Not As Clear As We’d Like It To Be
We expected some clarity following the election
What we seem to have at this moment is “not so much.” Many of the policies and trends which will affect our investment and planning recommendations will be rolled out in 2025. From this vantage point what we don’t know is the actual content of proposed but not yet enacted policies, nor do we have any certainty on the timing of Executive Orders and passed legislation.
Fortunately, the markets don’t wait for certainty
Fixed income markets are pricing in a rise in interest rates, and equity markets are pricing in an expansion of the growth we have enjoyed over the past two years.
Once the new administration takes its place we expect to see some movement on the imposition of tariffs. This campaign promise does not need Congressional action or approval. The actual effect of even the most punishing tariffs are not likely to be felt all at once however, but will gradually be absorbed by the end users – manufacturers and then consumers – in the form of higher prices for goods. This inflation is the scenario the bond market is pricing in today.
The long term 10 year Treasury rate as of this writing is at 4.38%, up from closer to 4.0% thirty days ago (Bloomberg 11-19-24). That’s a huge jump in bond world. And remember – rate “up”, value or price “down”. For this reason we are exiting one of our bond positions, thus reducing our exposure to fixed income as the market adjusts to a higher interest rate environment than we envisioned a few months ago.
Domestic Equity
The domestic equity markets are welcoming the prospect of less regulation and the possibility of lower corporate tax rates. The economy is healthy, supported by a relatively strong labor force participation, and the unemployment figure remains low at 4.1% (BLS 11-19-24). The slight uptick in this metric led the Federal Reserve to begin to lower rates earlier this summer as they saw a softening in employment coupled with their belief that inflation was trending close to their target. With the prospect of tariff and deficit induced inflation on the horizon, we expect the Fed to pause and wait along with the rest of us until we see what transpires next year.
Barring a significant geopolitical crisis, we expect all of our equity allocations to retain their positive positions through the end of the year. Our latest move back into small caps reflects our belief that their lower valuations (relative to large caps) and a general earnings growth outlook will attract value investors such as ourselves thereby lifting their valuations over the next several months.
For a deeper dive into our Market Outlook for 2025, please mark your calendars and plan to Zoom with us on January 10, 2025. Look for the invitation when we come back from Holidays. Speaking of which – we wish you the very best for this upcoming season of celebrations with family and friends. Be safe and have fun!
Written by Linda P. Erickson
November 22, 2024
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with or without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
