Q4 2024
January 6th, 2025
Market Recap
What Happened in 2024?
Overall Performance
- 2024 was a great year for the equity and fixed income markets
- The S&P 500 was up close to 23% for the year, Nasdaq up about 28% and the Dow was up about 12%. (Reuters)
- Most fixed income indexes were up low to mid single digits for the year
- Most diversified portfolios were up high single digits to low double digits
- This was virtually a year you plan and hope for every year as an investor
- We are very pleased with overall performance of accounts
Common themes for the year
- The “Magnificent 7” were a big driver of overall S&P 500 returns[1]
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- These are the largest 7 positions of the S&P 500
- What this tells us is that most companies had modest gains compared to these top stocks
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- Virtually all areas of the equity market had positive returns
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- Large Cap, Mid Cap, Small Cap, and International indexes all had pretty strong returns in 2024, which is great to see[2]
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- Inflation cooled down from 2022 and 2023
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- This was great news for the market as the Federal Reserve was largely able to pull off a “soft landing” by dramatically increasing interest rates and slowly lowering them as inflation cooled
- The Fed has largely been able to “un-invert” the “yield curve” which is very positive
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- Fixed Income had positive returns
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- Fixed income had gotten beaten up in 2022 when inflation was high and the Federal Reserve was forced to increase interest rates (this is not good for fixed income in the short term)
- These higher rates led to more income being produced in 2023 and 2024 which is very positive news and what we want to see here
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- Employment has remained resilient in a higher interest rate environment
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- The big fear with the Federal Reserve interest rate increases were high unemployment and low economic growth and we have not seen this yet which has been largely positive
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- Former President Donald Trump won the November election and the Republicans have slim control of the House and Senate
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- More to come here in our outlook
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- Geopolitical news has raised concerns but the equity market largely shrugged this off
[1] The Magnificent Seven group of large-cap technology companies—Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG)(GOOGL), Meta (META), and Tesla (TSLA). Standard & Poor’s is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.
[2] US Small Cap – these funds invest in smaller domestic companies usually with market capitalizations of less than $2 billion. International – the funds that primarily invest in companies outside the United States. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.
Market Outlook
Where Do We See Things Going?
Equity Market
- Earnings/Valuation
- We are big believers in fundamentals. To give perspective here, the earnings per share on the S&P 500 Index in 2005 (20 years ago) was close to $70/share. Right now, the earnings expectations for the S&P 500 are around $275/share for 2025. This is a FOUR FOLD INCREASE over that time period. The S&P 500 has increased handsomely over that time period. The market moves based on what future earnings are projected to be. At some point it prices in 2026 earnings. The S&P 500 is currently trading around 5,900. This represents an earnings yield of around 4.65%. This is relatively low given that the 10 Year Treasury is sitting around 4.5%. What this means to us is that you aren’t being paid a high enough premium to own equities relative to fixed income and that equity valuations are getting a little stretched. We are cautiously optimistic here.
- What Areas Do We Like?
- We like the Mid Cap, Small Cap, Value, and International spaces right now, valuation wise, in that they look cheaper relative to Large Cap and in particular Growth equities.
- With that being said, Growth equities have performed quite well recently and we still want exposure here but we are keeping a close eye on this asset class.
Fixed Income
- Where Are We Now?
- The Fixed Income market looks quite attractive to us now that rates are higher. If we look back prior to the 2018 interest rate increases tied to trade tensions with China, rates were very, very low on fixed income. You weren’t being compensated enough to own fixed income. The fixed income space is much different now. You’re collecting a very good “coupon” for owning fixed income. That’s in the short term, mid term, and long term space in our view.
- What Areas Do We Like?
- We have a client base of largely high income earners and high net worth households. We love the municipal bond area for these clients as you collect income on a largely tax free basis. It’s very tax efficient income and diversifies you from the equity market. Yields are attractive here.
- We advise “marrying” the income you need from your portfolio to what you are taking for most clients. And right now, if we are “stretching” for income we are being compensated nicely because of higher rates which is a positive.
Economy
- Growth
- Economic Growth has largely been good in the recent past and there really isn’t much data/reason to see how this changes in the near term bearing a non-economic event (war, terrorist attack, pandemic, etc.)
- Inflation
- Inflation continues to tick downward. Up until 2021/2022, there was very little coverage/relevance given to inflation because it was so low. It’s been a major focus over the past few years. In our view, if the Trump administration pushes too hard on tariffs the market could see this unfavorably as it could be inflationary. These proposed tariffs could also just be a negotiating tactic. More to come here.
- Unemployment
- As stated previously, unemployment has been quite resilient given the higher rate environment we are in now. Higher unemployment can lead to lower interest rates and vice versa. This is how our “checks and balances” system works. This is an area we focus closely on.
- Politics/Geopolitics
- Change in Administration
- We will keep you updated here as time goes on
- The equity market initially reacted very favorably around election day and has since retreated
- We are focusing on potential tax changes, deregulation, tariffs, tensions, etc.
- Keep in mind, as we stated before, EARNINGS should be driving the market over the long-term.
- Geopolitics
- We are monitoring these and the impact they have on markets
- As of now the market has largely been mute to them
- Non-economic events are always in the back of our mind when it comes to our clients’ financial plans
- Change in Administration
Wealth Management Issues
Here’s a few areas clients should be focusing on:
- Financial Independence/Retirement Planning
- Are you on track to save what you need to retire comfortably?
- Cash Flow Planning
- If you’re in retirement, is your cash flow covering your needs?
- If you’re working, are you living below your means and saving in a way that’s consistent with your goals and objectives in life? And in a tax efficient way?
- Investment Planning
- Have you had us review any outside accounts you have to make sure they invested appropriately for you?
- Risk Management
- Will your loved ones be ok financially?
- Am I ok financially if I had a long-term disability or needed long-term care?
- Taxes
- Am I saving on as much as I can on my income taxes legally in 2025?
- Estate Planning
- Is my estate plan in order?
- Do my loved ones know where my estate planning documents are?
- What do I want to see happen with my money?
- Do I want to spend through it?
- Do I want to spend what I can to live life comfortably and leave what I have to my loved ones?
- Do I want to pass as much as I can onto my loved ones during life or after?
These are things we can help with!
Please contact our office if you’re interested in connecting with a financial advisor.
Sincerely,
Oujo Wealth Strategies
1540 Highway 138, Suite 106, Wall, NJ 07719
732-556-4200- Main
732-681-4479-Fax
Disclosures
- Investment Recommendation Disclosure: The client acknowledges that the representative is relying upon the client information (e.g. risk tolerance, time horizon, and investment objective) for the purposes of providing recommendations to the client. The client agrees to give the representative notice of any significant changes in the client information and to provide the representative with any additional information that the advisor may reasonably request.
- Historical Performance Disclosure: Past performance is not indicative of future results. The investment return and principal value will fluctuate with the market. Investor’s shares when redeemed may be more or less than their original cost.
- General Market/Investment Risk Disclosure: Investments are subject to market risks including the potential loss of principal invested. Yields and prices will fluctuate along with the market and other economic conditions. Securities may be worth less than the original cost when redeemed.
- Information Disclosure: The information contained herein has been obtained from sources considered to be reliable, but Avantax does not guarantee the accuracy or completeness of any statement.
- A portion of municipal bond’s income may be subject to state or local taxes. A portion of a municipal bond’s income may be subject to the federal alternative minimum tax. Investing in municipal securities can be volatile and include such risks as: adverse tax or court rulings, legislative or political changes, market and economic conditions, issuer, industry-specific (including the credit quality of municipal insurers), and other conditions.
- The Avantax affiliated companies exclusively provide financial products and services, and do not provide or supervise tax or accounting services. Advisors may provide tax, accounting or other services through their independent outside businesses, but these services are separate and apart from Avantax.
- Standard & Poor’s is a corporation that rates stocks and corporate and municipal bonds according to risk profiles. The S&P 500 is an index of 500 major, large-cap U.S. corporations. You cannot invest directly in an index.
- The attached articles were created by third parties. They were not written or created by Oujo Wealth Strategies and do not represent the views and opinions of Avantax Wealth Management® or its subsidiaries.
(*) Performance and Data numbers are per Morningstar and the Sevens Report. Client spreadsheets are normally sent four times per year to clients with over $750,000 of investment assets and twice per year for clients at the $500,000 to $749,999 level.
** Represents brokerage, direct to fund and annuity assets under management as of 12/31/2023
