KAI’S FAMILY TIME IN JAPAN
Over the holidays Kai traveled to Japan with his girlfriend and family exploring Tokyo, Kyoto, Matsumoto, and Kobe. During the trip they visited temples, shrines, and museums, went thrifting, and savored some delicious food. Kai’s favorite dish was a black garlic miso ramen! He also got to spend some quality time with friends and grandparents who live in Japan. One of the highlights of his trip was visiting Matsumoto Castle, a historic landmark originally built in 1594.
Stocks: Long term Investors Come out on Top
It has been a wonderful two-year stretch for U.S. stocks. The S&P 500 index just delivered the best two-year calendar stretch since 1998. The index returned 25.02% in 2024, following a 26.29% advance in 2023. The key is to stay invested. Through all the headlines, the interest rate cycling, elections, etc., long-term investors came out on top again.
Reversion To the Mean – Not Yet
Large caps continue to outperform small caps and growth continues to dominate value. The large cap Russell 1000 Growth index was up 33.36% in 2024, while the large cap Russell Value index was up 14.37% for the year. Meanwhile, the small cap Russell 2000 Growth index was up 15.15% in 2024, while the small cap Russell 2000 Value index was up 8.05%. At some point the disparity between growth and value should diminish, along with the relative underperformance of small cap stocks versus large cap stocks.
Bonds fared well for the first nine months of the year, but had an ugly pullback in the 4th quarter due to interest rate concerns. The US Aggregate Bond index finished up only 1.36% for the year.
Jobs + Yields = Concerns
Up until last week the jobs data was deemed as Goldilocks – not too hot to be inflationary, and not too cold to raise concerns about a recession. December numbers revealed an increase of 256,000 jobs, exceeding the consensus estimate of 155,000. The U.S. unemployment rate edged lower to 4.1% down from 4.2%.
The apparent good news for the economy could be bad news for interest rates. With the beginning of the Fed rate cuts in September, the 10-year note yield has moved from around 3.6% to 4.7%. This may put the brakes on any rate reductions in 2025.
Inflation and the Fed
The final phase of tackling inflation is taking longer than many anticipated. Consumer Price Index (CPI) and Producer Price Index (PPI) remain above the Fed’s 2% target. CPI data for November showed a monthly increase of 0.3%, raising the annual rate to 2.7%, up from 2.6%.
Sectors like housing and services continue to drive inflation metrics higher. The Fed reduced the benchmark overnight lending rate at its December meeting by 25 basis points, bringing the target rate to 4.25%-4.50%, meeting market expectations. The move came after reductions of 50-basis-points in September and 25-basis-points in November. The Fed had indicated that it is looking at two rate cuts in 2025 versus the four it had projected last September. The jobs numbers and 10-year note yield will have the Fed reevaluating once again how many, if any cuts will take place this year.
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Planning Ahead
Keeping you informed is a top priority, and as more developments occur, we will keep you apprised of them. And of course, if your New Year’s resolution is financially based or if there is anything we can help you with, please don’t hesitate to get in touch with us. We are always here as a resource for you.
Best wishes for a healthy, happy, and prosperous New Year!