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Mark on the Markets
January 2024

Last Quarter in Review

Stocks moved higher in the final three months of the year as bond yields trended lower in growing anticipation of a potential Fed easing.

For the three months ending on December 31, the Dow Jones Industrial Average, the Standard & Poor’s 500 Index, and the Nasdaq Composite made significant gains, boosting portfolios, and leading into the Santa Clause Rally that we discussed last month.

As satisfying as the fourth quarter’s results were, the quarter began in an unpromising fashion.

Strong economic data released in October stoked investors’ fears that the Fed would be unable to ease its tight monetary policies, sending bond yields to heights not seen in more than a decade. Concerns over Treasury funding and higher-than-expected consumer price inflation added to the gloom that gripped stocks during the first month of the fourth quarter.

But markets turned in November, rallying on fresh data that showed renewed inflation progress and constructive comments from Fed Chair Jerome Powell. These positive developments sparked a retreat in bond yields and a celebration in the stock market.

In a month’s time, pessimism over conditions potentially holding back the Fed from easing its restrictive policies faded, replaced by optimism that the rate hike cycle may be finished, and interest rate cuts may be on the horizon in 2024.

Throughout the first two months, companies were reporting their third-quarter earnings. Coming into the quarter, investors had hoped that good earnings reports might serve as a catalyst to lift stocks from the doldrums of the previous months. 

Corporate earnings, however, were not spectacular, but they offered signs of encouragement to investors.

For the third quarter, earnings grew 2.7 percent year-over-year, which was the second straight quarter of earnings growth—a welcome development after suffering an “earnings recession” (i.e., two consecutive quarters of earnings declines) before this.

The Powell Pivot

The momentum continued to build in December when the Federal Open Market Committee (FOMC), led by Federal Reserve Chair, Jerome Powell, announced that it was leaving interest rates unchanged. Furthermore, a survey of its members indicated that up to three interest rate cuts would be possible sometime in 2024. 

The announcement, coupled with dovish post-meeting comments from Powell, helped drive bond yields sharply lower and stocks higher in the fourth quarter of 2023.

Disciplined Investors Won in 2023

Last month, we discussed some of the hazards that Wall Street analysts may encounter when forecasting market returns. On average, strategists predicted roughly a 2% decline for the S&P 500 Index in 2023, according to Bloomberg. When those who are given such a task encounter difficulty, we are hesitant to provide any predictions regarding the stock market. When the final returns were tallied, 2023 turned out to be a banner year, surprising nearly everyone.

  • Score: Disciplined Investors 1, Analysts 0

Strategists came up short, allowing the patient, disciplined, and long-term approach to take top honors. Why did the market have a strong year? Let’s discuss three factors.

  1. As 2023 got underway, the prevalent view on Wall Street and many economists was that a recession was inevitable. Economists have always struggled to pinpoint turning points in an economic cycle. In most cases, recessions sneak up on us. Last year, we observed the opposite. The loud din of recession calls failed to hit the mark. The miss was probably the biggest economic story of the year, especially for the millions of Americans who would have been thrown out of work.

  2. As the rate of inflation began to slow, the Federal Reserve, which had slammed on the monetary brakes in 2022, eased up.  In 2022, the Fed raised the fed funds rate by 4.25 percentage points, according to St. Louis Federal Reserve data. It was the fastest pace of rate hikes since 1980. The pace slowed to one percentage point in 2023, reducing a stiff headwind for stocks. By December, the Federal Reserve had effectively shifted its stance and is now openly discussing potential interest rate cuts in the coming year. Of course, forecasts can change, but the shift fueled the market’s advance into the end of the year. While the S&P 500 Index ended 2023 just shy of its all-time early 2022 high, the smaller but better-known Dow Jones Industrials eclipsed its all-time high in December.

  3. One other variable helped fuel last year’s rise: the emergence of artificial intelligence, which is putting advanced programs into the hands of Main Street. The technology is in its infancy, but the potential is enormous, and cash began pouring into investments that could someday yield big dividends.

Peering into 2024

Expect surprises. No one can accurately see into the future. As we saw in 2023, expect the unexpected.

We believe that having a diversified portfolio is the best way to protect yourself against market volatility and achieve your financial objectives. While it won’t completely shelter you from market pullbacks, it has historically proven to be a strong strategy that can help you reach your financial goals.

Although volatility can be unsettling, it is often temporary, as demonstrated by the failure of Silicon Valley Bank last year and, so far, the ongoing war in the Middle East.

Watch the Economy

If we were to take a stab at issues on the front burner, we’d start with the economy. If inflation continues to slow down, it will take pressure off the Federal Reserve, and rate cuts could come sooner rather than later.

Investors are currently betting on the soft-landing scenario. In this scenario, pricing pressure eases while economic growth slows down slightly, avoiding a big hit to corporate profits. This scenario helped drive stocks last year.

While the Fed didn’t reduce rates in 2023, the year followed a similar pattern to 1985, 1995, and 2019, when the Fed was able to engineer a soft landing, and stocks performed quite well. But, if economic growth slows too much, stalls, or a recession ensues, i.e., the hard-landing scenario, any tailwinds from a faster pace of rate cuts might easily be offset by weak corporate profits, as we have seen in the past.

Rate cuts in 1974, 1990, 2001, and 2008 failed to prevent a slide in stocks until investors anticipated an economic upturn. In other words, rate cuts that occur because the Fed “can,” not because they “must,” is the more preferred path, in our view.

Month to Date & Year to Date Market Returns 

Key Index Returns




Dow Jones Industrial Average



NASDAQ Composite



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: November 30, 2023–December 29, 2023 YTD returns: December 30, 2022–December 29, 2023 

Mark on the Charts

With the market surge in the fourth quarter of 2023, the S&P 500 pushed up close to 4,800. This is near the high the market hit at the end of 2021 and will likely be a resistance area. This surge will need to be digested, just like the big Christmas meal we all just ate. There is a possibility that the market will take some time to cross this level and may even retrace some of the gains made last quarter. A sustained cross above 4,800 will be a positive sign going forward, it just may take some time to materialize.

Source: The Capital Spectator

Last month we noted the potential for an upside move in the Value Line Geometric Index. That’s certainly happened with the fourth quarter 2023 upside move. The index is now close to the 600 level, a resistance area that has not been broken for almost two years. A move above 600 and staying above 600 will be positive. Like the S&P 500, we’ll watch to see if it will cross this area of resistance. (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.)

Timely Tax Planning Tidbits 

Are you familiar with how our federal tax code originated? 

In 1909, progressives in Congress attached a provision for an income tax to a tariff bill. Hoping to kill the idea for good, conservatives proposed enacting such a tax as they believed 75% of states would never ratify a constitutional amendment, according to the National Archives.

Much to their surprise, the 16th Amendment was ratified in 1913, establishing Congress's right to impose a federal income tax. Initially, fewer than 1% of the population paid income taxes. The rate was only 1% of net income due to generous exemptions and deductions.

Clearly, the tax code has changed dramatically over the years, and it will continue to change.

The Internal Revenue Service announced last year the annual inflation adjustments for more than 60 tax provisions (63 to be exact) for the tax year 2024, including the tax rate schedules. As incorporated into law, the IRS adjusts various categories to account for inflation.

It’s not a perfect measure, but the adjustments help mitigate the impact of inflation on income. Without indexing, a cost-of-living raise, for example, could automatically push you into a higher tax bracket or reduce the value of your standard deduction.

Annual inflation adjustments, however, do not cover all tax provisions.

We highlighted several of the changes in last month’s newsletter. Here are a few more… 

Taxes you may be subject to or credits you may capture:

  • High-income taxpayers are subject to the net investment income tax of 3.8%, levied on the lesser of net investment income or modified adjusted gross income over $200,000 for single filers and $250,000 for married filing jointly. These amounts have never been indexed to inflation.
    • In general, net investment income includes but is not limited to interest, dividends, capital gains, rental and royalty income, and non-qualified annuities, according to the IRS.
    • Net investment income generally does not include wages, unemployment compensation, Social Security Benefits, alimony, and most self-employment income.
  • Congress enacted the AMT, or the alternative minimum tax, in 1969 following testimony by the Secretary of the Treasury that 155 people with adjusted gross income above $200,000 had paid no federal income tax on their 1967 tax returns.
    • Limits were never adjusted for inflation and, in time, threatened tens of millions with a parallel tax system.
    • More recently, annual patches were put into place until the TCJA (Tax Cut and Jobs Act of 2017) was passed, dramatically increasing the thresholds for avoiding the AMT.
    • The AMT exemption amount for 2024 is $85,700 for singles and $133,300 for married couples filing jointly.
  • Exclusions for the estate, gift, and generation-skipping transfer will increase from $12,920,000 in 2023 to $13,610,000 in 2024.
    • Higher lifetime-exemption amounts are set to expire at the end of 2025. Unless Congress makes these changes permanent, after 2025 the exemption will revert to the $5.49 million exemption (adjusted for inflation).
  • The kiddie tax applies to unearned income, such as dividends or interest, for kids under the age of 19 and college students under 24.
    • Your child will be required to pay taxes on their unearned income in 2024, but if that amount is more than $1,300 but less than $13,000, you may be able to elect to include that income on your return rather than file a separate return for your child.
  • The child tax credit is $2,000 for each child that qualifies. The child must be under 17 years old at the end of the year. The refundable amount rises to $1,700 for tax year 2024, up from $1,600 in 2023.
    • A refundable credit means that you can take advantage of the credit above your tax liability, in this case, up to $1,700.
  • For the tax year 2024, you can have a modified adjusted gross income (MAGI) of up to $252,150 and may qualify for the adoption credit of $16,810 if you incur adoption-related expenses.
    • The amount of the credit is reduced for taxpayers with a MAGI of more than $252,150 and is eliminated when your MAGI tops $292,150.
    • The credit is nonrefundable, so the amount cannot exceed your tax liability. However, you may apply any excess credit amount to future years, up to five years.

Tax Planning Resources For You…

We’ll soon be publishing and sending clients our “2024 Key Financial Data”. This offers fingertip access to all of the numbers affecting taxes, health savings, Medicare, retirement, college planning, and more. It's an easy, convenient resource that you can post to your bulletin board and refer to whenever you want to check an assumption or marshal your facts.

Tax policy can be complex. Our resources for understanding them aren’t.

One More Tax Planning Idea
The Qualified Charitable Distribution (QCD)
But only if you will be 70½ or older in 2024…

A qualified charitable distribution can be a great way to reduce required minimum distributions and optimize the tax benefits of giving.

The onset of required minimum distributions (RMDs) at age 73 can have serious tax consequences for retirees who've accumulated significant savings in their tax-deferred accounts. Here’s where the tax pinch starts: The higher the balance in your tax-deferred accounts, the higher your RMDs, and the more likely that you’ll move into a higher tax bracket.

QCDs allow individuals age 70½ and older to make tax-free donations directly from an IRA to a qualified charity, potentially satisfying all or part of their annual RMDs. Previously QCDs were limited to $100,000 per year; however, under new SECURE 2.0 Act rules, that amount is now indexed for inflation.

For 2024, the QCD limit has increased to $105,000. You can also use up to $53,000 of a QCD to make a one-time donation to a Charitable Remainder Trust (CRT) or Charitable Gift Annuity (CGA).

QCDs do not count as income. You can't deduct the contribution on your tax return, but the tax benefit could outweigh donating cash or other assets to charity.

Here’s a comparison of donating cash vs. a QCD for a 74-year-old single person:

Scenario 1

Take full RMD and donate $35,000 in cash

Nonportfolio income: $50,000

Annual RMD: + $110,000

QCD: $0

Pretax income: = $160,000

Itemized deduction: – $35,000

Taxable income: = $125,000

Estimated taxes due: $23,400

Scenario 2

Donate $35,000 of RMD directly to charity using a QCD

Nonportfolio income: $50,000

Annual RMD: + $110,000

QCD: – $35,000

Pretax income: = $125,000

Itemized deduction: – $15,700

Taxable income: = $109,300

Estimated taxes due: $19,632

By making a QCD equal to your excess income ($35,000),
you could potentially pay $3,408 less in taxes
than if you took the full RMD and donated the cash.

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. 

 “A wise man will hear and increase learning, and a man of understanding will attain wise counsel” 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.

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