Three Reasons Why Investors Can Be Thankful This Holiday Season

by | Nov 27, 2024 | Insights

Financial markets have delivered remarkable performance thus far in 2024, giving investors numerous reasons for optimism this holiday season. Despite facing challenges, including Federal Reserve policy shifts, election uncertainty, and geopolitical tensions, major market indices have posted impressive gains. The S&P 500 has risen nearly 27% including dividends, while the Dow and Nasdaq have advanced almost 20% and 27% respectively. Global markets have also shown strength, with emerging markets up 9% and developed markets gaining almost 5%. The economy has demonstrated resilience, featuring moderating inflation, robust employment, and sustained GDP growth.

The holiday season presents an opportunity to reflect on financial achievements, particularly important given investors’ tendency to focus on potential risks. Despite consecutive years of strong market performance, concerns persist about market fundamentals, economic direction, government debt levels, and international stability.

Historical evidence suggests that maintaining a long-term perspective remains the most effective approach to achieving financial objectives. Markets can experience significant short-term fluctuations, as witnessed in April and August, or during 2020 and 2022. However, longer time horizons typically show upward trajectories driven by economic expansion. Let’s take a look at three key developments that warrant appreciation this season.

1.) Markets have shown remarkable resilience in 2024

The first is the incredible performance of U.S. equities in 2024, driven by strong corporate earnings, favorable economic conditions, and heightened investor sentiment. As illustrated in the chart above, market returns have remained consistently positive throughout most of the past two years. While technology and artificial intelligence sectors have led gains, market breadth has been impressive, with most sectors showing positive returns and eight of eleven S&P 500 sectors delivering double-digit gains.

This bull market surge has elevated valuations, with the S&P 500’s price-to-earnings ratio reaching 22.3, approaching both recent peaks and the dot-com era high of 24.5.

These elevated valuations underscore the importance of maintaining a well-balanced portfolio rather than avoiding equity exposure altogether. Risk assets like stocks need to be complemented with other investments such as bonds to meet portfolio objectives. Year-end provides an ideal opportunity to review asset allocations and see if rebalancing back to target weightings is warranted, particularly following this year’s significant market movements.

2.) Inflation has moderated to pre-pandemic levels

The second positive development is inflation’s return to pre-pandemic levels. While consumers still face higher prices for essentials like food and housing, this trend benefits investment portfolios, which are particularly sensitive to interest rate movements influenced by inflation.

The moderation in inflation has enabled the Federal Reserve to implement its first rate reductions since early 2022. Much of this year’s market volatility stemmed from speculation about the timing and magnitude of these potential cuts.

For long-term investors, understanding the broader trend toward lower short-term rates proved more valuable than precisely timing Fed actions. Building portfolios based on fundamental factors, rather than recent market trends, has become increasingly critical.

3.) Economic growth and employment remain robust

The third factor to appreciate is the continued strength of the labor market, which carries particular significance for individuals. Earlier concerns about a “hard landing” – where inflation reduction efforts might trigger widespread job losses – have not materialized.

Unemployment remains near historic lows with steady job creation. While wage growth hasn’t fully kept pace with inflation, the chart above shows an impressive 28.6 million new jobs created since the pandemic, substantially exceeding previous levels. Despite sector variations, this robust job market has helped maintain healthy consumer finances.

The broader economy continues to show impressive resilience as well, with real GDP expanding at a 2.8% annualized rate in the latest quarter. Consumer spending has been a key driver even in the face of elevated prices, though the sustainability of this trend may be challenged as pandemic savings diminish and debt levels rise. However, potential relief from lower interest rates, tax policy clarity, and increased business investment could help maintain economic momentum.

The bottom line? While market volatility remains a constant, 2024’s exceptional returns and a strong economic foundation provide ample reason for investor optimism. This holiday season offers an opportunity to be thankful for market gains while ensuring portfolios remain aligned with long-term objectives. Happy holidays!

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., a SEC Registered Investment Advisor. Tenet Wealth Partners is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.

The information provided in this communication was sourced by Tenet Wealth Partners through public information and public channels and is in no way proprietary to Tenet Wealth Partners, nor is the information provided Tenet Wealth Partner’s position, recommendation or investment advice.

This material is provided for informational/educational purposes only. This material is not intended to constitute legal, tax, investment or financial advice. Investments are subject to risk, including but not limited to market and interest rate fluctuations.

Any performance data represents past performance which is no guarantee of future results. Prices/yields/figures mentioned herein are as of the date noted unless indicated otherwise. All figures subject to market fluctuation and change. Additional information available upon request.

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About The Author

Kevan Melchiorre, CFP®Co-Founder & Managing Partner

Kevan Melchiorre co-founded Tenet Wealth Partners in 2021 with a focus on delivering a premier client experience, supported by an innovative and fully integrated approach to wealth planning. As a CERTIFIED FINANCIAL PLANNER® practitioner with over 16 years of wealth management experience, Kevan partners with affluent individuals, families, and institutions to help align their capital […]

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