Mark on the Markets
Positive Start to a New Year
The economy seems fine. The job market seems fine. So far, there are few signs the economy is about to slip into a recession.
In January, the Dow added to gains, setting new highs, and the S&P 500 Index eclipsed its prior high-water mark made two years ago (Yahoo Finance S&P 500).
A loss on the final day of the month pared the market’s January advance, but the S&P 500 managed to finish the month above its prior all-time high in early 2022.
Put another way, the stock market seems fine. So, everything is fine, right?
Well, we hit some January turbulence, but down days are to be expected. Blame the decline at the end of the month on Fed Chief Jerome Powell. Powell made it clear at his press conference on January 31 that a March rate cut probably isn’t in the pipeline.
Federal Reserve Open Market Committee Meeting
But were Jerome Powell’s remarks at the January Fed meeting really a surprise?
In part, the Fed doesn’t want to be bullied into a rate cut. In part, several Fed officials had been downplaying a March rate cut. But, when the boss speaks, people pay attention.
Besides, there aren’t yet any definitive signs that the economy is weakening. So, the Fed isn’t feeling that much pressure to hit the monetary gas pedal.
However, the Federal Reserve is openly talking about rate cuts this year. A May or June cut shouldn’t be ruled out.
For now, the economy is expanding at a modest pace, inflation is coming down, and the Fed wants to see a little bit more evidence that inflation is headed back to its 2% annual target.
Ultimately, we believe the economic fundamentals will clear a path for the market this year.
Before we wrap things up, let’s define a couple of terms: soft landing and recession. These terms pop up often in the financial press. They may be confusing for some; therefore, let’s spell them out.
According to Brookings, the Fed raises “interest rates just enough to slow the economy and reduce inflation without causing a recession. It has achieved what is known as a soft landing…. Soft landings are the equivalent of ‘Goldilocks’ porridge.’ Following a tightening, the economy is just right—neither too hot (inflationary) nor too cold (in a recession).”
The National Bureau of Economic Research defines a recession (a hard landing) as a “significant decline in economic activity that is spread across the economy and that lasts more than a few months.” A recession is accompanied by significant job losses.
The fabled “soft landing” that allows the Fed to cut interest rates as inflation slows (and not from economic weakness) has historically provided the most support for stocks. We view this as the best-case scenario for investors.
Recessions in 1974, 1990, 2001 and 2008 led the Fed to cut rates, but recessions squashed corporate profits, and investors took their cues from weak corporate earnings, not falling interest rates.
However, equities benefited from rate cuts in 1984-85, 1995 and 2019. The monetary easing was not in response to a recession but from a recognition that rates had risen enough to slow economic growth and prevent an unwanted rise in inflation. A slight tap on the monetary pedal was in order, and investors responded enthusiastically.
Investors are now watching when (or if) the Federal Reserve cuts rates this year, as Fed Chair Jerome Powell indicated. If so, investors may likely respond again similarly.
Month to Date Market Returns
|Key Index Returns
Dow Jones Industrial Average
S&P 500 Index
Russell 2000 Index
MSCI World ex-USA*
MSCI Emerging Markets*
Bloomberg Barclays U.S. Aggregate Bond TR USD
Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: December 29, 2023–January 31, 2024 *in U.S. dollars
Mark on the Charts
The S&P 500 crossed 4,800, a level of resistance we have been watching for some time. We’ll have to see if the market holds this level. If it holds, and then advances, it will show continued market strength. Remember, the S&P 500 is regarded as the best gauge of the performance of large capitalization U.S. equities, so we watch its movement very carefully. The index includes 500 of the leading companies and covers approximately 80% of the available market capitalization.
Source: The Capital Spectator
Last month we again noted the potential for an upside move in the Value Line Geometric Index. To date, that’s not happened. While the index is still near the 600 level, a resistance area that has not been broken for almost two years, we are looking for a move above 600 and staying above 600. The Geometric Index represents a broad segment of the market, and we want to see strength in the entire market, not just the S&P 500, which is an index of only large companies in the stock market. (The Value Line Geometric Index is a broad index of around 1,700 stocks, where each stock is given an equal weight of the index.)
What is financial fitness?
It is not just about having a pile of money in a bank account or a fat portfolio of stocks and bonds. Lottery winners often stumble into wealth without having much in the way of financial knowledge.
A beneficiary of a large estate may know very little about financial matters. The same holds for successful college athletes who enter the world of professional sports. In other words, hitting the financial jackpot does not equate to financial fitness.
Without an understanding of the fundamentals of personal finance, wealth that is quickly attained can quickly disappear. Paraphrasing from Proverbs 13, wealth from get-rich-quick schemes evaporates; wealth from hard work and diligence grows over time.
We can approach this topic in many ways, but first, let’s broadly define the term financial fitness.
Financial fitness enables you to make good financial decisions because you have developed the skills and knowledge to pursue goals that will enhance your wealth and secure your financial future.
Did you put together a list of resolutions when the year began? Resolutions are broad. They might be akin to a vision statement.
Goals, however, are well defined. They are measurable. They should include an action plan, and they have a time limit.
If I resolve to be healthier in 2024, I may just say that I want to lose weight or work out more often. If I set a goal, I’ll write down the number of pounds I want to shed, a date I’d like to reach that goal, and embark on a program that will help me achieve my goal.
Better yet, I’ll enlist an accountability partner.
We are mindful that we are not personal trainers, but the same general principles that apply to goal setting in other areas of life can also help you achieve financial fitness.
Simply put, financial fitness is a crucial step towards attaining financial security and achieving your financial objectives, whether they are short-term or long-term in nature.
5 Steps to a More Secure Financial Future
In today's dynamic and ever-evolving economic landscape, the importance of investing and managing money cannot be overstated. Is not just a matter of growing and stewarding resources; it's a strategic approach to planning your financial future, achieving long-term goals, and navigating the inevitable fluctuations of the economy. Whether you're a seasoned investor or just starting out, understanding why investing money is crucial can pave the way to financial stability.
1. Set goals.
If you don’t know where you are going, you won’t get there. It’s that simple.
2. Where does your money go?
You’ll never get a true handle on your finances if you don’t track your cash outlays. You know what your monthly mortgage is. But how much do you spend on restaurants, entertainment, fun, clothing, etc.? Do you budget for home and auto repairs or an upcoming vacation?
You might be surprised by what you uncover after tracking cash outlays for two or three months.
3. You want money at the end of your month.
A key principle of understanding financial fitness includes the concept that wealth accumulation isn’t a secret that has been unlocked (or can only be unlocked) by the wealthy.
Squirreling away savings involves living within our means and keeping our expenditures in check. If you find that you typically have “month at the end of your money,” you can’t save. Those who are financially fit understand this principle.
4. Manage debt; get out of debt.
Let’s come up with a strategy that eliminates high-rate credit cards and personal loans. We recognize that debt can be used judicially for purchasing a home, home improvement and autos.
But debt can also be an unwanted burden that interrupts shorter and longer-term financial goals. Paraphrasing from Proverbs 22, the borrower serves the lender.
5. Set it and monitor it.
Set up automatic transfers into savings, retirement, or for various goals you may have. Get into the habit of saving today, even if the steps you initially take are small.
Upon mastering the initial five concepts, you will have the knowledge, skills, and tools necessary to increase your chances of success in achieving your financial goals. When you know where each dollar is going, you're more empowered to monitor your finances and make changes when needed. You'll also have a good understanding of how much you're able to save toward new financial goals.
…and here are two more steps to a More Secure Financial Future
6. Invest, but not simply for the sake of investing.
Why do you want to save money? Do you want an emergency fund, a vacation fund or a “my car is broken and needs repairs” fund? Are you saving for a home, retirement or your child or grandchild’s education? Do you want to invest in things that align with your values?
The “why” is what drives you to overcome procrastination. It helps prevent you from drifting away from your carefully crafted plan and keeps you true to what you care most about.
When obstacles arise, and they will, the “why” keeps you on the path. Without a “why,” it’s much easier to enjoy life’s pleasures today, even if it creates nagging worries about the future.
A well-diversified investment plan to which you automatically contribute every month keeps you on track toward your financial goals. Start small and adjust upward on a regular basis. You’ll be surprised at how quickly you progress.
Don’t worry too much about short-term performance and volatility. Let us help you create a plan and regularly review it, adjusting as needed based on your goals and situation.
7. Seek assistance.
There’s no shame in reaching out when you are outside your area of expertise. Understanding and utilizing core financial principles and best practices for saving and investing are crucial for financial fitness.
Financial Cornerstones Comprehensive Financial Planning
Having a comprehensive financial plan is essential to pursuing and achieving your goals. You wouldn’t build a house without a plan. Why should your financial life be any different? Our comprehensive financial planning process is designed to connect your financial decisions to the people and things that matter most in your life.
Comprehensive financial planning is about more than just managing money. It’s about setting goals for your future and taking steps to pursue those goals. Goals always concern the future, as they are a statement of faith and one of the primary ways that we may see God at work in one's financial affairs.
Sourced in part from the CFA Institute
Tax Deduction Considerations for Charitable Giving
Donations are deductible for donors who itemize when filing their income tax returns. Overall deductions for donations to public charities, including donor-advised funds, are generally limited to 50% of adjusted gross income (AGI). The limit increases to 60% of AGI for cash gifts, while the limit on donating appreciated non-cash assets held more than one year is 30% of AGI. Contribution amounts more than these deduction limits may be carried over up to five subsequent tax years.
Donors who itemize rather than take the standard deduction typically do so because the total of their itemized deductions exceeds their standard deduction amount. Inflation-based adjustments moved standard deduction amounts to new highs for 2024: single filers may claim a $14,650 standard deduction, while married couples filing jointly can claim a $29,200 standard deduction.
Our Specialty: Faith Driven Investing
We’re committed to helping you experience financial contentment and peace through a plan that’s right for you. Part of planning, however, is understanding how you want to live and what you want to do. Whether you want to spend time with family, or volunteer to make the world a better place, we help you prepare to spend your time, talents, and resources on what matters most to you.
Implementing faith-based investing begins just like any other investment management process – we’re looking for great investments!
I hope you’ve found this review to be educational and helpful. Our goal is to be a guide to you as you run the race and keep the faith.
“Wealth hastily gotten will dwindle, but he who gathers little by little will increase it.” Prv 1:5
If you have any questions or would like to discuss any matters, please feel free to give us a call. As always, I’m honored and humbled that you have given me the opportunity to serve as your trusted financial advisor.