Steve Tomisek, CFP®

June 23, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP® | Founder & Chief Investment Officer

The conflict between Israel and Iran has captured global attention and created uncertainty in financial markets. Israeli strikes on Iranian nuclear facilities and military targets began on June 13 and quickly led to retaliatory attacks. Then, on June 21, the U.S. launched strikes on Iran’s nuclear facilities. The situation is still evolving and can change quickly, and there are many views on what Iran may do next. This is occurring even as the Israel-Gaza war rages on, and regional conflicts continue in other parts of the world.

While the humanitarian consequences are the most important consideration, it’s also necessary for investors to understand how such events impact markets. Perhaps the biggest concern among investors is whether events like these could escalate into full-scale global wars, especially now that the U.S. is actively involved. While this is always possible, recent history does not point in this direction. Instead, even serious conflicts, including Russia’s invasion of Ukraine, Hamas’s attack on Israel, and the war in Afghanistan, remained contained, leading only to short-term stock market volatility.

This is not to diminish the severity of these conflicts, but to remind ourselves that overreacting to these events with our portfolios can be counterproductive. In times like these, it’s more important than ever to maintain perspective and focus on the lessons of history and long-term market trends. What should investors focus on in this environment to stay disciplined in these markets?

Middle East tensions have escalated

The latest developments mark an escalation in Middle East instability. Israeli forces targeted Iranian nuclear sites and military leadership, with reports indicating damage to uranium conversion facilities. In turn, Iran has responded with missile and drone attacks, with some reaching Israeli territory. The U.S. then bombed the three key nuclear sites of Fordo, Natanz, and Isfahan. The conflict has also damaged critical infrastructure in both Israel and Iran, including natural gas facilities and oil refineries.

At the risk of oversimplifying, historians tend to view every event as unique, with its own narrative, causes, and consequences. Economists, on the other hand, tend to look for patterns and similarities between events to draw broad conclusions. As investors, both perspectives are important in order to understand what lessons do and do not apply. After all, a common saying is that history doesn’t repeat itself, but it often rhymes.

The accompanying chart provides some historical perspective around geopolitical events over the past 25 years. This includes conflicts in the Middle East that impacted oil prices, such as the Iranian drone strikes against Saudi Arabia in 2019. These periods show that while there can be market swings in the short term, markets have typically recovered from geopolitical shocks, often within weeks or months of the initial event. What mattered more during these periods were the underlying business cycle trends.

Oil prices have been volatile

In the short run, oil prices can act as a transmission mechanism by which regional conflicts impact the rest of the world. The immediate market reaction to the latest conflict focused on energy markets, with Brent crude futures rising above $74 per barrel. Oil prices remain volatile but fell back toward $70 per barrel on a possible de-escalation.

Oil prices affect the global economy since they are still a significant input into all products and services. Higher oil prices lead to more expensive gasoline and transportation costs, raising prices for everyday consumers and businesses. This is compounded by the possible closure of important shipping lanes, including the Strait of Hormuz in the Persian Gulf. This strait is a critical waterway through which approximately one-quarter of the world’s oil supply passes.

Still, it’s important to maintain perspective on current oil price levels. While recent swings are notable, prices remain well below the peaks reached in 2022 during the early stages of the Russia-Ukraine conflict, when oil exceeded $120 per barrel. The current price level in the mid-$70s is within the range experienced over the past few years. Just this year alone, oil prices have fluctuated between $60 and $82 per barrel.

It’s also important to note that the U.S. has grown increasingly energy independent over the past two decades. American oil production now exceeds 13.5 million barrels per day. Some may find it surprising that the U.S. is the world’s largest producer of both oil and natural gas. While the U.S. still requires foreign oil and is sensitive to global oil prices, the fact that there is a significant domestic supply helps to insulate the U.S. economy and financial markets.

The impact of wars on portfolios depends on business cycles

For investors worried about escalating conflicts around the world, zooming out can help provide perspective. From World War II to the Iraq War, markets may have reacted to these conflicts in the short run, but were driven by investment fundamentals in the long run.

For example, World War II jump-started industrial production after the Great Depression, and led to a significant shift in the labor market with women entering the workforce. These factors helped propel the economy through the rest of the century. Similarly, the Gulf War affected oil prices, but also coincided with the Information Technology revolution of the 1990s. In contrast, the decade following the Vietnam War coincided with high oil prices and stagflation, resulting in poor market performance.

Again, none of this is to trivialize the humanitarian and societal consequences of these wars. For the current situation, much will depend on whether the conflict expands further or begins to de-escalate. The involvement of major powers and threats to critical supply routes add complexity, but history suggests that even significant regional conflicts tend to have limited long-term impact on global financial markets.

The bottom line? While Middle East tensions have created short-term market volatility, investors should maintain perspective and avoid overreacting to headlines. A portfolio aligned with long-term financial goals remains the best approach for navigating periods of geopolitical uncertainty.

This newsletter is a publication of Kirk Capital Advisors, LLC. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. A professional advisor should be consulted before any investment decisions are made. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be suitable or profitable for your investment portfolio. All investment strategies have the potential for profit or loss. Historical performance results for investment indexes and/or categories, generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. Kirk Capital Advisors, LLC is registered as an investment advisor and only transacts business in states where it is properly registered or excluded or exempted from registration requirements. Registration as an investment advisor does not constitute an endorsement of the firm by securities regulators nor does it indicate that the advisor has attained a particular level of skill or ability. ©2025 Kirk Capital Advisors, LLC.

Copyright (c) 2025 Clearnomics, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company’s stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security–including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.

June 3, 2025 by Steve Tomisek, CFP®

W. Kirk Taylor, CFP® | Founder & Chief Investment Officer

Financial markets rebounded in May with the S&P 500 recovering its year-to-date losses. This positive month occurred against a backdrop of new trade agreements, mixed economic signals, and ongoing concerns about U.S. fiscal health. While many reports continued to show that the economy is strong, consumers remained pessimistic about the future. Treasury yields fluctuated throughout the month due to concerns around federal spending and debt. For long-term investors, May serves as a reminder that markets can adapt to changing conditions, even when there is significant uncertainty around economic and fiscal policy.

Key Market and Economic Drivers
¹

The S&P 500 gained 6.2% in May, its best month since 2023, the Dow Jones Industrial Average was up 3.9%, and the Nasdaq rose 9.6%. Year-to-date, the S&P 500 is up 0.5%, the Dow is down 0.6%, and the Nasdaq is down 1.0%.
The Bloomberg U.S. Aggregate Bond index declined 0.7% in May but is up 2.4% year-to-date. The 10-year Treasury yield ended the month at 4.4%.
International stocks also performed well with the MSCI EAFE index of developed markets and the MSCI EM index of emerging markets both climbing 4.0%.
The U.S. dollar index fell further to end the month at 99.3, near a three-year low.
Bitcoin hit a new record high of $111,092 before ending the month at $104,834.
Gold also hit a new record high of $3,422 before closing the month at $3,288, a 24% year-to-date gain.
The Consumer Price Index report released in May showed that consumer prices rose 2.3% in April from a year earlier, the lowest 12-month increase since February 2021.
The economy added 177,000 new jobs in April while the unemployment rate remained low at 4.2%.

Markets continued to recover despite new concerns

May’s market rebound underscores the importance of staying the course during periods of market volatility. After a challenging April, markets demonstrated resilience by recovering most of their losses and returning to positive territory in May. This illustrates how quickly market sentiment can shift when conditions begin to stabilize, a pattern that investors have experienced many times over the past decade. Of course, the past is no guarantee of the future, and markets will continue to worry about trade deals, the U.S. debt, and the health of the economy in the coming months.

Moody’s downgraded the U.S. credit rating

One of the biggest surprises in May was Moody’s downgrade of the U.S. credit rating from Aaa to Aa1. This followed previous downgrades by Fitch in 2023 and Standard & Poor’s in 2011 which all reflect concerns about the nation’s growing debt and spending. The accompanying chart shows that the U.S. total debt grew to 122% of GDP in 2024. Net debt, which excludes debt the government owes itself, has risen to 97%.

Despite the historic nature of the U.S. debt downgrade, markets hardly reacted. This is because the downgrade is mostly backward-looking, and investors are already familiar with the nation’s fiscal challenges. The muted response also reflects lessons from the 2011 Standard & Poor’s downgrade, when Treasury securities continued to be viewed as safe haven assets.

Perhaps it was not a coincidence that this downgrade occurred as the House of Representatives was passing a comprehensive tax and spending bill. The approved bill would extend the individual tax cuts from the Tax Cuts and Jobs Act. This includes a 37% top rate, child tax credits, higher State and Local Tax deduction caps, and exemptions for tips and overtime pay, among other measures. According to the Penn Wharton Budget Model, the legislation could increase deficits by $2.8 trillion over the next 10 years.
²
The bill will now be debated and potentially modified in the Senate.

While many would agree that these fiscal challenges require long-term solutions, the U.S. dollar remains the world’s primary reserve currency and there will continue to be demand for Treasurys for the foreseeable future.

Trade negotiations show progress

There was also progress on trade negotiations in May, taking many of the worst-case scenarios off the table. The administration reached agreements with both the U.K. and China, while negotiations continued with other major trading partners. The U.S.-China trade agreement included a 90-day period of reduced U.S. tariffs on Chinese goods.

Despite these deals, there will likely continue to be uncertainty around trade. More recently, China and the U.S. have both accused each other of violating the trade truce, and the administration wants higher tariffs on steel and aluminum. At the same time, negotiations with the European Union produced optimism when the White House delayed its scheduled 50% EU tariff after positive discussions. This suggests that diplomatic solutions remain possible, even when initial positions appear far apart.

The administration is also facing legal challenges to its tariffs. In May, the U.S. Court of International Trade struck down many of the newly enacted tariffs, ruling that they exceed presidential power under the International Economic Emergency Powers Act. While a federal appeals court paused the ruling, allowing tariffs to remain in place for now, this legal challenge adds another layer of uncertainty to the trade landscape.

It is important to remember that trade policy typically unfolds over months and years rather than days or weeks. The recovery in May is a reminder that investors should not overreact to trade headlines, especially now that the worst-case scenarios are less likely to occur.

Steady earnings growth supports market

First quarter corporate earnings reports presented another reason for optimism. S&P 500 companies delivered positive earnings per share surprises and 64% reported positive revenue surprises, according to FactSet.
³
This strong earnings performance highlighted the underlying health of corporate profitability, with technology companies showing resilience as they navigate trade uncertainty.

In contrast, consumers have been pessimistic this year due to tariffs and inflation concerns. However, recent sentiment indicators began showing signs of improvement that align more closely with positive earnings and economic data. The University of Michigan’s most recent survey for May showed inflation expectations decreasing slightly and sentiment stabilizing. While it’s important not to read too much into a single month’s data, this improvement represents an encouraging development. A strong economy and improving sentiment could help to support markets.

The bottom line? May was a positive month for investors. While the U.S. debt downgrade and fiscal concerns created new challenges, progress on trade deals helped to boost markets. For long-term investors, these developments underscore the importance of maintaining perspective and staying focused on fundamental trends rather than short-term policy headlines.

1. Standard & Poor’s, Nasdaq, Bloomberg. All month end figures are as of May 30, 2025.
2. https://budgetmodel.wharton.upenn.edu/issues/2025/5/23/house-reconciliation-bill-budget-economic-and-distributional-effects-may-22-2025
3. FactSet Earnings Insight May 30, 2025

May 12, 2025 by Steve Tomisek, CFP®

By: Kirk Taylor, CFP® | Founder & Chief Investment Officer

A key principle of investing is that patience, discipline, and maintaining a long-term perspective are what drive financial success. Perhaps no investor has captured this wisdom as eloquently as Warren Buffett over his five-decade career as CEO of Berkshire Hathaway. Buffett’s recent retirement announcement is an opportunity to revisit investment principles that are not only relevant in today’s market environment, but have also stood the test of time.

An often-used Buffett quote is to “be fearful when others are greedy, and greedy when others are fearful.” While steady markets are more comfortable, it’s during difficult periods that opportunities truly present themselves. April’s market volatility is a perfect example, spurred by tariffs, inflation, interest rates, and more. Those investors who have been able to look past short-term news and market swings, and instead consider their overall portfolios, are likely to be better positioned for the future.

Even though the stock market has regained much of its year-to-date losses, valuations continue to be more attractive than at the start of the year. These are times when patient investors can potentially benefit from more attractive valuations and long run market trends. Taking a disciplined approach to volatility has historically rewarded those who, like Buffett himself, look past short-term market swings and maintain their investment objectives. Here are some Buffett principles that can guide us through current market conditions.

Market volatility has improved valuations

“Whether we’re talking about stocks or socks, I like buying quality merchandise when it is marked down.” – Warren Buffett, 2018 Berkshire Hathaway annual letter

An important tenet of Buffett’s approach is investing in companies that are undervalued. While broad stock market valuations rose to nearly historic highs earlier this year, the recent pullback and steady earnings growth have brought valuations back to more attractive levels. At just under 20x, the S&P 500’s price-to-earnings ratio is now in-line with its average over the past decade. This “valuation reset” is the result of short-term concerns about tariffs and economic uncertainty, but might also reflect opportunities.

This is because, over longer time horizons, valuation ratios serve as the best gauge of market attractiveness. While market moves that occur over days and months are often dominated by news headlines, company-specific events, and geopolitics, these concerns typically settle and fade over time. When looking out over years and decades, what matters more are the overall growth trends and whether investors paid a reasonable price when they made their original investment.

Valuations are one way to gauge whether investors are paying a reasonable price. Rather than focusing on stock prices alone, valuations tell us what you get for that price – in terms of earnings, book value, cash flow, dividends, and more. Purchasing assets when valuations are attractive typically improves the odds of stronger future returns, while investing when markets appear expensive often leads to more modest long-term results. For this reason, valuations have historically shown a strong correlation with long-term portfolio performance.

It’s important to recognize that valuations should not be viewed as market timing instruments for making all-or-nothing investment decisions. Rather, they are an important input into building appropriate portfolios. Understanding current valuation levels can help identify opportunities and set expectations in all phases of the market cycle.

Corporate earnings have grown steadily

“Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on.” – Warren Buffett, 2013 Berkshire Hathaway annual letter

In addition to more attractive prices, another important reason valuations have improved is the steady growth of corporate earnings. With more than three-quarters of S&P 500 companies having reported first-quarter results, earnings have grown an impressive 12.8%, according to FactSet. This significantly exceeds the 7.2% growth rate expected at the beginning of earnings season. This positive surprise has been driven by several sectors, particularly Communication Services, Financials, Healthcare, and Information Technology, which continue to grow their profit margins.

In contrast, the Consumer Discretionary and Consumer Staples sectors have shown relative weakness, beating their sales targets at a lower rate. This aligns with survey data indicating consumers are becoming more cautious about spending as they prioritize necessities amid inflation concerns.

Beyond the numbers, earnings calls have provided valuable insights into how companies are navigating the current environment. Three key themes have emerged.

First, many companies have adopted a “wait-and-see” approach to the tariff situation. Given limited visibility, some have suspended guidance, while others have incorporated preliminary tariff estimates into their forecasts.

Second, despite near-term uncertainty, plans to make capital investments remain strong, particularly in technology sectors. Major technology companies have maintained or increased their capital expenditure plans for 2025, especially in areas related to artificial intelligence infrastructure. This suggests that management teams have continued confidence in long-term growth opportunities.

Third, companies across various sectors are undergoing transformations to adapt to technological advancements, changing consumer preferences, and economic shifts. These strategic adjustments, while sometimes challenging in the short term, position companies to better weather uncertainty and capitalize on emerging opportunities.

Dividends continue to support portfolios

“It’s not good news when any company cuts its dividend dramatically” – Warren Buffett, 2023 Berkshire Hathaway annual meeting

Even though Berkshire Hathaway has rarely paid dividends, Buffett has benefited from the earnings and dividend-generating ability of his portfolio companies. His mentor, Benjamin Graham, focused heavily on the importance of dividends as an indicator of corporate financial health in the book “The Intelligent Investor.” While investors typically focus on stock prices, dividends have historically been a major contributor to long run returns.

Despite ongoing market uncertainty, dividends have continued their upward trajectory, adding to stock market total return for investors. The accompanying chart shows that many sectors have healthy dividend yields, many of which are still around their 10-year averages.

For investors who rely on their portfolios for income, dividends are an important source of yield. Companies are typically reluctant to cut dividends except during periods of financial stress. Dividends are also an important signal of the underlying financial health of corporations. This is because dividend payments are not just accounting figures, but require actual cash. The continued growth in dividends suggests confidence among corporate leaders despite near-term uncertainties.

The bottom line? As Warren Buffett’s career shows, the best way to navigate uncertainty is with a patient, long-term approach to investing. This remains relevant in today’s market environment, especially as investment fundamentals improve.

April 1, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP®

With the stock market back near correction territory due to tariff concerns, some investors may feel as if the market is stuck in a “Groundhog Day” loop. Fears of a trade war have kept markets choppy all year, with the technology sector leading the downturn. After months of uncertainty, some investors may feel as if financial markets will never stabilize. How can long-term investors maintain perspective in this challenging environment?

Like the seasons, booms and busts are natural parts of the market cycle. Although the winter months may be unpleasant and can seem endless, they eventually give way to warmer weather. So too have market pullbacks historically stabilized, paving the way for expansions and bull markets. While worries over an escalating trade war make this market correction unique, recent history suggests that it too could eventually turn around once there is greater clarity.

Market pullbacks are normal, and recoveries often occur when they’re least expected

The S&P 500 is near correction territory, defined as a decline of 10% from the prior peak, and the Nasdaq has been in a correction for nearly a month.
¹
Economic uncertainty has led to many sizable market swings over the past several weeks, including days where major stock market indices decline by one or two percentage points.

It’s often said that markets take the stairs up and the elevator down. This is because market recoveries tend to be slow moving and compound over time, whereas the events that create short-term fear tend to be sudden, just as they have been this year. At the same time, history shows that even new market lows tend to be higher than previous peaks. In other words, markets often take the stairs up several floors before riding the elevator down one or two levels in a correction.

This is relevant in today’s market since the correction in the S&P 500 is relative to its recent February all-time high.

When zooming out, the stock market is only back to where it was last September. So, while unpleasant, it’s important to keep these recent moves in perspective.

As the chart above shows, stock market corrections occur on a regular basis and average 14.3% since World War II. Despite this, major indices have historically recovered in a few months with rebounds often occurring when they’re least expected. Recent examples include the stock market rebounds in mid-2020 during the pandemic, in late 2022 following the tech-led bear market, in early 2023 after the banking crisis, and throughout countless other examples.

Trying to time the market is often counterproductive

Instinctively, the nature of up and down periods can lead some investors to try to time the market, seeking safety during down days. Trying to time upswings often backfires, since investors often miss the early parts of a recovery. Similarly, waiting until markets are already recovering can hurt long-run returns as well.

While all investors would like to think they can avoid the worst market days, the truth is that getting this right is difficult, if not impossible. Even in the case when investors can avoid all extreme days, the final outcome is only marginally better than simply staying invested through downturns. This assumes perfect foresight – in reality, investors are often reacting to events that have already occurred. So, while the past is no guarantee of the future, this is a reminder for investors to stay focused on the long run and not get caught up in short-term market movements.

Tariffs and technology stocks

Investors have grappled with the wide-range of potential outcomes from the administration’s potential use of tariffs. In many cases, these tariffs are used as a negotiating tactic to bolster positions on other issues such as immigration. In the short run, the fear of higher prices has already impacted consumer sentiment and inflation concerns.

While there is significant uncertainty today as to how tariffs will take shape in the coming days, the true economic impact of trade unfolds over a longer timeframe. It takes many quarters to fully understand how companies will adjust their sourcing strategies, whether costs are absorbed or passed on to consumers, and how trading partners respond with potential retaliatory measures. Investors should be careful to not extrapolate today’s news headlines indefinitely into the future.

In the meantime, the technology stocks, which led markets higher in the last several years have led the market lower recently, as shown in the accompanying chart. It’s important to view these recent moves in the context of the full cycle. Even after the recent double-digit declines, the Magnificent 7 stocks having risen significantly since January 2021 on the heels of earnings that are significantly higher than the broader market.

At the same time, many other sectors have performed better over the past several months including Energy, Healthcare, Utilities, Financials, and others.

Over the past year, eight of the eleven S&P 500 sectors are in positive territory, despite recent swings. This underscores the importance of investing across many parts of the market, in balanced portfolios that are aligned with financial plans.

The bottom line? Market volatility has increased on tariff news, with technology stocks experiencing a challenging period. There have been difficult market days recently, but history shows that focusing on the long run is still the best way to achieve financial goals.

¹
S&P 500 declined 9.2% between February 19, 2025 and March 28, 2025. The Nasdaq fell 14.1%, between December 16, 2024 and March 28, 2025

March 19, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP®

Concerns over the economy have intensified, leading to a challenging investment environment. The S&P 500 briefly fell into correction territory recently (a decline of 10% or more), while the Nasdaq and major technology stocks have led the downturn. In times like these, it’s important for investors to remember that market uncertainty is a normal part of investing. While downturns are never pleasant, history shows that those who stick to their financial plans are in a better position to achieve their long-term goals.

So, what is underpinning investor concerns? A key factor is whether tariffs and inflation will harm consumer spending. This is because consumers are the backbone of the U.S. economy, with consumer spending making up more than two-thirds of annual GDP. When consumers feel confident about their finances and the world, they tend to spend more on goods and services, which drives economic growth and corporate profits. Conversely, when uncertainty rises, consumers often tighten their belts, which can ripple through the entire economy.

Consumer sentiment has fallen due to tariffs and inflation

Recent data suggest that consumer sentiment, which measures how consumers feel about current and future conditions, has worsened alongside the stock market. According to the University of Michigan Surveys of Consumers, overall consumer sentiment has fallen to a level of 57.9 from a high of 79.4 a year ago, and is approaching the historic low of 50.0 in mid-2022. Much of this is driven by the expectation among consumers that inflation could rise as high as 4.9% in the coming year.

Tariff uncertainties are the latest reason for consumers to feel nervous about the economy, especially when it comes to inflation. Historically, tariffs increase the prices of imported goods, as demonstrated when washing machine prices rose following 2018 tariff implementation. When businesses face higher import costs due to tariffs, they must choose between absorbing costs, negotiating with suppliers, or passing expenses to consumers.

It’s not surprising that how consumers feel and how much they spend are usually related, and the latest retail sales report for February shows a slowdown in spending in some categories. However, this relationship has been unusual in recent years: although consumers may feel uneasy in this economic environment, spending has generally remained robust. This has led to a mix of conflicting data that needs to be viewed with a broader perspective.

One reason for steady spending despite poor sentiment is that the job market remains strong. The unemployment rate of 4.1% remains near historic lows. There are 7.7 million job openings, for a ratio of more than 1 job per unemployed individual. Having job prospects may help bolster confidence and could help to support consumer spending in spite of recent uncertainty. Additionally, employers are more likely to raise wages if they know their workers could be considering other job opportunities.

Consumer preferences have also evolved in the past few years, with spending increasingly focused on services and experiences rather than physical goods. Case in point: inflation for services remains well above average while the prices of many goods have declined, according to Consumer Price Index data. Goods are tangible items that consumers can purchase and own, such as electronics, clothing, or furniture, whereas services represent intangible offerings such as dining out, travel, memberships, healthcare, education, and entertainment.

Household savings rates have fallen while debt has steadily risen

The other side of the spending coin is savings and debt. While the savings rate has recovered somewhat, suggesting that households are saving 4.6% of their paychecks, this remains below the historical average of 6.2%, as shown in the accompanying chart. This means that consumers have been slow to rebuild their rainy day funds and are choosing to spend extra income (above inflation), rather than save.

Some investors worry that resilient spending has been fueled by a rising level of consumer debt. According to the latest Federal Reserve Bank of New York report, credit card balances grew to $1.2 trillion in Q4 2024, but it’s important to put this figure into context. While individual debt levels are likely to be growing, aggregated data points like debt balances tend to rise as the population and economy grow. In other words, these figures usually only contract with a sharp slowdown of economic growth or a recession. As a percent of income, consumer credit has risen, but still remains below concerning levels.

Household net worth remains near historic peaks

Despite concerns about rising debt levels, U.S. household net worth has reached record levels, providing a strong foundation for the financial health of consumers. This “wealth effect,” or the idea that consumers spend more when their perceived wealth increases, is driven by strong asset prices, real estate, and more.

It’s important to recognize that this is not evenly distributed across all economic segments, and there can be variation among different demographic groups and income levels. Some households continue to struggle with debt and limited savings, even as overall net worth statistics paint a positive picture.

While household net worth and consumer spending provide no guarantee a recession will be avoided, they do suggest that the economy is more resilient than some might fear.

The bottom line? Despite concerns around tariffs and the economy, consumer spending remains healthy. This reinforces the importance of seeing the bigger picture before making portfolio changes based on short-term market swings.

February 27, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP^®

Recent market swings have highlighted a gap between how investors feel and how markets have performed. As the famous Warren Buffett quote suggests, it has often been wise to be “fearful when others are greedy and greedy when others are fearful.” While this can seem counterintuitive when there are many economic and political concerns weighing on the market, having the discipline to stay invested has historically been the reason investors are rewarded in the long run.

Please click the link below to read more…

CLICK HERE TO READ THIS WEEK’S COMMENTARY!

February 25, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP®

Investors have faced several market concerns early in the year around tech stocks, interest rates, and government policy. Among these factors, it’s no surprise that trade policy has emerged as particularly significant for markets. President Trump has launched various trade measures, including tariffs on Canada, Mexico, China, and the European Union. How should investors react to these news headlines?

Please click the link below to read more…

CLICK HERE TO READ THIS WEEK’S COMMENTARY!

February 4, 2025 by Steve Tomisek, CFP®

By: Mark D. Troutman, PhD, CFP ®

Many people attribute the sage wisdom of “…predictions are hard, especially about the future…” to baseball legend Yogi Berra. In fact, the quote is attributed to physicist Niels Bohr, who advised listeners to be humble in forecasting given uncertainties and unknowns. The past four years have driven that lesson home to me personally.

So, in the spirit of humility, let’s review the year that was and look forward to the year that might be. In summary, 2025 opens with an economy operating at full capacity, yet with distinct risks. For all the reports on improved performance, there was a clear message. Tame inflation, and let Americans get back to business.

The US economy continues to be the envy of the world. The coming year also signals policy change. In short, this economist believes the outlook is bright, with risks to inflation and interest rates. So – remain optimistic and attentive to risk.

Output. 2024 opened with predictions for modest growth and the possibility of recession in the second half of the year. Despite some growth and inflation scares during the year, GDP expanded to a real 2.7% through 3Q24. 2024 finished strong, with modest slowing and promise of continued expansion into 2025.

This expansion, and the broader recovery since 2020 set the US apart from the rest of the world. US consumers proved more resilient than many believed possible as stimulus funds spent out and interest rates continued to rise. The consumer, the final driver of real US GDP growth, remained strong.

Employment (Unemployment). Labor markets remained strong in 2024 with unemployment below historical rates. Employment expanded, though less broadly than many labor market economists would prefer. Unemployment held firm at 4.1% – generally regarded as full employment. Labor markets became less tight but did not fall into recession. Fears that low unemployment would feed inflation did not materialize. Immigration, a contentious issue, stabilized labor markets and allowed employment to expand while containing inflation.

Wage growth – a key driver of inflation in a service based economy – has been moderate at 3.9% This rate is consistent with increases in productivity and inflation. Most important, these levels sustain incomes which in turn support consumption.

Inflation has been the great pain we all have experienced since 2021. Price levels are the highest in history, and we pay more for everything that we use in everyday life. While inflation has slowed in recent years, it has stalled at levels above the desired target of two percent. Supply chains have largely healed, and deficits remain high at over six percent of GDP in a full employment economy.

The latest consumer sentiment report showed a sharp jump – from 2.8% last month to 3.3%. These are the highest expectations of inflation since 2008. Informal comments in the inflation survey indicated a “…buy it before the price goes up” mentality. Consumers represent 70% of US economic activity, so their expectations drive the future. Interest rates, in turn, follow inflation. We remain vigilant for signs of an upturn in inflation.

Interest Rates. The Federal Reserve lowered its policy rate by a full percentage point in 2024. Markets expected four additional cuts in 2025 with short term rates settling in the 3.5% range. The stall in inflation has reduced expectations from four to two cuts. The Chicago Mercantile Exchange (CME) has projected a maximum of two cuts this year. Longer rates have risen on inflation fears and concerns about persistent, large, and potentially growing federal deficits. We expect interest rates to remain elevated and the risks of an upturn are real.

Corporate profits. The ultimate driver of stock prices, have been a bright spot in 2024 rising 6.1% as of 3Q24. Expect profits to hold in 2025 if the conditions of 2024 continue. A JP Morgan survey of its business clients released on 7 January indicated that 75% were confident that revenues would continue to increase in 2025. Stock valuations, while high, have support from profits for now.

Overview for 2025. On January 20th, a new team assumed leadership of the executive branch, tasked by the US Constitution, Article II Section 8 to “…take Care that the Laws be faithfully executed…” The Republican majority in the House and Senate, sworn in on January 3^rd will make the laws. An executive branch and congress of the same party (Republican) indicates that policies to extend tax cuts, employ tariffs and reduce regulations will be priorities. The early actions and demonstrable energy of the new administration confirm this view.

While the policy intentions of the new team are evident, the final outcomes will take time to clarify. Slim congressional majorities will slow the legislative process. Bond markets have signaled that high deficits are a concern. This will prompt examination of fiscal policy. We look to the next six months for a clear indication of what is likely in the realm of policy. In increasing likelihood:

Tariffs. The President has stated a preference to use tariffs and has wide latitude to impose them. We will publish commentary in the coming weeks that months that provides more detail – in plain English. Tariffs are taxes on goods, which raise the risk of inflation. The Executive Order signed on 20 January directed an examination of trade patterns, presumably to refine tariff policy. Early actions indicate a desire to use tariffs to create negotiating leverage in other areas such as immigration policy. Trade is a smaller share of the US economy compared to our many trading partners. So, while inflationary, the actual impact of tariffs will depend on target products and trading partners.
Immigration. The actual number of undocumented immigrants is unknown, but estimates place the number between ten and twelve million. An immediate removal of the undocumented population would further reduce the 167.5M strong US labor force and tighten labor markets. As with tariffs, the early actions appear forceful but limited to deportations of individuals with existing deportation orders. While a reduction in the labor force risks higher inflation, more targeted actions would reduce inflation risk.
Tax reform. The conversion of 2017 tax reforms to permanent status will be a high priority for the incoming administration and Congress. As we presented on our October event, these decisions will not become clear until well into 2025, as any adjustments require congressional action. This means that 2025 is a year for tax planning.
Regulation. The incoming administration is committed to reducing regulations. Brookings Institution published a study in 2022 of the deregulatory impacts of the first Trump administration. The results confirmed a net reduction in regulations but were unable to clearly determine impact. The results favor pro-growth conditions. The overall impact on the economy is less clear, but positive.
Inflation. Two major initiatives – tariffs and immigration restrictions – have inflationary effects. Tax reform that results in higher deficits also risks inflation. An outright win would be deficit reduction – but narrow congressional majorities and large deficits make this outcome unlikely in the near term. The Federal Reserve has signaled a commitment to return inflation to a two percent benchmark. Do not expect this to happen until 2026, unless there is a recession in 2025 – and none of us is wishing for that.
Interest Rates. The price of falling inflation has been higher interest rates. We advised our clients to expect “higher for longer” in 2021 and 2022, and our predictions have proved true. Higher inflation implies that rates will remain higher for longer. Higher productivity and falling deficits could result in more favorable conditions. The outcome of policy changes outlined above will make the path of interest rates clearer over the next year. Over the next few months, expect higher rates overall.

Final thoughts. Productivity has improved in the last few years, and the rapid developments in artificial intelligence and other technologies promise higher productivity still. As the introduction information technology revolution showed in the 1990s, productivity improvements can be hard to spot and take a long time to materialize. Free markets and efficient government are powerful combinations that delivered results in the past. We expect this to hold in the future.

Geopolitical tensions and threats of trade wars carry the risk of supply chain disruptions and reignited inflation. Pragmatism and wisdom have guided us through past tensions. Pray that “…the better angels of our nature…” will prevail in times of tension that seem to be growing.

Kirk and I remain optimistic and vigilant. The US economy remains vibrant and a driver of the world economy. We expect the next year to be turbulent and full of change. Output will expand with short term risks of disruption. Inflation will fall in the absence of any policy errors outlined earlier. The fall will be stubborn, slow and will last into 2026. Interest rates will remain higher for longer and will not fall further before the second half of 2025. US industry will remain inventive and innovative. The incoming administration has promised a new age of prosperity. We will see if they deliver for the American people.

January 28, 2025 by Steve Tomisek, CFP®

By: W. Kirk Taylor, CFP^®

The stock market has been going through a rough patch lately as investors worry about several things: interest rates, whether stocks are too expensive, and how well the economy is doing. Since December 6 last year, the main stock market index (S&P 500) has fallen 4.3%, while the interest rate on 10-year government bonds has gone up from 4.15% to 4.76%.

This drop in stock prices makes sense as investors process new information about the economy. A recent report showed more jobs were created than expected in December. This suggests the economy is doing well and might not need help from the Federal Reserve (“the Fed”) in the form of lower interest rates. Right now, investors think the Fed might only lower rates once in 2025, possibly for the last time in this cycle. But these predictions can change quickly, just like they did throughout 2024.

Please click the link below to read more…

CLICK HERE TO READ THIS WEEK’S COMMENTARY!