Welcome to the January 2026 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.
Summary
The economy is leaving a jet trail over the sky with GDP up over 4% in the third quarter. Consumers are continuing to spend, and inflation, though not at 2%, seems to be under control. The Fed appears to be on pause but leaning towards a rate cut. They are certainly not planning an interest rate increase.
The stock market is hovering around its all-time closing high of 6,932, which occurred on December 24. Another 20% up year in 2026 is not expected, but a more muted up 10%. Most advisors are suggesting the positive market performance will broaden out in 2026, with more stocks predicted to hit all-time highs – and not just the Magnificent 7 carried the load.
Quote of the Day
On December 23, 2025, Dave Ramsey hosted his three-hour radio show and said, “Never finance (borrow) to buy an asset that depreciates (a car, truck, or boat), but it’s OK to finance an asset that appreciates (a home).
Second Quote of the Day
Aristotle said, “Democracies depend on open debate where the delegates respect the dignity of those with whom they disagree. Democracies only live if they are sustained over a period of time by a thoughtful rational discourse.”
As we have said before, in our opinion at Lorenz Financial, we believe a broad job description of members of the House and Senate is:
Show up, listen, investigate, talk, debate, negotiate, compromise, and vote. Our problem is that too many members fail to meet this standard. It’s time those members are voted out of office. We cannot expect to receive a better government than what we vote for.
Pop Quiz
What is Warren Buffett’s favorite exchange-traded fund for investors, and what is so great about this fund?
The answer to this month’s Pop Quiz is at the bottom of the newsletter.
The Economy
Employment
Total U.S. nonfarm payroll employment rose by 64,000 in November. The official unemployment rate, U-3, increased to 4.6%. The August and September 2025 combined employment numbers were revised lower by 33,000 than previously reported.
Chart 1 below is based on the Bureau of Labor Statistics official unemployment rate, U-3. Note there was no report for October.
Chart 2 below shows the two-year trend of employment growth.
The Job Openings & Labor Turnover Survey (JOLTS) increased to 7.7 million open jobs across the country as of the last business day in October. It was 7.2 million in August. The 10-year chart below shows the downward trend in open jobs has continued since March 2022.
The seasonally adjusted Total U.S. Unemployment Rate, U-6, increased significantly to 8.7% in November as compared to 8.0% in September. There were 7.4 million people unemployed in November, aged 16 and older. In September, it was 7.3 million people unemployed.
November Unemployment Rates by Education Level
Average hourly earnings of all employees on private nonfarm payrolls were up 3.5% in November compared to a year ago. It was 3.8% in September.
| Less Than High School Diploma | 6.8% |
| High School Graduate, No College | 4.4% |
| Some College, Associate's Degree, or Skilled Trade Degree | 3.5% |
| Bachelor's Degree or Higher | 2.9% |
Leading Economic Indicators (LEI) sponsored by The Conference Board
The LEI declined by 0.3% in September after a revised decrease of 0.3% in August. The Conference Board’s spokesperson said, “Weakening expectations from consumers and businesses led the overall contraction in the index. Negative contributions came from manufacturers’ new orders, initial unemployment claims, and the yield curve. However, stock prices contributed positively. The LEI suggests slowing economic activity. Overall, growth remains fragile and uneven.”
Gross Domestic Product (GDP)
The Bureau of Economic Analysis said the advance estimate for GDP in the third quarter of 2025 increased at a significant annual real rate of 4.3%! GDP for the second quarter of 2025 was revised to an excellent 3.8%. The economy is ripping!
The increase in the third quarter GDP reflected a decrease in imports, which is a subtraction in the GDP calculation, and an increase in consumer spending. For the year 2024, GDP increased 2.8% and grew 3.2% in 2023.
Labor Productivity
Third quarter data will be released on January 29. Fourth quarter data will be released on February 5.
Annualized and seasonally adjusted, nonfarm, labor productivity increased by 3.3% in the second quarter of 2025 as reported by the Bureau of Labor Statistics. It was originally reported as being 2.4%. For the same quarter a year ago, labor productivity increased 1.5%.
By calendar year, labor productivity grew a revised 2.8% in 2024 and 1.9% in 2023. High labor productivity is a good sign for the economy.
Inflation
Annual inflation increased slightly to 2.8% as measured by the Personal Consumption Expenditures (PCE) price index for September. The revised annual August number was 2.7% during the prior 12-months. The annual core PCE price index, which excludes food and energy, decreased slightly in September to 2.8% from 2.9% in August.
University of Michigan Consumer Sentiment
Consumer sentiment in December increased to 52.9 compared to November’s revised 51.0. See the 10-year chart below.
Despite some signs of improvement to close out the year, sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy.
Mortgage Rates and Average Existing Home Prices
As of December 31, 2025, the average 30-year fixed-rate mortgage had an interest rate of 6.20%, compared to 6.33% last month. The average 15-year fixed rate mortgage had an interest rate of 5.75%, compared to 5.66% last month.
The median existing single-family home sale price decreased in November 2025 to $414,300, but that was up 1.2% from 12 months earlier. The seasonally adjusted annual rate of existing home sales decreased 0.8% compared to a year earlier, according to the National Association of Realtors. The inventory of existing homes for sale increased by 7.5% compared to November 2024. This represents a 4.2-month supply of homes for sale.
The U.S. Public Debt as Issued by the Treasury Department as of December 31, 2025, was:
$38,567,000,000,000. Note, $38 trillion is 1,000 times higher than $38 billion.
Last month it was $38,349,000,000,000.
Important Dates in January
THE STOCK MARKET
Commentary
Goldman Sachs’ Tony Pasquariello, said recently, “My baseline view is still positive, and I’m not convinced this is the start of something rotten. The core of my argument is :
- Financial conditions are easy.
- US growth is excellent and set to accelerate.
- The flow of capital is supportive of stock prices.”
“So, I reckon (an official financial term?) most of the big market dynamics are still favorable going forward.”
Stock Market Valuation
Ed Yardeni of Yardeni Research, and Tom Lee of Fundstrat, have announced their S&P 500 Index projections for 2026. Both have targets of 7,700 at year-end. That is up 12.5% from the December 31, 2025 close.
Lee said on December 15, “I believe the market performance will decelerate in 2026 to only a 10-13% gain. I think 2026 will be a very turbulent year. We could even have a bear market (down 20% or more from a recent high), but I believe we’ll exit 2026 strong.”
The S&P 500 Index closed on December 31, 2025, at 6,845.50. Year to date, the Index, including dividends, was up 17.8%.
Recent Annual S&P 500 Performance As Per The Exchange Traded Fund, VOO
2025: +17.82%
2024:+24.98%
2023: +26.32%
2022: -18.19%
2021: +28.78%
2020: +18.29%
2019: +31.35%
Recommended Action for Your Stock Portfolio
Stephanie Link said on December 17, “In 2026 we are going to see a broadening out in the stock market. But I don’t want to abandon the tech sector. I also want to be in the financial sector as bank loan growth is increasing. Also, consumer discretionary is a good sector as consumers have jobs and they are spending.”
“I also believe the energy sector comes to life in 2026. I am holding on to my tech stocks but not buying more. I have previously talked about what I have been buying: SLB (energy), Estee Lauder (EL), Rockwell Automation (ROK), and Union Pacific (UNP).”
“I continue to diversify as I think that is going to pay off in 2026.”
∙ Not FDIC Insured ∙ No Bank Guarantee ∙ May Lose Value
Financial Markets Vocabulary
This month lets define what type of professionals most families need. For this purpose, we are not considering doctors or dentists.
Estate Planning – This is serious business even for a traditional family of mom, dad, and 2.3 children. But throw in a second marriage for mom and dad, children from the first marriage, an adoption, a dependent parent or disabled child, homes in multiple states, complex investments, and even a skilled attorney will have their hands full. Where to start? We recommend hiring an estate planning attorney in your state from a large, long-standing law firm, to prepare for you, your spouse, and any children over 18, the following documents for each person:
- Will
- HIPPA Release
- Living Will (also called Healthcare Directive)
- Durable Power of Attorney
- Health Care Power of Attorney
Tax Preparation – Yes, there is some good software out there that can fill out tax forms for you. But what if you are subjected to an IRS field audit (in your home), or even worse, a Taxpayer Compliance Measurement Program audit? If so, prepare to take a week off from work for the latter. So, where do you go for help? A software company? Probably not so much.
The IRS only allows the following professionals to accompany you to one of their audits. These are also our recommendations:
- Tax Attorney
- CPA
- Enrolled Agent (the highest IRS credentialed tax professional)
Financial Advisor – When seeking professional financial advice, where to begin? Our recommendation is to find a person who meets the following criteria.
- A Registered Investment Advisor – someone who has passed the SEC exam, the Series 65. This person is also a fiduciary.
- Fees are frequently between 1% and 2% per year of the assets the advisor is managing, but we recommend finding an RIA that charges less than 1%.
- Find an RIA that is only an RIA. What we mean by this is find an RIA who is also not a stockbroker and not an insurance agent. This way, you are not always asking them, “Well, as you are recommending I buy product ABC, exactly which hat are you wearing? Your RIA, or stockbroker, or insurance agent hat?”
- An added bonus is finding an RIA who is also a Certified Financial Planner.
NEW VEHICLE 3RD QUARTER AUTO LOAN DATA
Average amount borrowed: $42,332
Average monthly payment: $ 748
Average loan term: 69 months
A spokesperson noted the 84-month (7 yr) loan continues to increase in popularity as new vehicle prices keep going up, while a $750 monthly payment seems to be a hard boundary for most buyers.
OK, Now What Do I Do?
2026 Income-Related Monthly Adjustment Amounts (IRMAA)
Well, I wish IRMAA (pronounced Irma) was a friend, but she is not. IRMAA is a surcharge on top of the standard monthly premium for Medicare Part B and Part D. It applies to moderate- and high-income earners. For 2026, everyone on Medicare will pay the standard amount of $202.90 per month per person (no discount for married couples). The IRMAA amount a person pays in 2026 is based on the modified adjusted gross income as reported on their 2024 federal income tax return as compared to the chart below. IRMAA always looks back two years.
For example, if a married couple had a modified adjusted gross income of $218,001 in 2024, they would both have to pay in 2026 the $202.90 Medicare standard charge, plus $81.20 for IRMAA Part B, and $14.50 for IRMAA Part D, for a total of $298.60 per month per person. Yes, even if you are only one dollar over the limit of a bracket above, you are thrown into that higher bracket. IRMAA recalculates every fall for the next year.
- Not insured by any bank or government
- Subject to risk & possible loss of principal
Our Financial Bad Boy This Month
Wall Street Journal, December 30, 2025, page A4
Officials Conduct Fraud Investigation
Federal Homeland Security officials have announced they have extended their fraud investigation in Minneapolis. The investigation began with the $300 million scheme at the nonprofit Feeding Our Future, for which 57 defendants have been convicted. This fraudulent organization began during COVID-19 and exploited a state-run, federally funded program intended to provide food for children.
Now the investigation will center on the roughly $18 billion in federal funds that supported 14 programs in Minnesota since 2018.
UPDATE ON DEFAULTED STUDENT LOANS
CNBC reported on December 23 that the Trump Administration is going to be garnishing wages for Americans with student loans that are in default. Federal student loans are defined as being in default if payments are missed for 270 days. Private loans may have other standards.
Today about 5 million Americans have their loans in default. The Education Department said they will begin in the week of January 7 to garnish wages. They will be starting with a group of 1,000 borrowers but will soon include additional borrowers who are in default.
This comes as the Trump Administration continues to identify ways to reduce the annual federal deficit.
The Bond Market
Commentary
In mid-December, Dubravko Lakos, JPMorgan Head of Global Market Strategy, said, “If the Fed eases interest rates on the back of inflation dynamics, the S&P 500 Index could surpass 8,000 this year. Our base case includes the Fed easing just one more time and the S&P 500 should reach 7,500. But if the Fed eases two or more times in 2026, the S&P 500 could reach 8,000.”
Recommended Action for Your Safest Money
Our investor’s safest money recommendations are now listed in order with the top line, PRPFX, representing potentially highest returns, is credit safe, but likely will have the highest volatility.
- Permanent Portfolio mutual fund, PRPFX.
- Short-term U.S. investment-grade corporate or securitized bond funds.
- FDIC bank or NCUA credit union, 1 to 4 yr CDs, paying at least 3.7%.
- Bank or brokerage-house, high-yield savings or money market accounts (3.7% min.).
- US Treasury Bills of 1 year, or Treasury Notes of 2, 3 or 4 years.
- U.S. Savings I-Bonds, which have a max contribution of $10,000 per account per year, are tax deferred for 30 years, do not drop in value like bonds drop in value when interest rates rise, interest is paid and compounded monthly, and the interest rate resets every six months based on inflation (the higher the inflation, the higher the interest rate).
The bottom option in the list above, U.S. Savings I-Bonds, is the most credit safe, has the lowest volatility, but potentially the lowest returns. We recommend everyone spread their “safe money” over at least four of the six ideas above.
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 30% of an investor’s total portfolio. These products are 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
What is Warren Buffett’s favorite exchange traded fund for investors and what is so great about this fund?
Answer:
Buffett has consistently recommended Vanguard’s S&P 500 Index fund, VOO, saying the fund seeks long-term growth. Buffett has stated VOO is an excellent fund due to:
- Low Cost – VOO has a very low expense ratio of 0.03% per year and has very low trading costs with its annual turnover at only 2% per year.
- Broad Diversification – VOO gives an investor a slice of the entire U.S economy by holding a position in the largest 500 companies.
- Tax Efficiency – Tax efficiency is an important consideration within a taxable brokerage account. This fund has little to no capital gain distributions each year. Dividend distributions typically have had an annual yield of 1.10%.
- Long-Term Performance – The overall trend of the S&P 500 Index over decades beats trying to pick individual stocks and beats over 90% of professional fund managers. Over the past 15 years, this fund has averaged slightly over 14% per year.