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January Market Commentary: Is History Repeating Itself? Thumbnail

January Market Commentary: Is History Repeating Itself?

Markets & Economy

December Recap and January Outlook

The second-term inauguration of a U.S. president is often a monumental moment. With both the House and Senate controlled by the president’s party, there’s an expectation of pushing the boundaries on what worked and pushing forward on what didn’t quite hit the mark during the first term.

But here’s the twist: the economy is in a completely different place than it was even just a few years ago. The question now: Will the economy follow a new path with a completely different interest rate environment? 

Let’s dig into the data:

  • Inflation on the Rise: The Consumer Price Index (CPI) ticked up 2.7% for the 12 months ending in November. It’s not a massive jump, but it’s still not the downward trend the Federal Reserve is aiming for.
  • GDP Growth: The economy grew by 3.1% in the third quarter—strongest growth of the year, driven by consumer spending and government spending.
  • Business Optimism: According to the Business Roundtable’s economic outlook index, confidence in the economy hit its highest level in two years, rising from 79 to 91.
  • Mortgage Rates Jump: By the first week of January, mortgage rates reached 6.9%, the highest in six months, according to Freddie Mac.

What Does It All Mean?

With GDP up, inflation steady, and the labor market remaining robust, it seems like the economy is holding strong. The Federal Reserve has cut interest rates three times in 2024, reducing the key short-term rate by 100 basis points to a range of 4.25%-4.5%. Two more rate cuts are expected in 2025.

While the economy seems to be cruising along, the bond market is acting jittery. As of January 8th, the yield on the 10-year U.S. Treasury bond climbed to 4.71%, a sharp jump from 3.50% just a few months ago.

So, what’s up with that? When bond yields rise, it’s a sign that investors are demanding higher returns to take on more risk. Is it worries about inflation or something more? It’s likely a combo of both, with larger-than-expected deficits possibly driving concerns.

Chart of the Month: GDP Ends the Year on a High

December Equity Market Highlights

  • S&P 500: Down 2.5% for December.
  • Dow Jones Industrial Average: Fell 5.27% for the month.
  • S&P MidCap 400: Dropped 7.29%.
  • S&P SmallCap 600: Down 8.12%.

Source: S&P Global. All data as of December 31, 2024.

The "Magnificent 7" stocks accounted for more than half of the S&P 500's return for 2024. Communication Services was the star performer, up 38.89%. Materials, however, was the only sector to end the year in the red, falling 1.83%. In December, only three of the 11 GICS sectors saw positive returns.

December Bond Market Highlights

  • 10-year U.S. Treasury yield: Closed December at 4.58%, up from 4.18% the prior month.
  • 30-year U.S. Treasury yield: Closed at 4.78%, up from 4.48%.
  • Bloomberg U.S. Aggregate Bond Index: Returned -1.51%.
  • Bloomberg Municipal Bond Index: Returned -1.46%.

The Takeaway

A new year offers a fresh chance to look at your goals and reset your financial strategy. While New Year’s resolutions tend to fall short, your investment plan doesn’t have to. Here’s how to make sustainable changes that actually stick:

  • Don’t Overwhelm Yourself: Don’t try to overhaul everything at once. Instead, make incremental changes that work together over time.
  • Connect Your Goals to Your Finances: The clearer your goals, the better your chance of staying on track. And yes, sustainable investing is at the heart of many people’s financial strategies today.
  • Make a Plan: Break down your goals into achievable steps. Want to boost your retirement savings? Start with increasing contributions to tax-advantaged accounts. But also take a hard look at your portfolio to make sure it's aligned with your values and risk tolerance.
  • Tackle Portfolio Adjustments: If you’re looking to realign your portfolio, think about how you decrease or increase certain positions. Stay true to your risk tolerance, but also reflect your values.

The world of sustainable investing and conscious capitalism is a dynamic space and may prove to be important part of your financial plan over these next four years. At ImpactFI, we can help guide you through these exciting and transformative concepts. You’re not alone in this—let’s make your money work harder for you and the world around you!

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.