equities over cash long-term highlights the power of compounding for sustained wealth building. For those eager to dive deeper into Buffett’s insights, I recommend "3 tips from Warren Buffett's 2025 shareholder letter that can make you a smarter investor.” This article distills key lessons from his latest letter, including learning from mistakes, sticking with equities for growth, and finding value in unexpected places—like his Japanese investments. Written in Buffett’s clear, approachable style, it’s a quick read that reinforces the strategies I advocate: act decisively on errors, prioritize quality businesses, and stay patient. His counsel: stick to your knitting, bet on enduring value, and let time do the heavy lifting.   ---   Required Reading   Here are a few articles that I’ve recently published or came across that are worth reading:   Time in the market can top market timing. https://www.ishares.com/us/investor-education/investing-101/long-term-investing   Three reasons to stay invested right now: https://www.fidelity.com/learning-center/wealth-management-insights/3-reasons-to-stay-invested   Here is an in-depth look at the U.S. deficit and how it impacts the Treasury market. https://www.ishares.com/us/insights/debt-deficit-investing   Do you know the difference between a tax credit and a tax deduction? https://www.schwab.com/learn/story/tax-credit-what-it-is-and-how-they-work?sm=uro&sf276282980=1   --   Spring weather is almost here – fingers crossed. Hope you and your families get out there and enjoy it!     Bill    

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    0 Vericrest Insights - February 2025

    Good afternoon. It’s been a turbulent week for markets, driven by key developments across multiple sectors. From major AI breakthroughs that could reshape the tech industry to the Federal Reserve’s latest policy stance and newly imposed tariffs on Mexico, Canada, and China, investors are navigating a shifting landscape as we head into February. Each of these factors carries significant implications for market direction in the coming months. Economic Highlights · Federal Reserve Policy – Fed Chair Jerome Powell kept interest rates unchanged, signaling a patient approach while removing previous language about the need for “further progress” on inflation. · GDP Growth – The U.S. economy grew at an annualized rate of 2.3% in Q4, slightly below the expected 2.5% but slowing from the 3.1% pace in Q3. For the full year, GDP expanded 2.8%, just below 2023’s 2.9% growth rate. · Consumer Spending – Remained strong, rising 4.2%, a crucial factor since consumer activity accounts for about 70% of GDP. · Labor Market – Initial unemployment claims fell sharply to 207,000 for the week ending January 25, down 16,000 from the previous period and well below the 228,000 estimate. · Housing Market – Residential home listings are increasing, yet mortgage applications remain at multi-year lows, according to the American Enterprise Institute. · Interest Rates – The average rate for a 30-year fixed mortgage declined slightly to 6.97% from 7.02%.   Federal Reserve & Economic Outlook The Fed’s latest meeting aligned with expectations, as policymakers signaled no immediate urgency to cut rates. Powell’s removal of language referencing “further progress” on inflation suggests confidence that price pressures are stabilizing, but the Fed remains in wait-and-see mode. With GDP growth tracking between 2.5% and 3% for Q1 and jobless claims holding steady, the economy doesn’t appear to be in dire need of a rate cut. Most economists now predict at most two rate cuts in 2025, barring a notable economic slowdown. The upcoming employment report will be a critical indicator, with forecasts predicting 130,000 job gains and a stable 4.1% unemployment rate. If the labor market remains resilient, the Fed will have even less incentive to lower rates in the near term. One of the biggest uncertainties for 2025 is whether consumers can maintain the strong spending patterns seen in 2024. The wildcard in this equation? Tariffs. (More on that shortly...) Overall market volatility is expected to persist in 2025, largely influenced by three key factors: the political landscape, continued enthusiasm for artificial intelligence investments, and Federal Reserve rate cuts. In 2024, the S&P 500 experienced seven days of gains exceeding 1.5% and nine days of losses greater than 1.5%. A review of the headlines on these high-volatility days reveals that each was driven by one of these three themes—sometimes fueling optimism, other times sparking concerns. After two years of strong performance in large-cap U.S. stocks, investor sentiment has turned cautious, with fears of a market pullback on the rise. However, historical data supports remaining invested in equities. Since 1926, there have been 11 instances (excluding 2023-2024) where the S&P 500 delivered consecutive annual returns above 20%. In the third year following such gains, the average return was 6.7%—lower than the long-term average of 12.3%, yet still higher than most bond yields and cash returns. While 2024 largely mirrored 2023 in terms of market behavior, we anticipate a shift in 2025.   GDP and Market Implications Economic growth, as measured by Gross Domestic Product (GDP), is a significant driver of corporate profits and stock prices. The incoming federal administration has proposed policy changes that could materially impact GDP, making this an important period for macroeconomic forecasting. One useful framework for assessing these potential impacts is the GDP expenditure formula:   GDP = Consumer Spending + Government Spending + Investment + (Exports − Imports)   By evaluating how proposed policy changes may affect each component, we can estimate their overall economic impact.   Factors That Could Reduce GDP: 1.      Lower Government Spending – Federal budget cuts could constrain economic growth. 2.      Deportations – A reduction in the number of people living and spending in the U.S. may dampen consumer demand. 3.      Decline in AI Investment – While AI-related spending has surged, it has yet to drive significant profit growth; a slowdown in investment could weigh on economic expansion.   Factors That Could Boost GDP: 1.      Tariffs on Imports – Higher import prices may reduce demand for foreign goods and increase domestic consumption. 2.      Lower Taxes – Reduced tax burdens could stimulate consumer spending.   While various research groups have estimated the potential impact of these factors, the cumulative effect appears likely to create a net headwind for GDP in 2025.   Small-Cap Stocks: A Potential Bright Spot Unlike large-cap multinational companies, small-cap firms are primarily domestically focused, making them less exposed to global trade fluctuations and currency risks. Historically, small-cap stocks have tended to outperform following presidential elections, and this cycle appears no different. In November, small-cap stocks gained 11%, outpacing large- and mid-cap stocks by more than 2% and 5%, respectively. However, their sensitivity to interest rates led to a partial reversal of these gains in December when rates rose. Looking ahead, potential tariff increases could benefit small-cap companies by making imports more expensive, increasing demand for U.S.-produced goods. Additionally, reduced competition from imports may give small businesses greater pricing power, improving profit margins and overall financial performance. By many valuation measures, small-cap stocks are currently trading at more attractive levels than large-cap equities. As a result, we maintain an allocation to the S&P Small-Cap ETF (IJR).   For Further Review Here are a few articles that you may find of interest. · Understanding the New Catch-Up Contribution Limits for Retirement Plans for 2025 ·       Security Knowledge Center – This one is a bit more in-depth and speaks specifically to protecting against cyber threats. Definitely worth a read: https://www.schwab.com/schwabsafe/security-knowledge-center · The Trump Economy and Federal Reserve Rate Outlook: Four Scenarios · How to Prepare Your Portfolio for a Bumpy 2025   And for those of us who will be watching this Sunday…….GO BIRDS!   Thanks, Bill

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    0 Vericrest Insights - January 2025

    Happy New Year! Not sure about you, but I’ll still be writing 2024 until at least the middle of February. And speaking of 2024, if inflation was the word investors feared in 2023, AI was the word they couldn’t get enough of in ’24, as the hype for generative AI surged, reached fever pitch, and then got a bit louder. The major beneficiary was, of course, big tech. You’d be hard-pressed to find many people in America who don’t interact with Meta’s social media platforms, Apple’s phones, Tesla’s cars, Google’s search engine, Microsoft’s software, anything with an Nvidia or Broadcom chip in it, or Amazon’s e-commerce operation on a regular basis. Collectively, they’ve gained $6.2 trillion in value this year, representing 12% of the S&P 500’s revenue, 26% of its profit, and 34% of its weighting. Overall, the S&P's annual gain roughly matches 2023's performance, logging the highest consecutive back-to-back annual gain in nearly 30 years. We ended the year with data showing improved U.S. economic activity in December as service businesses grew more confident about the incoming administration. The Federal Reserve cut interest rates by 0.25% in December, lowering the federal funds rate to 4.25%-4.5%, a two-year low. Officials project just two rate cuts in 2025, emphasizing caution. Let’s look at some interesting factoids from the year: Apple has revealed 2024’s most downloaded apps — and Chinese e-commerce site Temu has topped the list for the second year in a row, edging out TikTok, Threads, and ChatGPT. Time Magazine has published it’s annual “Best Inventions” list for 2024. Some real Star Trek-type stuff….fascinating….especially if you’re an early adopter of technology. In October, Disneyland hiked prices for its highest-demand days, with the most expensive daily ticket at Disney’s California park more than doubling over the past decade — yet customers remain undeterred. Disney’s Experiences division raked in $26 billion in revenue for the first three quarters of the year, 7% higher than over the same period in 2023. (A single-day single-park ticket goes for anywhere between $165 - $400!)   Looking Ahead to 2025 The U.S. economy faces a new political landscape and monetary policy shift toward rate cuts. Balancing inflation, which remains above the Fed’s 2% target, with a strong labor market will be the Fed's challenge. Fed Chair Powell stressed a cautious approach to avoid spurring inflation or harming employment. The major macro themes: -          The U.S. economy is expected to continue to produce moderate growth with further inflation progress on a “bumpy” path. -          The Fed has re-pivoted monetary policy to a more cautious rate cut path with a pause likely coming to begin the new year. -          Treasury yields have returned to more normal historical levels; we look for yields to remain elevated in the months ahead. -          We are also of the view that the new administration will be characterized by dollar strength and wider bull market participation.   What impact will all this have on the U.S. consumer? Savers: Savings yields remain favorable. One-year CD rates rose from 4.25% in January 2024 to 4.59% in December, with many savings accounts outpacing inflation (currently 2.7%). Borrowers: Borrowing costs are still historically high, with credit card APRs averaging over 20%. Mortgage rates remain elevated, complicating homebuying despite slight rate drops since September. Refinancing opportunities exist but offer limited savings. Investors: The S&P 500 had a strong 2024, supported by economic resilience and post-election optimism. Retirement accounts and household net worth are at record highs.   2025 Planning A few updates that I’d like to share with you as we start the new year. For 2025, the annual contribution limit for 401(k), 403(b), 457 plan, and Thrift Savings Plan plans has been increased to $23,500. The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most plans remains at an additional $7,500 for 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans: this higher catch-up contribution limit is $11,250 instead of $7,500. The limit on annual contributions to an IRA remains $7,000, with the income tax deductibility based on earnings. The IRA catch‑up contribution limit for individuals aged 50 and over was amended under the SECURE 2.0 Act of 2022 (SECURE 2.0) to include an annual cost‑of‑living adjustment but remains $1,000 for 2025.   Portfolio Adjustments (sorry - client access only!)   Don’t Read the Headlines That’s right. Don’t read them. Because they are there to sell newspapers and online clicks. Sure, being that the market has had quite a run up the previous two years, we are more likely for a pullback to happen at some point. But some of these headlines are nothing more than doomsday and negativity. Here is a recent sample: “This hasn’t happened to U.S. stocks in more than 20 years — here’s why investors should be concerned.” “Is the stock market crashing?” “What’s going on with the stock market? Should you panic?” No – you shouldn’t panic. In fact, people with an optimistic mindset are associated with various positive health indicators, particularly cardiovascular, but also pulmonary, metabolic, and immunologic. They have a lower incidence of age-related illnesses and reduced mortality levels. In fact, according to a study published in the Journal of the American Medical Association, “Optimists tend to live on average 11 to 15 percent longer than pessimists and have an excellent chance of achieving exceptional longevity.” And who doesn’t want all that??!?! Wishing you and your families a healthy and prosperous 2025!