What an incredible rally the last day of November with the S&P 500 up over 3%. We were already trending fairly steady but were welcomed with dovish comments from Fed Chair Jerome Powell on the future of rate hikes. Even the bond market was buoyed last month with a refreshing take on slowing rate hikes. Maybe we can jump on this upward trend with a Santa Claus rally this year, but with two excellent up months back-to-back already, that might be a tall task--if only investors could believe it into existence. So what else is moving the markets these days? We are back to two variables shaking things up in an outsized fashion.
The first one, as we all know, is inflation and how the Federal Reserve is handling interest rate policy. Some have even been so bold to have gone on the record saying they are looking to moderate the pace of increases (meaning not so high each time) but will likely increase to a higher rate over an extended period of time. If there is anything good to read into this, it is that the market has largely, if not fully, priced these hikes in at this point. Any hint of a slowdown in hikes, and we could see a significant jump in our portfolio values just like on Wednesday!
The second variable affecting the markets is a familiar one to us as I noted back in June. Just when we thought the markets were getting comfortable with China’s zero-covid policy, or rather, it looked like China was relaxing a bit with its own policy, they weren’t and unrest has broken out with protests around the country. We saw this most notably on November 28th when news broke of larger protests, and the market lost around 1.5% with a slow downside move that lasted all day long. However, the following day was fairly flat and not too volatile. I read this in a way that means the markets don’t see this as an immediate threat quite yet. If you’re wondering why this affects the US markets so much, it is because China produces many gadgets and electronics for US companies—most notably Apple and the iPhone.
With consumer spending about to hit us in December, let’s cross our fingers for a decent bottom line from retailers. We will also be looking forward to the Fed meeting in mid-December to see if they raise interest rates by 0.50% or 0.75%. Any shock to the downside of perhaps 0.25% will probably be a boon for the markets, but that is highly unlikely. Markets have mostly priced in a 0.50%-0.75% hike at this point. Perhaps this will keep any market volatility (due to Fed rate surprises) to a minimum before the end of the year.
House Cleaning Notes and Tips
Have you taken your Required Minimum Distribution (RMD) this year? If not, it’s important to get this done no later than today or tomorrow. As you can imagine, there are many procrastinators out there. The requests seem to sometimes pile up near the end of the year. With Christmas comes many vacations and days off around the country. So not only does the workload seem to explode, but there are sometimes lesser hands helping. Just about all of you are excellent at getting those requests in well ahead of time, but it’s a good reminder.
Speaking of RMD’s, did you know you can donate your RMD directly to a charity of your choice? It’s called a Qualified Charitable Distribution (QCD). There are some benefits to this strategy that you can read about here, but it’s best to talk with your tax advisor if you’re wondering about it. Is this something you would like to do? Just give us a call after confirming with your tax advisor. It’s a very simple process on our end.
Still speaking of RMD’s, if you would like to do a Roth Conversion, be sure you have fully withdrawn your RMD. The IRS wants to see withdrawals come out in a certain sequence, which is RMD’s first.
I hope December is good to you. Have a Merry Christmas and a Happy New Year!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. All investing involves risks, including the loss of principal.
Larry Mroczkowski
President