Happy Holidays!

Well, here we are and it’s less than three weeks until the start of 2024. This year has flown by. Don’t they all. The markets have thrown us a few curveballs but (knock on wood) the year seems poised to finish out pretty strong, especially when compared to last year.

The outlook is still primarily focused on the Fed and interest rates, and that’s unlikely to change anytime soon. As I mentioned recently, investors are expecting that the economy will continue to slow gradually and that the Fed will start lowering rates as early as March to compensate. In other words it’s a weird dynamic where investors cheer the bad news so long as it’s not too bad because it raises the likelihood that money will get cheaper faster. That’s definitely short-term thinking but is something the stock and bond markets specialize in from time to time.

These assumptions have been baked into market prices and that’s a lot of what’s been driving those prices higher for the last six weeks or so. The Fed meets again this week for their last rate-setting meeting of the year. Essentially nobody is expecting them to change rates now, but as usual much emphasis will be placed on everything Jerome Powell, the Fed Chair, says or seems to say. “Fed Days” are typically volatile, so it’s best to expect that tomorrow and perhaps off and on for what remains of the year.

I’ve recently mentioned the importance of checking your non-retirement accounts again for losses to harvest as we close out the year. Depending on when you bought you may have losses in emerging markets, bonds, and perhaps alternative energy, to name a few.

Additionally, look to the rebalancing process to reallocate money from the winners in your portfolio to your, well, let’s not call them losers but maybe your non-winners. It’s a good time to raise some cash. I’m doing this now for clients who take regular distributions from their portfolio. I generally prefer to have a few months’ worth of spending available in cash and it’s good to have at least some of that in a money market fund or perhaps left in short-term bonds.

Areas to pull profits from might include broad market stock funds, NASDAQ-based funds, or funds that invest primarily in growth stocks. Tech and Communication Services sectors have done very well this year so profits could be taken from there too. Your profits could be added to your bond funds or, assuming you were just rebalancing stock investments, to your “value” oriented large cap funds and perhaps also to your small cap funds. For example, the large cap growth version of the S&P 500 index is up about 26% through yesterday compared to its value counterpart being up about 17%. This, while the value version of the small cap-oriented Russell 2000 index is up 6% or so. That sort of performance mismatch creates a good opportunity for rebalancing.

Rebalancing within asset classes like this can also help increase your portfolio’s cash flow. According to Bespoke Investment Group, stocks in the S&P 500 that don’t pay a dividend (within the “growth” camp already mentioned) are up about 19% this year while stocks in the index that pay the highest dividend yield are up barely 1%. So trim from one, give to the other, and watch the dividend yield/cash flow of your portfolio grow.

Over the next couple of weeks or so I’ll be finishing up RMDs for clients, processing charitable distributions, gifting shares to charities and family, and other items that have to be completed prior to year-end. It’s a seasonal time compression that I’m used to and the main reason I’m pausing these posts until my Quarterly Update in early January.

If we don’t talk before then, I wish Happy Holidays to you and yours. May you get some rest and find rejuvenation while with your friends and family amid this otherwise hectic life.

Have questions? Ask us. We can help.