In this edition, we’ll underscore the vital role of these key concepts in finance and economics. Understanding how psychological factors influence financial decisions, such as in behavioral finance, is not just essential but pivotal and empowering. This knowledge equips our investors with the insights they need to make informed financial decisions and introduce market trends, giving them a sense of control and empowerment in their investment journey.
Welcome to another episode of “Ethel’s Diamond Post.” As we wrap up this year, we are filled with anticipation for the opportunities and growth that the new year will bring. This is the final newsletter for the year, and it has been a good year considering the significant growth we have seen in the S&P 500, providing reassurance to our investors. Let’s look forward to the potential for even more growth in the coming year, as the market has shown remarkable resilience and is poised for further growth. Despite the recent uncertainties, the market’s resilience should inspire our investors with optimism and hope as we enter the new year, fostering a positive outlook and a sense of anticipation for future opportunities.
The stock market is now more uncertain after a two-year bull run. The market experienced a significant upward trend during this period, with the S&P 500 reaching record highs. However, a profound shift is changing the economic landscape, with uncertainty stemming from Donald Trump’s recent election. This shift is causing many investors to question what’s coming next, as the underlying politics seem to be challenging the daily economy. The bulls, or the optimistic investors, attempted to storm the market. Still, the Federal Reserve’s pivot, a change in the Fed’s monetary policy towards a more hawkish stance, sparked a significant downturn. This change in the Fed’s stance, which indicates a less aggressive approach to interest rate cuts, has led to a substantial downturn in the market. The considerable downturn lost their initial gains, making investors question whether they should buy on the dips or stop purchasing. The Federal Chair Jerome Powell’s reference to the central bank’s intention to go slower than expected with its anticipated interest rate cuts may be the most troubling aspect for equity investors.
As we grapple with the potential impact of Donald Trump’s plans for tariffs, mass deportation of undocumented workers, tax cuts, and a regulatory overhaul, the market is experiencing increased uncertainty. These policies could significantly influence the economic outlook, leading to either uncertainty or robust growth depending on the new administration’s priorities. For instance, the mass deportation of undocumented workers could lead to labor shortages, affecting production and economic growth. Typically, the second half of December benefits money managers, as everyone is snatching up bargains while retail investors leave for the holidays. However, the trend is different this year for the S&P 500, down 2.4% for December and on track for its worst quarter over a year.
So, what’s next for 2025? Many “financial gurus” are optimistic that the S&P 500 index will rise to 6,600, which would decrease to approximately 8.2% after two years of 20% plus gains. The point is that despite everyone polishing their crystal balls, no one can accurately predict next year’s market returns. When was the last time Wall Street expected a down year? These forecasts are often wrong and sometimes highly wrong. Even Warren Buffett went for long stretches and underperformed the market. We aim to weed through the present noise and discern the possible future outcomes. One of the problematic areas of Wall Street today and in the past is consistently disregarding the unexpected and random events that inevitability will occur. For example, in recent years, we have had to digest the impacts of trade wars and a global pandemic that we could never imagine their effect on the capital markets. Yet, we came out on the other side, returned to a bullish environment, where the market is on an upward trend, and reaped the benefits with a few tweaks and portfolio adjustments. A ‘bullish environment’ refers to a market condition where prices are rising or are expected to increase.
At VZD, we have always believed in a cautious approach and strategic planning. This belief has guided and shaped our response to the current market uncertainty. Our careful approach involves closely monitoring market trends and making strategic decisions to protect our clients’ investments. We have added short-term cash positions with money markets, short-term duration bonds, and treasuries as a hedge in case the Feds won’t cut rates as expected. As we enter year-end, preparing to pay out the required minimum distributions for our retirees at the first of the year, we believe that taking some gains off the table suits our clients. This approach and our strategic planning, coupled with our unwavering commitment to our clients, should not just reassure but instill confidence in our investors of our preparedness for potential market changes, giving them a sense of security and trust in our management.
The markets will have an abbreviated session on Christmas Eve, closing at noon (CST), for volume is usually light. Christmas Eve is the “official start” of the “Santa Claus Rally” period, which spans the last five trading days of the year and the first two trading days of the new year. This period is traditionally associated with a rise in stock prices, often due to investors buying stocks in anticipation of the new year. The ‘Santa Claus Rally’ is a term used to describe the tendency of the stock market to rise in the last week of December and the first two trading days of the new year. It’s a period of increased optimism and buying activity, often leading to a rise in stock prices. Thus far, mega-cap stocks significantly influence the market; their performance during a week when many investors take time off will be even more pronounced.
Has something drastically changed in the market, or are investors in a tizzy over splashy headlines? The economy is not falling off a cliff yet, and we will likely have rate cuts in 2025. We also have a pro-business president in Trump, who will take office in less than a month. The bull market remains intact, but we see a short-term political gut check. What has spooked the markets is the Fed not committing to aggressive rate cutting in 2025. The consensus among Fed officials is now for two rate cuts next year, down from four previously forecast in September, as the monetary policy body remains concerned about the inflationary outlook.
VZD believes 2025 could start a bit bumpy as Washington may be dysfunctional. All signs point to the economy doing quite well and supporting strong earnings growth in 2025. So, while things feel they have changed in the market this month, drill down, and it looks similar to what has powered the gains in 2024. Nothing lasts forever, and stocks don’t go up in a straight line—two phrases to live by in life and investing.
The holiday season ushers in the time of year during which new year’s resolutions become a prime topic of conversation, and that always includes resolving to improve on the financial and investment front. Financial resolutions might involve paying down debt or dialing back discretionary spending for some investors. For others, financial resolutions mean allocating more cash to investments or bolstering retirement savings when the new year arrives. By prioritizing working with a wealth manager, prospective clients can head into 2025 knowing that an improved retirement plan is on the agenda, and you can break free from financial regret. Like those at VZD Capital Management, wealth managers are crucial in helping clients set and achieve their financial goals. They provide personalized financial planning, investment advice, and ongoing support to ensure clients stay on track with their financial goals. We are part psychologists when it comes to financial goal setting, New Year’s resolutions, and otherwise; clients, particularly in younger demographics, demand more when it comes to budgeting and help with spending. Even small steps, like contributing monthly to a 401(K) or increasing your current contributions by 1-2%, can lead to significant growth thanks to the power of compounding interest. VZD Capital Management, LLC is committed to helping you navigate your investments and changing priorities – one client at a time.
This holiday season, as people recognize an opportunity to interact with family members and friends they don’t see in person often, it could be a time to discuss estate planning. While it’s a topic that can be emotionally challenging, it’s also a great time to discuss your family’s legacies. As a trusted and holistic wealth manager, I encourage families to discuss if something should happen unexpectedly than what happens to their wealth, children, and assets. VZD Capital Management urges our clients and prospects alike to create a “real” will, power of attorneys, trust, and other documents to ensure their final wishes are followed to the best of their ability. We have partnered with Estately and can help you create your estate plan documents for an additional fee to give you that peace of mind that you don’t have to worry about your assets regardless of the circumstances, for they are up-to-date and legal in your state of residence. Please call us if you have questions about how to approach your estate plan and how to determine the documents you need to safeguard your estate.
As we move into the holiday season, VZD Capital Management, LLC appreciates another great year with our amazing clients. We wish each of you a joyous holiday season filled with unlimited blessings. We are truly grateful for your trust and partnership. Suppose you know anyone who would benefit from our broad array of services. In that case, we welcome referrals from our clients or anyone reading this newsletter who wants to explore a potential relationship with our family-oriented boutique firm.
The office will be closed on December 31st, January 1st, and January 2nd, so our team can spend time with their family and friends. We look forward to forging into the new year with a “best is yet to come” mindset. Happy Holidays!
With Gratitude,
Ethel, Nikisha, and Nathan
