As we approach the upcoming elections, there is always talk of which party candidates will have a broader impact on the financial markets, and personal bias may lead to believe one party is superior in achieving results over the other. The reality is that our economy is already in a business cycle and what is forthcoming may rely on what has occurred in the past and other factors. In this newsletter, we have an article that reviews the results of election cycles on the markets and the result may be different from what you instinctively believe.
The Fed was expected to lower interest rates but the new inflation report, while lower, is not what the market expected and that may decrease the probability of this happening in the first half of the year. Our economy appears to be experiencing rolling recessions, but earnings still appear to be positive. With 67% of the S&P reporting earnings for the fourth quarter of 2023, 75% reported positive earnings surprises and 65% had positive sales or revenue surprises. While 3 of the Magnificent Seven, who dominate the S&P, reported greater earnings. This has led to money moving that may help to broaden market returns. There is $8.8 trillion in cash that could find its way into the market at some point. This is a great time to reinforce being fully diversified as investors navigate from sectors and different types of securities (for example, large cap to small and midcaps).
We recently saw the SEC approval of bitcoin ETF’s. However, the SEC does not endorse bitcoin and consumers should be cautious and aware of the various associated risks. While regulation was a missing piece in the cryptocurrency investment space, there is still much that needs to be developed to protect investors. ETF’s do allow investors to invest in this speculative sector without exposure to hackers and is a step in the right direction for those that want bitcoin exposure. The best line I’ve seen on bitcoin is “like calling a lottery ticket a financial strategy”. Investors should recognize it is a gamble and expect a rollercoaster ride as it is solely based on supply and demand. If you have any exposure at all, and I question it’s use as a diversifying tool, any exposure should be very minimal so as not to disrupt your longer-term financial objectives.
Income tax filing season is upon us. Please make sure you have received your 1099’s. If you need some assistance, please contact us and they are also available on Fidelity’s website. Please be aware of the new tax limits on retirement plan contributions and gifting. Please click here for a summary. Now is a good time to review if you need to increase your retirement plan contributions, adjust your withholding or modify your income tax estimates. It’s better to keep ahead of the curve. The due date for individual income tax returns is April 15th. IRA contributions are due on that date as well.
