Portfolio Update and Market Commentary

As we come to the end of the year, the message I want to deliver is that this appears to be a good environment for stocks. The economy is growing at an above average rate, corporate earnings are strengthening, inflation is coming down and technology is advancing at a rapid pace. I feel there are a lot of reasons to be bullish but as always, a diversified approach is warranted given how quickly things can change in the world and how volatile markets can be. As the year develops, I expect my views to change and as a result I may be making changes when I feel they are necessary.

My goal with writing this is to educate and empower you. If anything is unclear or if you have questions, please reach out and we will schedule time to review your questions.

Lastly, I would like to thank you for your continued support. I truly believe that this is a partnership, and I can’t express how grateful I am that you have followed me on this journey. As a practitioner, I am pledging that I will always strive to provide the service and experience that you deserve.

With 2024 coming to a close, the S&P 500 has returned a staggering 28.07% year-to-date (as of 12/2/2024). Below are the year-to-date returns for other relevant areas:

• Russell 2000 (U.S. Small Cap Stocks): 58% YTD
• MSCI EAFE (Developed International Stocks): 75% YTD
• MSCI EM (Emerging Markets Stocks): 15% YTD
• Bloomberg US Aggregate (Fixed Income): 93% YTD
• Bloomberg Capital High Yield Index (Below Investment Grade Fixed Income): 66% YTD

Here are some bullet points and explanations outlining the reasoning behind the recent changes to your accounts:

• Maintaining a home team bias: With the U.S. Presidential election behind us, market participants and businesses can now move forward with clarity (62% of CEOs and 61% of small business owners said they were delaying key investments and major decisions until after the election). This pent-up demand in business activity will likely begin to release over the course of 2025, providing potential tailwinds for risk assets. This provides a favorable backdrop for U.S. stocks.

• Increasing diversification by adding in Alternative Assets: Over the past few years stocks and bonds haven’t provided the diversification benefits they traditionally have (most recently evidenced by the double-digit losses both asset classes experienced in 2022). Alternative assets provide returns that are uncorrelated to traditional asset classes and could be a good source of diversification for investors going forward.
• A bar-belled approach to Fixed Income: Short-term interest rates have been going down and are expected to continue to go down over the course of 2025, but longer-term rates have been staying high. Unless the U.S. heads towards a recession (which seems unlikely near-term) or investors’ appetites for longer-term fixed income increase, I don’t expect rates to fall meaningfully and as a result I believe there’s value in a bar-belled approach to fixed income using a combination of high-quality bonds and lower-quality more tactical bonds. The higher quality bonds should provide stability if markets face turmoil and the lower quality bonds can provide additional yield.
• Consider a tactical allocation to gold: There has been an 85% increase in the 3-year average gold purchases by global central banks since In the 3-year period of 2019- 2021, 25% of all gold was purchased by global central banks. Since 2022, central banks have purchased a staggering 70% of all gold mined (the most aggressive buyer has been China). As a result, gold has been performing better than it historically has in a high interest rate and strengthening U.S. dollar environment. Given this trend and the increasingly complex geopolitical landscape, I think this continues.

I felt it was important to include some views below on major topics:

• Tax changes expiring at the end of 2025: We have a republican leaning government which paves the way for either a continuation or further increases to current tax cuts (for consumers and corporation). This should provide a favorable backdrop for investors in the years ahead.
• Will mortgage rates get back to where they were during the pandemic? This seems highly unlikely unless the S. were to head towards a major recession. It’s reasonable to assume mortgage rates start trending lower over the coming years but so far, they have stayed elevated even though the federal funds rate has moved .75% lower from 5.25%- 5.50% to 4.50%-4.75%. The Fed appears to desire lowering rates enough to ease the restrictions on the economy, but not too much to encourage inflation. I will continue to monitor rates and I may encourage refinancing on some of your mortgages that are in the 6-7% range if in fact rates do start to fall.
• Will Elon Musk and his DOGE plan get the national debt under control? Well, here’s hoping. Proposing a list of what to cut is one thing, implementing those cuts is another. 86% of federal spending is on “mandatory” and “essential” categories (these include defense spending, interest on the national debt, and social programs). This also isn’t the first-time commissions have been created to address federal But maybe this time is different. Musk has a good track record for achieving the impossible and running efficient businesses. Either way, this is a looming issue and I feel there are three possible ways to solve the issue; spend less, tax more or produce more while becoming more efficient. Here’s hoping AI and the technological advancements we are seeing globally do a lot of the heavy lifting for us.
• Won’t the upcoming Trump Tariffs and deportation of illegal immigrants cause a resurgence in inflation? I think you can argue this point but during Trump’s last presidency, he raised tariffs and reduced immigration, yet inflation averaged only 9% annualized. The real root cause of inflation is too many dollars chasing too few goods. This is an oversimplification, but we went through a period where the world was closed (due to COVID-19) yet businesses and consumers were receiving stimulus payments from the government and the country went on a spending spree. I do believe these policies could contribute to inflation but unless the amount of dollars in circulation increases, it just means consumers have less money to spend in other areas.

If we don’t speak, enjoy the upcoming Holidays. Hopefully in 2025 the Bulls are off to the races. If the Bears do show up, let’s hope they are nothing to be afraid of!

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Michael Fitzgerald and not necessarily those of Raymond James.

Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Alternative Investments involve unique risks and are not suitable for all investors. Gold is subject to the special risks associated with investing in precious metals, including but not limited to: price may be subject to wide fluctuation; the market is relatively limited; the sources are concentrated in countries that have the potential for instability; and the market is unregulated.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 index covers 2000 of the smallest companies in the Russell 3000 Index, which ranks the 3000 largest US companies by market capitalization. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad- based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index's three largest industries are materials, energy, and banks. The Bloomberg Capital High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

Inclusion of indexes is for illustrative purposes only. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transactions costs or other fees, which will affect actual investment performance. Past performance does not guarantee future results.