Welcome to the December 2024 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.
Summary
The S&P 500 Index performance has been on a rollercoaster for the past three years. In 2022, the S&P 500 was down 18.1%. In 2023, the market was up 26.3%, and thru eleven months in 2024, it's up 26.5%. That gives us an average annual performance of 11.4% over the past three years.
As we look forward to 2025, we need to assess where the economy is headed. Almost everyone got it wrong a year ago by predicting we would have a recession in 2024. So, let’s be a little bit cautious now as everyone is suggesting good times will continue in 2025. No one is predicting next year will be another +20% year, but it could be a nice 10% year.
Inflation has ticked up 0.1% in the past month, but that is probably just a month-to-month variation. Employment growth has slowed, but the previous month was gangbusters, so that is why most economists look at employment through a rolling three-month average.
Fifteen-year mortgage interest rates have unexpectedly dropped to 6.12% in the past month from 6.50% the previous month. We don’t think mortgage rates will continue to drop much further as our national debt has now crossed $36 trillion.
Our broad recommendations going forward have not changed:
- Spend less than you make, save, and invest the difference.
- Track family spending using a budget. Find the easy ways to cut spending.
- Have an emergency fund with 6 months of expenses, not income.
- Permanently eliminate all bad debt. All debt is bad debt except a fixed-rate, first mortgage on your primary residence.
- Save 15% of your gross income for retirement.
- Diversify your investments and reduce risk by putting 12 eggs in 12 different baskets.
- Be a long-term investor by relying on your patience and courage.
- Find the best middle ground for you and your family regarding risk and volatility. For example, don’t take on so much risk that you can’t sleep at night when we enter a down market, and don’t be so conservative that your portfolio does not stay ahead of inflation and taxes.
- Don’t look at your portfolio daily. On the other hand, an investor needs to spend more than 1 hour a year reviewing their portfolio. If you don’t like managing your own investments, that’s OK; so, in that case, hire a Registered Investment Advisor to assist you.
Quote of the Day
Dave Ramsey
Ramsey is an American financial commentator who offers advice in a three-hour daily radio call-in program.
Dave told a caller on his radio program on November 18, “My grandmother told me, ‘When you’re broke, there’s a good place to go – Go to Work!’ Continuing she said, ‘Get a job now that pays a nickel until you can get a job later that pays a dime.’”
Pop Quiz
Can you describe an analogy that compares various lengths of time to illustrate the differences between a million, a billion, and a trillion?
The answer to this month’s Pop Quiz is at the bottom of the newsletter.
The Economy
Employment
Total U.S. nonfarm payroll employment was essentially unchanged in October as it rose by only 12,000. The expected number was 150,000. The official unemployment rate, U-3, was unchanged at 4.1%. The August and September 2024 combined employment numbers were revised significantly lower by 112,000 than previously reported.
Chart 1 below is based on the Bureau of Labor Statistics official unemployment rate, U-3.
Chart 2 below shows the two-year trend of employment growth.
The Job Openings & Labor Turnover Survey (JOLTS) decreased to 7.4 million open jobs across the country as of the last business day in September. It was 8.0 million in the prior month. The 10-year chart below shows the downward trend continues in open jobs since March 2022.
The seasonally adjusted Total U.S. Unemployment Rate, U-6, remained the same at 7.7% in October compared to the month before. There were 6.5 million people unemployed in October, aged 16 and older. Last month it was also 6.5 million people unemployed.
October Unemployment Rates by Education Level
| Less Than High School Diploma | 6.6% |
| High School Graduate, No College | 4.0% |
| Some College, Associate's Degree, or Skilled Trade Degree | 3.4% |
| Bachelor's Degree or Higher | 2.5% |
Average hourly earnings of all employees on private nonfarm payrolls were up 4.0% in October compared to a year ago. This was unchanged from the previous month.
Leading Economic Indicators (LEI) sponsored by The Conference Board
The LEI decreased 0.4% in October following a revised 0.3% decline in September. The Conference Board’s spokesperson said, “In October, manufacturing hours worked fell while unemployment insurance claims rose and building permits declined. Apart from the temporary impacts of hurricanes in the southeast, the US LEI continues to suggest challenges to economic activity ahead. ”
Gross Domestic Product (GDP)
The Bureau of Economic Analysis said the second estimate for GDP in the third quarter of 2024 rose at an annual rate of 2.8%. GDP for the third quarter 2023 was 4.9%.
The increase in real GDP reflected an increase in consumer spending, exports, federal government spending, and inventory increases.
Labor Productivity - Quarterly
Annualized and seasonally adjusted nonfarm business labor productivity increased 2.2% during the third quarter of 2024 as reported by the Bureau of Labor Statistics. In the third quarter a year ago, the increase was 2.0%.
Inflation
Annual inflation increased to 2.3% as measured by the Personal Consumption Expenditures (PCE) index for October. Core PCE index, which excludes food and energy, increased to 2.8%, after the previous three months at 2.7%.
University of Michigan Consumer Sentiment
Consumer sentiment in November increased slightly to 71.8, as compared to October’s 70.5.
Mortgage Rates and Existing Home Prices
As of November 29, 2024, the average 30-year fixed-rate mortgage had an interest rate of 6.92%, compared to 7.02% last month. The average 15-year fixed-rate mortgage had an interest rate of 6.12%, compared to 6.50% last month.
The median existing home sale price increased in October to $407,200. That is a 4.0% increase compared to October 2023 according to the National Association of Realtors. The inventory of existing homes for sale remains low with a 4.2-month supply in October. The desired supply target is 6 months.
The U.S. Public Debt as Issued by the Treasury Department as of November 30, 2024, was:
$36,120,000,000,000.
Last month it was $35,839,000,000,000.
To appreciate the magnitude of a $36 trillion debt, see the Pop Quiz answer at the bottom of this newsletter.
Important Dates in December
October 15 thru December 7 – Enrollment for Medicare insurance to begin January 1, 2025 is now open. Medicare insurance premium estimates for 2025 should now be stable.
December 7, 1941 – Pearl Harbor Day.
December 16, 1773 – The Boston Tea Party was an American political protest initiated by the Sons of Liberty in Boston, Massachusetts. The target was the Townshend Act passed by the British Parliament in 1773. The Americans strongly objected as the Act placed duties on goods imported into the American colonies, without any American representation in the British Parliament.
The Sons of Liberty, some disguised at native Americans, boarded the ship laded with tea and threw its entire cargo from the East India Company into the Boston harbor. The next day a mob in Philadelphia politely but firmly forced a ship with tea to sail back to England without unloading its cargo.
The Boston Tea Party cemented strong resentment by the colonists against the British crown. As a result, the First Continental Congress was held in September and October, 1774. Soon after that in April 1775 the first shots of the Revolutionary War were fired during the Battles of Lexington and Concord.
December 17 & 18 – The eighth and final Federal Open Market Committee (FOMC) meeting in 2024.
December 19 – Having worked 12 days in December, the U.S. House will begin their Christmas break at the end of today. The Senate will conclude its business on December 20. Both houses are scheduled to return to Washington DC at noon on January 3, 2025.
December 20 – Quad Witching Day when individual stock options, stock index options, stock index futures, and options on stock index futures all expire. This day might bring significant volatility to the stock market.
December 21 – The first day of winter, the winter solstice, and the shortest day of the year.
December 24 – Christmas Eve. The stock market will close at 1 PM Eastern time.
December 25 – Christmas Day.
December 28 and 29 – This Saturday and Sunday is the perfect time for every investor to evaluate if they need or want to sell a stock, an exchange-traded fund, or a mutual fund in 2024. We recommend executing the trade on Monday, December 30 and not waiting until the last minute.
December 31 – New Year’s Eve. The stock market will probably close early on December 31; so, if an investor still has something to sell in 2024, get it done early on this date.
The Stock Market
Commentary
Why has 2024 been a very good year for the stock market? Through 11 months, the S&P 500 Index is up 26.5%. Here are the reasons.
1. The economy is going through a soft landing as opposed to a hard landing which would have included a recession and high unemployment. At the beginning of the year, most expected a hard landing in 2024.
2. GDP is maintaining an annual growth rate above 2.5%.
3. Corporate earnings are growing.
4. Short-term interest rates are decreasing.
5. Consumers are continuing to spend as retail sales are excellent. Consumer sentiment is also increasing.
6. There is $6.4 trillion in money market funds, some of which investors will move into the stock market during 2025.
In the next six months, we expect strong economic growth to continue. That is good for the stock market. But strong economic growth and an overwhelming national debt will very likely drive long-term interest rates higher – which is bad for the intermediate-term and long-term bond market. Interest rates and existing bond prices move in opposite directions. For example, as interest rates go higher, existing bond prices, of the same duration, will go lower. Specifically, if the Treasury 10-year bond yield goes up, all existing 10-year bonds will have their prices go down.
Stock Market Valuation
David Kostin
Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York City.
David Kostin said on November 19, “We forecast the S&P 500 Index will rise to 6,500 by year-end 2025. This reflects an 11% price increase from current levels and a 12% total return with dividends. Our view is predicated on continued U.S. economic expansion, earnings growth of 11% in 2025 & 7% in 2026, with a forward price/earnings multiple of 21.5.
What do the large brokerage houses project for the S&P 500 in 2025?
The S&P 500 Index closed on November 29, 2024 at 6,032.38.
Monthly Performance of the S&P 500 Index
Recommended Action for Your Stock Portfolio
Many married couples have both spouses working and hopefully both spouses have a retirement plan with their employer. In addition, both spouses are eligible for IRAs. But many other families have only one spouse working. Even in these families, both spouses can have an IRA.
In 2024 and 2025, contribution limits are $7,000 for those under age 50, and $8,000 for those 50 or older. If a family can afford it, contribute after-tax dollars into a Roth IRA. In a Roth, the earnings grow tax-free; and there is no required minimum distribution when the IRA owner reaches the age when RMDs must begin – age 73 for many, but not all.
When an employee has an employer sponsored retirement plan there are income limits for IRAs. Check with your tax preparer for complete details.
So, what sectors of the stock market are working? Pretty much they all are, but not every stock is working. We believe the market is broadening. Tech stocks were the runaway favorites in 2023 and did OK in 2024. But one key to success in 2025, we believe, is to not put all your eggs in the tech basket, or real estate basket, etc. Please stay diversified.
Here are the themes we mentioned last month, but still apply for December.
Technology/Artificial Intelligence Software: QQQ or (Microsoft, Alphabet, Meta, Amazon, Oracle)
Technology/Artificial Intelligence Chips and Hardware: SMH, QQQ or (Nvidia, Broadcom, Advanced Micro Devices, Taiwan Semiconductor, Apple)
Technology/Cyber Security: BUG or (Crowdstrike, Palo Alto Networks)
Energy: IEO or (ConocoPhillips, Exxon Mobil, Diamondback Energy, Cheniere Energy)
Financial Services: VFH or (JPMorgan, Morgan Stanley, Goldman Sachs)
Utilities: VPU or (Duke Energy, GE Vernova)
Materials: VAW or (Freeport)
Real Estate: JPRE, XLRE
Industrials: VIS, or ITA for defense stocks
Retail: (Walmart, Costco, Amazon)
Obviously, an investor does not have to own individual stocks or even a narrow-focused exchange-traded fund to be a “stock market investor”. Many people will choose to own one or more large index funds. If that is your preference, here are our favorites.
Small Cap Stocks: VIOO (5% of the U.S. stock market)
Mid Cap Stocks: VO (15% of the U.S. stock market)
S&P 500 Index: VOO (80% of the U.S. stock market)
Total Stock Market Index: VTI (100% of the U.S. stock market)
·Not FDIC Insured ·No Bank Guarantee ·May Lose Value
Financial Markets Vocabulary
What are the federal income tax brackets for 2025 as based on “taxable income”?
Note if a retired couple has $200,000 of taxable income in 2025, they are in the 22% federal tax bracket for a joint return. If one spouse dies and the remaining spouse continues to have $200,000 of taxable income, he or she is now in the 32% tax bracket for single filers. Ouch!
OK, Now What Do I Do?
As the ETF, GLD, has been available for 20 years, some investors may want to put a small part of their portfolio into precious metals. If so, how could they do that?
In order, here are an investor’s options. We only recommend options 1, 2, or 3.
1. Recent American gold coins. Sizes include 1/10, ¼, ½, or 1 troy ounce coins. These are not old or rare gold coins. The 1 troy ounce coins have the lowest markup.
2. Recent American silver coins. One troy ounce coins are the most common. These are not old or rare silver coins. Bags of pre-1965 US coins are also available. These coins, excluding pennies and nickels, are 90% silver. These coins are mostly heavily worn and slightly damaged due to normal wear. The value of these bags of coins is determined strictly based on the silver content, and not on coin age, rarity, or condition.
3. Exchange-traded fund, GLD. This can be bought and sold in a brokerage account just like a stock. For silver, buy SLV.
We recommend avoiding the following.
4. Rounds, primarily silver. Example: Chinese Panda coins, John Wayne anniversary coins, Star Wars silver rounds. These can have a high markup when buying and a large discount when selling to a commodity or coin dealer. These should be avoided.
5. Scrap gold jewelry. This has a varying markup, and an investor really needs to know what they are buying if they choose to participate in this small market.
6. Numismatic coins. These are gold and silver coins with a high markup as the coins are valued not just for their precious metal content but also for their rarity, age and condition. Numismatic coins are suitable for a hobby, but not for an investment.
7. There are all sorts of highly speculative investment options for precious metals. We strongly advice against all of them:
- Stock in gold mining companies
- Options on the stock of gold mining companies or options on the ETF, GLD or SLV
- Futures on the price of gold
- Options on futures
∙ Not insured by any bank or government ∙ Subject to risk & possible loss of principal
BROADLY, WHO IS BUYING GOLD TODAY
- Jewelry manufacturers 50% (used to be 80%)
- Personal investments 25%
- Central banks 15%
- Industrial applications 10%
NATIONAL DEBT & CONGRESSIONAL BUDGET OFFICE FORECASTS
Our excessive national debt of over $36 trillion was caused by excessive spending by our weak political leaders over the past 20-25 years in the legislative and executive branches of our federal government.
So, what problem is caused by a high national debt? Answer: The problem is the growing interest that must be paid on Treasury bonds. As the debt grows and interest rates increase, interest payments significantly increase. See the chart below.
No country can afford to pay $1 trillion annually just for interest payments on their national debt! The past 24 years of spending have absolutely been reckless and should have been criminal.
Our Financial Bad Boys This Month
It Was an Iron Clad Guarantee! Now His Retirement Funds May Be Gone.
The Wall Street Journal, November 23-24, 2024, Page B2
Richard Whitacre’s life turned upside down in 2023 after losing his job and being diagnosed with cancer. Then through a friend he heard about a firm called Yield Wealth and the “guaranteed” 15.25% return it was offering to investors. That should have been red flag #1. Yield Wealth was affiliated with another firm called, Next Level. The brokerage plan was to place investor money into various real estate markets.
Next Level was run by Paul Regan who was barred for life from the securities industry in 2004 for fraudulent activities. That’s red flag #2.
In March, Whitacre, 60, withdrew 100% of his IRA from Fidelity and rolled it over to Yield Wealth. The total was $763,000. So now Whitacre is no longer diversified – all his eggs are in one basket. That’s red flag #3.
Problems began in November when distributions were never mailed out. That’s red flag #4. Since then, there has been radio silence from Yield Wealth and Next Level. An additional red flag!
Another investor, Jim Graham, 64, says he lost 40% in 2022 in the stock market. Why did Graham lose so much even though the S&P 500 lost only 18%? He must have had an overly aggressive, speculative, and non-diversified stock portfolio, especially for his age. Looking for a stock market alternative, Graham put his life savings, $776,000, into Yield Wealth.
Now Graham has no idea when – or if – he will get his money back, “You can imagine how it feels to have all your savings wiped out,” he says. “It makes me sick. It makes me depressed. It makes me very angry. It makes me feel stupid.”
Note to all, the 10-year US Treasury bond was paying about 4% in 2023. The only way for an investment to pay more than 4% is to take on one or more types of risk. A GM 20-year bond was paying 6% in 2023, so the risk of an investment paying 15.25% was in the stratosphere and most definitely should have been avoided. That should have been a big red flag.
The outcome of this fraud has not been totally defined, but it is likely investors in Yield Wealth and Next Level will never get their money back. They are totally wiped out.
Why did so many people fall for this and other fraudulent investments? In part because most American adults have been offered no education in the risks and complexities of the financial world, we all live in. Twenty-five states still do not require a personal financial education course to graduate high school.
The Bond Market
Commentary
Jerome Powell
Powell is Chairman of the Federal Reserve.
During the chairman’s news conference on November 7, 2024, Chair Powell said, “The economy is strong overall and has made significant progress towards our goals over the past two years. The labor market has cooled from its formerly overheated state and remains solid. Inflation has eased substantially from a peak of 7% to 2.1% as of September. Today we are lowering short-term interest rates by 0.25% to the range of 4.5% to 4.75%.”
“Recent indicators suggest economic activity has continued to expand at a solid pace. GDP rose at an annual rate of 2.8% in the third quarter. Growth of consumer spending has remained resilient, and investment in equipment and intangibles has strengthened.”
“We know that reducing policy strain (interest rates) too quickly could hinder progress on inflation. At the same time, reducing interest rates too slowly could unduly weaken economic activity and employment. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we’re attentive to the risks to both sides of our mandate.”
Recommended Action for Your Safe Money
Our recommendations for an investor’s safest money have not changed from last month. Our recommendations, in no particular order, are:
- Short-term U.S. Investment-Grade Corporate or Securitized bond funds
- Intermediate-term U.S. Investment-Grade Corporate or Securitized bond funds
- Short-term high-yield bond funds
- Intermediate-term U.S. Treasury bond funds
- U.S. Savings I-Bonds which have a max savings of $10,000 per account per year.
Due to the relatively low return of these investment products, investors should not put 100% or anything close to that in these products. These products are only for an investor’s safest money or perhaps 5% to 25% of an investor’s total portfolio. These products are mostly credit safe, but they will not provide the growth or income needed to stay ahead of, or even keep up with, taxes and inflation.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
Pop Quiz Answer
Can you describe an analogy that compares various lengths of time to illustrate the differences between a million of something, a billion, and a trillion?
Answer:
1 million seconds = 11.6 days
1 billion seconds = 32 years
1 trillion seconds = 31,700 years
36 trillion seconds = 1.14 million years
Conclusion: The federal government debt, which now exceeds $36 trillion, is a very big deal, and it demands immediate action!