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It’s February and the Philadelphia Eagles heading to the Superbowl aren’t the only newsworthy events happening so far. The new month brings two major market-moving stories for investors to digest. First is the advances in artificial intelligence (AI) by Chinese startup DeepSeek. It has caused some investors to question America’s lead in the AI race and American Exceptionalism more broadly. To answer that question, it’s important to look at this idea holistically. U.S. advantages in research and development spending, capital markets depth, the dollar’s privilege as the global reserve currency, and more suggest U.S. exceptionalism will remain intact.

Impending tariffs on our three biggest trading partners are also among the news ushered in with the new month. As you digest this news and markets react, we would like you to keep several things in mind. First, we believe the Trump administration is using tariffs mostly as a negotiation tactic with Canada and Mexico, creating leverage for working on issues like border security and drug trafficking.

Any tariffs implemented in these countries will likely not persist, especially since President Trump does not want higher inflation or sharp stock market declines. While the size and duration of tariffs remains uncertain, feedback from inflation data and market fluctuations should help mitigate potential negative impact. Lasting and higher tariffs are more likely in China, making the path forward for the Chinese economy and the China-heavy emerging market indexes potentially bumpy.

The economic impact of tariffs on consumer prices for most products will likely be manageable, as some costs are absorbed by currency fluctuations, our trading partners, and the companies themselves. Meanwhile, consumers will find substitutes for some products, lessening the blow. So, while inflation readings may tick higher in the short term and companies will experience some margin pressures, the economy should cool enough to keep Federal Reserve (Fed) rate increases off the table and bond yields in check.

As the AI and tariff headlines swirl, don’t forget that stock market fundamentals remain healthy. Steady economic growth, double-digit increases in S&P 500 profits, contained inflation, and likely additional rate cuts by the Fed later this year are a good mix for higher stock prices. The S&P 500 rose in January, which history suggests is an effective barometer for stock prices over the balance of the year. Expect a profitable year for stock investors in 2025 but be ready for some more ups and downs.

This may be a good time to look at your investment portfolio to confirm that your investment strategy remains appropriate for your needs. Remember, choosing “no strategy” is still a strategy, even if it’s not a beneficial one. Your allocations should all have a specific role to fulfill and once they are no longer doing so, it may be time to make changes. You can always consult with a fiduciary advisor to look over your current investment strategy to see if they can recommend any changes. Please call us with questions, we are always happy to help! Have a great month! Go Birds!!

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Looking back on 2024, it clearly echoed many of the themes from 2023. There were brief economic growth scares along the way, but the broader economy continued to defy expectations to the upside. Stocks continued their strong performance, and the S&P 500 recorded its second consecutive year of 20% plus returns. After the election, the anticipation of potentially market-friendly policies from the incoming administration also helped bolster stocks. However, the bond market experienced another lackluster year. While the Fed initiated rate cuts, it could not overcome policy ambiguity and uneasiness over rising debt levels. This led to volatility in the bond market. As we look ahead to 2025, we remain cautiously optimistic. Cautious because we know that no market environment is ever permanent. Optimistic because we recognize constructive long-term technology trends are in place. Plus, potential tax policy and deregulation efforts in 2025 could provide a tailwind — particularly from an economic perspective.

As we enter 2025, the economic landscape remains complex, marked by both opportunities and potential risks. In the year ahead, investors should be thinking about the following:

Look for the economy to slow but not tip into recession:

The economy will likely downshift throughout 2025 as consumer spending begins to moderate from recent speeds. Pent-up demand for business capital expenditures, favorable tax policy, and likely deregulation are expected to be positive catalysts that should help offset some consumer softening.

Be prepared for inflation hiccups and changing narratives around rates:

Some inflationary pressures may re-emerge in 2025 as new policies are introduced. However overall inflation is expected to remain subdued. Upticks in inflation could lead to a slower pace of Federal Reserve (Fed) rate cuts than expected that force markets to adjust to yields staying higher for longer.

Remember that so goes employment, so will go the economy:

The labor market continues to show signs that it is slowly shifting. Workers are becoming less inclined to switch jobs and the average workweek for private payrolls has declined, which is indicative of a weakening demand for labor. We expect the unemployment rate will continue to move up moderately in the coming quarters. Anything more than gradual would be a clear sign that our base case is wrong, and the economy is entering a more pronounced slowdown.

It was another impressive year for stocks. The market was driven higher by unwavering trends in technology, an enduring economy with lowering inflation, interest rate cuts, and the hope of investor-friendly new administration. As we look towards 2025, investors should consider:

Varied upside potential:

If they persist, a combination of moderating inflation, stable interest rates, and strong earnings growth supports a higher S&P 500 valuation. Our fair value target range for 2025 is 6,275 to 6,375. Potential upside could come from lower rates, productivity gains, and confirmation of market friendly policies from the new administration.

Avoiding recession is key:

The stock market has historically delivered single digit returns in the 12 months following an initial rate cut from the Fed, but when recession has been avoided, the median gain has been closer to 11%.

Potential risks:

While not the base case, a much slower-than-expected economy, coupled with a volatile interest rate policy, would be a serious headwind. Additionally, resurgent inflationary pressures in response to new policy or another increase in geopolitical tensions could also further undermine the current positive narrative for stocks.

Don’t expect a one-way street higher:

We should expect equity markets to undergo 10% corrections throughout the year. Be prepared for bouts of volatility in 2025 and consider buying equities on market pullbacks. We expect equity returns to still be favorable in 2025, but the upside will not be as robust as 2024.

At Victory we remain excited about the opportunities 2025 will offer. If you have questions about any of the topics we discussed above, please give us a call. We are always happy to help. Wishing you a safe and productive first month of the year. Be Well!

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Do you have a Year-End Financial Checklist? As the year winds down and the holiday season kicks into full swing, it’s the perfect time for investors to reflect on their financial strategies and ensure they’re on track for the year ahead. While festivities take center stage, don’t let your investment planning fall by the wayside. The end of the year offers an opportunity to adjust investments, finalize tax strategies, and set yourself up for future financial success. Here’s a short Year-End Financial Checklist of what investors should consider before the new year.

1. Review Your Investment Portfolio

The end of the year is an ideal time to take a step back and review your investment portfolio. Have your assets been performing as expected? Are they aligned with your long-term financial goals and risk tolerance? Over the course of the year, market conditions can shift, and your portfolio may need rebalancing to stay on track.

For instance, if certain sectors or assets have outperformed, they may now make up a larger portion of your portfolio than intended, introducing more risk than you’re comfortable with. On the flip side, underperforming assets might need to be addressed to prevent them from dragging down your overall returns. A well-balanced portfolio can help you manage risk and improve long-term performance.

2. Take Advantage of Tax Loss Harvesting

Tax loss harvesting is a strategy where investors sell underperforming investments to offset taxable gains elsewhere in their portfolio. If you’ve experienced losses in certain assets this year, consider selling them before December 31st to reduce your overall tax burden. These losses can help offset gains from other investments, potentially lowering your tax liability for the year.

If your losses exceed your gains, you can use up to $3,000 to offset ordinary income. Any remaining losses can be carried forward to future years, providing potential tax benefits down the road. Just remember, to avoid the IRS’s “wash-sale” rule, you can’t repurchase the same or substantially identical security within 30 days of the sale.

3. Take Your Required Minimum Distributions (RMDs)

If you are age 73 or older, you are required to take minimum distributions from your tax-deferred retirement accounts like a traditional IRA. These Required Minimum Distributions (RMDs) must be withdrawn by December 31st each year. Failure to take your RMD can result in hefty penalties—up to 50% of the amount you were supposed to withdraw.

If you have a charitable inclination, consider using your RMD to make a Qualified Charitable Distribution (QCD). If you are 70½ or older, you can donate up to $100,000 from your IRA directly to a qualified charity, which won’t count as taxable income. This can be a tax-efficient way to meet your RMD requirement while giving back during the holiday season.

4. Contribute to Retirement Accounts

Before the end of the year, it’s also worth considering making contributions to retirement accounts. If you’re eligible, contribute the maximum to your IRA or 401(k) to take advantage of tax-deferred growth. Traditional IRA and 401(k) contributions can reduce your taxable income for the year, providing an immediate tax break.

If you’ve already maxed out contributions to tax-deferred accounts, you may want to consider funding a Roth IRA (if eligible) for future tax-free withdrawals. With a Roth IRA, your contributions grow tax-free, and qualified withdrawals in retirement are also tax-free.

5. Set Financial Goals for the New Year

The end of the year is a natural time for reflection and goal setting. Take some time to evaluate your financial goals for the upcoming year. Are you on track with your retirement savings? Do you have any new financial goals—like purchasing a home, starting a business, or funding education? Consider creating a roadmap for success by using our Year-End Financial Checklist. Whether it’s contributing more to your retirement account, building an emergency fund, or expanding your investment portfolio, having clear objectives will help guide your investment strategy in the year ahead.

I know this is a busy time of year for us all, but spending some time to plan out your financial future can help you achieve your goals for 2025 and beyond. So, before you get lost in the holiday hustle, take a moment to reflect on your investments and financial goals—you’ll be glad you did when the new year arrives. We are here if you have any questions and as always, we are happy to help. Happy holidays and happy investing!

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

Yesterday, Donald Trump was elected the 47th president of the United States, defeating Vice President Kamala Harris thanks to strong performance in key swing states that gave him 277 electoral votes to 224 for Harris (according to The Associated Press, while five states have yet to be called).

The gains at the top of the Republican ticket filtered down to state-level races, where Republicans achieved a majority in the Senate by flipping three seats to take a 52-seat majority, with several tight races still yet to be called. House control is still up in the air, but Republicans appear headed for a razor-thin majority and a GOP sweep.

For investors, achieving an outcome and removing the cloud of uncertainty is, in and of itself, a positive development. If the economy is on solid footing, as it is currently, stocks have historically reacted positively to election results regardless of outcome. We expect this time to be no different. Historically, the S&P 500 has generated an average gain of 6.5% in the year following Election Day.

Those concerned about post-election volatility can also take comfort in the fact that the best six-month period for stocks has begun. From November through April, the S&P 500 has historically generated an average gain of 7.2%. Even in post-election years, returns during these six months have been above average at 5.3%. With the economy and profits growing, inflation easing, and more Federal Reserve rate cuts coming, potential volatility around the transition of power could present a buying opportunity.

In terms of policy implications, the tax cuts enacted by then-President Trump in the Tax Cuts and Jobs Act of 2017 will expire at the end of 2025. Trump has stated he plans to extend them, though some revenue offsets, including tariff increases, are likely to limit the additional deficit spending. His America-first agenda could cause volatility in international markets, notably China, put some upward pressure on domestic prices through tariffs, and help the more domestic-focused small cap stocks (which are surging this morning). Finally, deregulation efforts may support certain segments of the energy and healthcare sectors as well as financial services and cryptocurrencies.

As we begin to put an emotional election behind us, the start of President Trump’s second term will be met with a healthy economy supporting strong corporate profit growth. The clarity of an election outcome and favorable seasonality will likely help support stocks in the near term, even after the initial bump, as the transition of power takes place. The political divisiveness won’t necessarily go away now that the election is over, but let’s hope we can make more progress bridging our divides. As always, if you have any questions about your current financial picture or how the election results could impact your portfolios please give us a call. We are always happy to help.

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

Finally! For the first time in more than four years, on September 18, the Federal Reserve (Fed) cut interest rates. While the debate over how big the cut would be was settled (a half point, not a quarter), questions about where the Fed will go from here and what it might mean for the economy and markets will continue.

The Fed matters, but let’s consider the possibility it’s been getting too much attention. Since the Fed’s announcement, the 10-year yield has risen, not fallen. This move reflects the fact that the bond market had already priced in an aggressive rate cutting cycle — one that may take the Fed’s target federal funds rate from its current 5% down to 3% by the end of 2025. Unless a recession drags rates lower, which we don’t expect anytime soon, the boost to the economy from lower borrowing costs (e.g., on mortgage rates, auto loans, etc.) may be mostly behind us.

Stocks also factor in rate cuts in advance. The S&P 500 stock market benchmark gained 24% during this latest Fed rate pause (from the last hike on July 27, 2023, until September 17, 2024). That marked the best stock performance during a Fed pause in at least 50 years, covering nine cutting cycles. But now that rate cuts have begun, history tells us more modest returns may be in store. On average, during the year after initial rate cuts, stocks produced only mid-single-digit returns.

The economy is the key to better potential returns. During the first year of a rate-cutting cycle accompanied by a growing economy, (e.g., no recession) stocks tend to generate above-average gains. The S&P 500 gained 14% on average during those 12-month periods. If a soft landing is achieved — perhaps more likely than not, but not assured — further gains for stocks could lie ahead.

Even if recession risk is low, policy risk is high with the November election just a month away. The uncertainty around policy outcomes has historically caused market volatility in the weeks leading up to elections. Stocks did just fine this September, gaining 2% during the historically weak month. The steady rise suggests markets are focused more on the still-growing economy, falling inflation, and rising corporate profits. However, with several trillion dollars of expiring tax cuts to be negotiated next year, unsustainable deficit spending as far as the eye can see, and tense trade relations with China, don’t be surprised if market volatility picks up — regardless of what happens on November 5.

The bull market will likely continue as the economy expands, but a pullback is likely overdue. Stocks reflect a lot of good news. The policy and geopolitical backdrops remain challenging. Job growth is slowing, and the cumulative effects of inflation have taken a toll.

As always, if you have any questions about your current portfolio or how a fiduciary might help you reach your financial aspirations, please give us a call. We are always happy to help.

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

With fall upon us and students back in classrooms, it seems like a good time to reflect on the various tests that the U.S. economy and stock market have passed recently. When the economy and markets are tested, the foundation for future growth and capital appreciation gets stronger.

The Federal Reserve (Fed) engineered one of its most aggressive rate-tightening campaigns ever in 2022 and 2023, providing a tough test for the U.S. economy. Amid widespread calls for recession, the economy chugged right along, powered by consumers who continued to spend, even as rates rose. How did consumers do it? Stimulus helped, though we probably got more than we needed. So did low fixed-rate mortgages. Regardless of how it happened, and despite the Fed’s mixed track record, the economy passed this test.

The economy also seems to have passed its inflation test. The widely followed Consumer Price Index, which peaked at 9.1% year over year in June 2022, dipped below 3% last month. Same with the Fed’s preferred inflation measure (core personal consumption expenditures excluding food and energy). In response, the 10-year Treasury yield is down nearly a full percentage point since its April 2024 high, and mortgage rates are down even more. Call that a passing grade, though one could still argue for an incomplete.

The stock market also passed a tough test recently. On August 5, the combination of a weaker-than-expected jobs report for July and too much borrowing from some overly complacent traders (much of it in Japanese yen currency) caused a sharp market sell-off. Stocks have since bounced back on subsequent evidence that the economy continues to grow steadily. In fact, U.S. gross domestic product grew at an impressive 3% annualized rate in the second quarter. Despite that bout of volatility, major stock market benchmarks from both Russell and S&P produced modest positive returns in August. Gains weren’t just among the big tech companies, as performance has broadened out.

Perhaps the toughest tests for markets lie ahead. The upcoming election and related policy uncertainty could be a catalyst for a correction. A tougher geopolitical test could come from China, Russia, or Iran. Eventually, if the U.S. debt pile continues to grow, bond vigilantes will demand higher Treasury yields. Valuations are high despite even considering the double-digit earnings growth corporate America is generating. These are tough tests that may cause more volatility near-term, but markets and the economy have stellar long-term track records. Expect this bull market to continue to bring home excellent report cards. Please contact Victory if you have any questions. We are happy to help!

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

Temperatures are not the only thing rising as we head into the last days of summer. Investors have experienced heightened volatility over the past few weeks. The current landscape of the financial markets has been marked by increased volatility and a rise in outside trading days, creating a dynamic environment for investors. Outside trading days, characterized by substantial price movements beyond the typical range, have become more frequent.

One significant driver of this volatility is the ongoing economic uncertainty. Global markets are grappling with the effects of inflation, fluctuating interest rates, and geopolitical tensions. Central banks worldwide have taken divergent approaches to monetary policy, leading to unpredictable shifts in market sentiment. For instance, the Federal Reserve’s aggressive interest rate hikes aimed at curbing inflation have resulted in heightened market sensitivity to economic data releases, causing significant price swings.

The advent of advanced trading technologies has also contributed to increased market volatility. High-frequency trading (HFT) algorithms and automated trading systems can execute large volumes of trades in milliseconds, amplifying price movements. These systems often react to market signals more swiftly than human traders, creating rapid and sometimes exaggerated price fluctuations.

The introduction of retail investors, spurred by the accessibility of trading platforms and social media, has injected additional volatility into the markets. Retail investors, often driven by sentiment and momentum rather than fundamental analysis, can collectively move markets in significant ways. The GameStop saga of early 2021 is a prime example, where coordinated buying by retail investors led to extreme price movements, catching institutional investors off guard.

Earnings season often adds to market volatility. Companies releasing their quarterly results can lead to significant price movements, especially if the results deviate from analysts’ expectations. Positive earnings surprises can propel stock prices upward, while disappointing results can lead to sharp declines. The anticipation and reaction to these earnings reports contribute to the frequency of outside trading days.

Geopolitical developments also play a crucial role in market volatility. Events such as trade wars, political unrest, and conflicts can trigger sudden shifts in market sentiment. For instance, the ongoing conflict in Ukraine has caused significant fluctuations in energy prices, impacting global markets.

It is understandable that increased volatility may cause anxiety for investors. This is why it is important to have a strict set of investment rules in place. This can help you avoid making emotional based decisions during times of market turmoil. At Victory we employ a specific set of math-based rules that we abide by regardless of market fluctuations. We would be happy to help you integrate these rules into your own portfolio. If you are interested in having us review your portfolio, please give us a call. We are happy to help.

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

In case you missed it, there is a presidential election happening this year. Many of our clients are wondering what this may mean for their investments. Historically, the stock market’s performance in election years has shown certain trends, shaped by political uncertainty, economic policies, and market sentiment.

Certainly, the market has a lot of things going in its favor. First, the U.S. economy (and global economy for that matter) will likely continue to grow. Second, rates are coming down as labor markets cool, renewing rate cut hopes. Third, earnings are growing at a solid pace and will likely continue to do so through 2024 and 2025. Pullbacks will come, but if you look back at what causes 10%-plus corrections, they can almost always be tied to deteriorating corporate profits, as experienced in 2008, 2015, 2020, and 2022.

However, Election years are typically marked by heightened volatility. Uncertainty about the potential outcome and the future direction of government policies can lead to increased market fluctuations. Markets strongly dislike uncertainty, thus leading to chaotic movements in the weeks and months preceding an election. A clear and decisive victory can lead to market rallies as uncertainty is resolved. Conversely, a contested election or a significant policy shift can result in market downturns as investors recalibrate their strategies to align with the new political landscape.
Markets tend to favor the incumbent party, especially if the economy is performing well. Historically, if the sitting president or their party is likely to win, the market shows more stability and positive performance. This can be attributed to the market’s preference for continuity and the known economic policies of the incumbent administration. Remember markets are mostly interested in knowing what’s coming. Speculation will be rampant surrounding post-election policy changes, which is understandable. Taxes will likely rise when the Trump tax cuts expire next year no matter who is elected. But with narrow majorities in Congress, 2025 relatively far and solid corporate fundamentals, I expect pullbacks could be relatively shallow.

Different sectors respond uniquely to the political climate. For instance, defense stocks may rally if the incumbent administration is perceived as strong on national security, while renewable energy stocks might benefit from a candidate with a green agenda. Health care, technology, and financial sectors also experience varying degrees of impact based on the anticipated regulatory and fiscal policies of the potential administration.

While short-term volatility is a hallmark of election years, long-term investors often benefit from maintaining a steady course. Historical data suggests that despite the ups and downs during election years, the overall trend of the stock market remains upward. Staying invested and not reacting impulsively to political events is usually the best strategy.

In conclusion, while election years bring a unique set of challenges and uncertainties to the stock market, they also present opportunities. By understanding historical trends and maintaining a long-term perspective, investors can navigate the election-year turbulence more effectively. The key is to stay informed, avoid knee-jerk reactions, and focus on the broader economic indicators that drive market performance beyond the political noise. One piece of advice is to make sure you are following your investment policies. Your allocations should fulfill specific roles in your portfolio. By having a set of investment rules, it helps to weed out the “noise” that can sometimes lead to emotional investment decision making. If you aren’t sure if your current portfolio is working as hard as it should for you, please give us a call. As always, we are happy to help. .

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

After a strong first quarter for stocks, some April showers rained down as the S&P 500 fell about 4% last month. Hopefully those showers will bring some flowers in May, despite the widely cited stock market adage, “Sell in May and go away.” There is some merit to this old adage because the S&P 500’s best six-month returns have, on average, come from November through April, and its worst between May and October (recall bear markets often end in October). Still, historically the index has gained an average of 1.8% from May through October — hardly worth avoiding.

While stocks have delivered solid gains this year, the steady growth of the U.S. economy alongside rising corporate profits increase the chances of more gains ahead. Last week’s data on gross domestic product looked soft on the surface, as the U.S. economy grew just 1.6% in the first quarter. But inventories and trade masked strong underlying consumer and business demand. Consumer spending rose at a solid 2.5% pace, while capital investment rose 2.9%. Economists looking for a slowdown keep asking: are we there yet? The economy may slow later this year, but we’re not there yet.

So, what caused stocks to dip? Beyond some digestion of strong gains through March, stubborn inflation and higher interest rates were the main culprits. As the downtrend in inflation has stalled recently, expectations for the start of the Federal Reserve’s rate-cutting campaign have been pushed out. With the Fed’s preferred inflation measure stuck near 3%, markets now expect one, or possibly two rate cuts this year, down from near six at the start of the year. Expect inflation to ease later this year as demand likely slows, but patience will be required.

If you’re concerned about a bigger slide, the numbers during corporate earnings season — now more than half complete — may be reassuring. A solid 80% of S&P 500 companies have beaten earnings estimates so far this quarter, with more than 8% average upside relative to estimates. Results from the big technology companies have mostly exceeded high expectations. And perhaps the most important earnings measuring stick, estimates have moved higher and provide evidence of upbeat guidance from corporate management.

With the economy growing steadily and corporate profits rising, the near-term outlook for stocks still looks supportive. As always, there will be rainy days. Sticky inflation remains a thorn in the market’s side and geopolitics are a potential stumbling block. But for markets, expect more flowers than showers in May and potentially beyond.

As always, please reach out to me with questions. We are happy to help.

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.

It may only be April, but investors find themselves under the sweltering heat of inflationary pressures. Inflation has been simmering over the past months, and Wednesday’s numbers suggest that the heatwave might intensify. The implications of hot inflation numbers extend far beyond the aisles of grocery stores; they have the potential to sizzle the stock market, sending shockwaves through portfolios and reshaping investment strategies.

The first quarter of the year witnessed a surge in inflation, fueled by a variety of factors ranging from supply chain disruptions to fiscal policies aimed at reviving economies. Central banks around the world have been closely monitoring these developments, yet the hot inflation numbers have persisted, posing a significant challenge to policymakers and investors alike.

So, how might these soaring inflation figures impact the stock market in the second quarter?

Investors are likely to experience increased volatility as inflationary pressures continue to mount. The beginning of April has been an example of this. Historically, periods of high inflation have been associated with greater market turbulence, as uncertainty surrounding future purchasing power erodes investor confidence. Stocks, particularly those in sectors sensitive to inflation such as consumer discretionary and industrials, may experience heightened fluctuations in prices as investors recalibrate their expectations and assess the potential impact on company earnings.

Moreover, rising inflation can exert downward pressure on stock valuations. As inflation erodes the real value of future cash flows, investors may demand higher returns to compensate for the diminished purchasing power of their investments. This could lead to a repricing of equities, particularly those trading at elevated valuations. Risk reward comes into play and investors may be less likely to buy stocks at inflated prices. Companies with pricing power and the ability to pass on increased costs to consumers may fare better than those operating in more competitive markets.

Inflation can also influence the decisions of central banks, with implications for monetary policy and interest rates. The Federal Reserve may adopt a more hawkish stance, signaling potential rate hikes. Remember, the market has priced in perfection which includes multiple rate cuts this year. Higher interest rates can have a cooling effect on economic growth and corporate profitability, as borrowing costs rise and consumer spending declines.

Despite the challenges, inflationary pressures don’t have to cook investors this quarter. As heightened volatility becomes likely, it is important to concentrate on your long-term financial goals during periods of short-term fluctuations. As a reminder, pullbacks and corrections are normal market movements, and we are overdue for both. Diversification in your portfolio can also help to manage risk. A diversified portfolio can help cushion against losses in any single investment or market segment. Your investment process can also have a significant impact on your overall performance. We employ a process that helps us determine what areas in the market are strengthening as well as weakening. We choose our areas accordingly. This allows us to stack the odds in our favor. Engaging a fiduciary advisor can help you make non-biased investment decisions during times of unsettled markets.

In conclusion, the impact of hot inflation numbers looms large over the stock market as we navigate the second quarter of 2024. While inflationary pressures may induce greater volatility and pose challenges to equity valuations, investors can adapt their strategies amid the turmoil. By adopting a disciplined approach, staying focused on long-term goals, and implementing sound investment strategies, investors can navigate the ups and downs of the market and position themselves for long-term success. If you have any questions, please reach out. We are always happy to help! Happy Spring.

ASHLEY ROSSER, PRESIDENT

Prior to her career in the financial services industry, Ashley earned her Bachelor of Science in Nursing from Cedarville University.

Ashley decided to make a career change from her ten years within the healthcare industry as a pediatric emergency room nurse to retirement and 401K investment planning. She joined Victory Fiduciary Consulting in 2008 after obtaining her Series 65 professional financial license and went on to earn her AIF (Accredited Investment Fiduciary) professional designation from the Center for Fiduciary Studies.