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!