Market Correction 101: Understanding the First Dip of the Year

The headlines have been scary recently with escalating tension in the Middle East and higher inflation data causing near-term volatility. Stocks had their worst week of the year and have fallen for three consecutive weeks (for the first time since September).

The S&P 500 gained 27.6% from its low on Oct. 27 through its peak on March 28; this is one of the best five-month rallies in history. Some weakness after that kind of rally is normal. The 5.5% pullback is not so bad in context of a 27.6% rally.

The illustration below is a good reminder that during times of increased market volatility, reality often is different from our preconceived ideas.

This illustration also reflects the last five-plus years. The end of 2018 saw the market fall off a cliff with the market down almost 20% in the fourth quarter alone. The market then had a strong 2019, only to hit a major road bump in 2020 with the pandemic. Then the market quickly climbed out of the hole and continued higher for all of 2021. In 2022, the Fed raised rates to an unprecedented level, and both stocks and bonds sunk to the bottom. In 2023, we saw the markets rise from the bottom and recover the losses incurred during 2022.

So far this year, the momentum has continued, but we inevitably will encounter another speed bump, pothole or cliff — and we will survive that as well if we stay the course.
Cartoon showing a bicyclist encountering obstacles on the way to a checkered flag.


We are now experiencing the first mild correction of the year. Who knows if we will have another pullback or an even larger correction? We do believe that market corrections are inevitable, and they are not predictable. If you plan on investing in the stock market over a long period of time, you will experience many dips, corrections and bear markets

On average, investors have seen the following since 1928:

• Dips of 5% or more in the market more than three times per year.
• Dips of 10% or more in the market (known as a correction) about once a year.
• Drops of 20% or more (bear markets) once every three or four years and are usually tied to a recession.

Declines in the S&P 500 Index Since 1928

Chart showing drips, corrections and bear market occurrences since 1928.
Sources: FactSet, Wells Fargo Investment Institute. Declines are based on price index only and do not include dividends. This information is hypothetical and is provided for illustrative purposes only. It is not intended to represent any specific return, yield or investment, nor is it indicative of future results. Index returns do not represent investment performance. Returns shown are calendar year returns from 1928 to 2023.


Downturns and market corrections can be difficult to endure, but they also can offer opportunities for investors to purchase stocks at lower prices. Stock prices and valuations swing daily. 

The chart below shows stock returns as well as drawdowns yearly going back to 1980. The blue bar represents the S&P 500 return for the year while the dot shows the percentage decline in the S&P for that same year. Since 1980, stocks have dropped an average of 14% during the calendar year. During the same period, stocks have generally bounced back, rising in 33 of the 43 years. The average return from 1980 to 2023 has been almost 10% per year. 

Annual Returns and Drawdowns of the S&P 500 Index

Chart showing annual returns and drawdowns of the S&P 500.
Sources: FactSet, Wells Fargo Investment Institute. Returns are based on price index only and do not include dividends. Intra-year drops refers to the largest market drops from a peak to a tough during the year. This information is hypothetical and is provided for illustrative purposes only. It is not intended to represent any specific return, yield or investment, nor is it indicative of future results. Index returns do not represent investment performance. Returns shown are calendar year returns from 1980 to 2023.


Most investors spend their time worrying about the short term and spend their lives focusing on the day-to-day. As we often preach, investing is about the long term, which requires patience. Markets do not go up in a straight line. 

Most investors’ mistakes are the result of being impatient, and successes are a triumph of patience — staying invested through pullbacks, corrections and bear markets.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, Wells Fargo 

Promo for an article titled Debunking the Myth of Market Timing During an All-Time High.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.

Investor Disclosures: https://bit.ly/KF-Disclosures

Debunking the Myth of Market Timing During an All-Time High

Stocks have had an impressive rally to start the year. The S&P 500 finished the first quarter with a five-month winning streak — shrugging off higher interest rates, hotter than expected inflation data and a reduction in the number of potential rate cuts from the Federal Reserve.

Large-cap stocks, especially those related to artificial intelligence, continue to lead the way, but this year’s rally has been much broader than what we saw in 2023. Apple and Tesla, two of the Magnificent Seven stocks, have had very weak starts to the year.

Since 1950, there have been only 30 occurrences in which the market rose for at least five consecutive months. In those occasions, the average return has been 12.6% in the following 12 months, and it has been positive 93.1% of the time.

S&P 500 Peformance Following a Five-Month Win Streak (1950-YTD)

Chart showing S&P 500 results after a five-month win streak.
Source: LPL Research, Bloomberg 3/27/24. Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90.

For stocks, April has historically been a good month for growth. Going back to 1950, the S&P 500 has averaged 1.5% in April and finished higher 72% of the time. During an election year, the index has posted an average return of 1.3% in April.

This April, the market started on a choppy note — which is not surprising, considering the start to the year and the Fed’s mixed messages on interest rates. A few weeks ago, Fed Chairman Jerome Powell said three rate cuts were still on the table for 2024, but over the last week, policymakers have indicated that there may be only one rate cut this year. The market is trying to digest what that may mean for stocks and, more importantly, for company valuations.

S&P 500 Monthly Seasonality (1950-YTD)

Chart showing the average return by month of the S&P 500.
Source: LPL Research, Bloomberg 3/27/24. Disclosures: Past performance is no guarantee of future results. All indexes are unmanaged and can’t be invested in directly. The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of the predecessor index, the S&P 90. Gains in April are typically front-end loaded. Most of the 1.5% average monthly gain is generated during the first 12 trading days, with price progression tapering off into month-end.

If you are invested, it’s great that stocks are hitting new all-time highs. But if you are looking to put cash to work or considering adding to the portfolio, what does it mean? It’s kind of like climbing a mountain: If you reach the top, isn’t down the only other option?

This kind of thinking is often short-sighted. Not investing — or worse, pulling money out of the market after stocks reach new highs — is calling a market top. Timing the market, which is the strategy of buying in when the market is at the lowest and selling at its peak, requires near-perfect insight to succeed.

Since 2020, the S&P 500 has experienced more than 120 all-time highs. Each of those moments was a market top. Selling on any of those days would have prevented you from participating in the next all-time high.

For market timing to work, you must be right twice: once on the way out and then again when to get back in. Investing in the S&P 500 at all-time highs has been a good strategy over the last several decades. As the chart below shows, the 30 best days (as well as the 30 worst days) tend to be clustered together. They also tend to occur during bear markets, when volatility is high.

The Market’s Best and Worst Days Have Often Been Close Together

Chart showing that the market's best and worst days have often been close together.
Sources: Bloomberg and Wells Fargo Investment Institute. Daily data: Feb. 1, 1994, through Jan. 31, 2024, for the S&P 500 Index. Best and worst days are calculated using daily returns. For illustrative purposes only. A price index is not a total return index and does not include the reinvestment of dividends. There are difficulties assessing index performance during certain correction periods, in part, because index results do not represent actual trading and cannot completely account for the impact financial risk has on actual trading. An index is unmanaged and not available for direct investment. Past performance is no guarantee of future results.

There’s an old saying that bull markets don’t die of old age. Staying invested, maintaining a diversified portfolio and rebalancing the portfolio periodically can mitigate the risks that come with trying to time the market.

Momentum begets momentum. Rather than thinking of an all-time high as the top of the mountain, think of it as another step in establishing a new baseline to climb even higher over the long run.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Baird, LPL Financial, Schwab, Wells Fargo

Promo for an article titled As the Market Soars, Now’s the Time to Review Your Estate Plan.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

As the Market Soars, Now’s the Time to Review Your Estate Plan

The Federal Reserve held interest rates steady last week and — more importantly to the stock market — is sticking with its forecast of three interest rate cuts this year. This was the fifth meeting in a row that the Fed left rates unchanged, following 11 consecutive meetings with rate increases.

The forecasted rate cuts would be the first reductions since the early days of the pandemic in March 2020. The Fed also raised its projections for GDP growth this year and now sees the economy running at a 2.1% annualized rate. All three major U.S. stock indexes finished at their highest closing levels ever for the first time in more than two years. The last time all three indexes closed at record highs on the same day was Nov. 8, 2021.

Federal Funds Target Rate, July 2000-March 2024

Chart showing the Federal Funds Rate from July 2000 to March 2024.
Note: From December 2008 to present, the chart reflects the midpoint of the Federal Reserve’s target range. The target rate began in 1982. Source: Federal Reserve Bank of New York. Target rate as of March 20, 2024.

The most recent consumer price index (CPI) data for February came in hotter than expected for the second straight month. Inflation has eased significantly since it hit 9% in 2022. It has stalled at just over 3% in recent months, still well above the Fed’s 2% target rate.

Shelter remains the largest driver of inflation. While energy prices have gone up the last few months (as you’ve seen at the pump), it is nothing compared to what we saw in 2022. Food prices have shrunk significantly, which is a good sign for potential lower inflation going forward.

Overall, inflation’s downtrend from late last year is still intact.

CPI Inflation Has Eased, but Stays High on the Back of Shelter

Chart showing the sectors that affect CPI inflation since September 2021.
Data source: Carson Investment Research, BLS 3/12/2024. Pandemic-impacted categories include car and truck rentals, furnishings and supplies, apparel, airline fares, lodging away from home including hotels and motels. Housing includes rent of primary residence and owners’ equivalent rent. Medical care includes medical care commodities and services.

With stocks trading at all-time highs, now is a good time to review your estate plan. The federal lifetime estate and gift tax exemptions are set to be cut in half unless Congress acts before Jan. 1, 2026. A decrease in the exemption amount could result in significant transfer taxes for families with taxable estates. 

In 2017, the Tax Cuts and Job Act increased the exemption. In 2024, the exemption amount increased from $12.92 million to $13.61 million per person (combined $27.22 million for a married couple). Should the provision sunset at the end of 2025, exemptions will revert to 2017 levels, adjusted for inflation, which would be about half of what they are today (roughly $14 million for a married couple).

It is uncertain if Congress will act before 2026. Until this happens, it may be wise to explore options to use the current exemption amount.

The IRS has confirmed that using the larger exemptions amount cannot be “clawed back” after the potential sunset. For example, if a person uses more exemption during their lifetime than is available at death due to a change in the exemption amount, the IRS cannot impose an estate tax on those excess gifts as a part of the taxpayer’s estate when they pass.

Here are a couple of ideas to discuss to plan for a potential change:

Dynasty Trust

A dynasty trust, or perpetual trust, is designed to pass on wealth from one generation to the next without incurring transfer taxes.

Dynasty trusts are irrevocable, and their terms cannot be changed once funded. They allow for potential tax-free transfer of assets to beneficiaries. The trust will define the way each beneficiary receives distributions and what should happen at their passing.

Assets can be held in trust for multiple generations, depending on the state where the trust is established.

Spousal Lifetime Access Trust

A spousal lifetime access trust (SLAT) allows access to assets while keeping them out of your taxable estate. Married taxpayers can consider naming their spouse as the lifetime beneficiary of their trust. 

With this type of trust, the taxpayer would gift assets to a trust established for the benefit of their spouse and descendants. The spouse can receive trust income and defined portions of the principal, giving the taxpayer access to trust assets for duration of the marriage.

It is important to note that both trusts are irrevocable, and the taxpayer must be willing to give up control of the assets to obtain the gift of the estate tax benefit of the gift or bequest.

With portfolio values at or near all-time highs, it may make sense to act sooner rather than later. If you have any questions about the best way to potentially navigate changes to the current transfer tax exemption amounts, please do not hesitate to contact our team. 

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: CNBC, Carson, Kestra

Promo for an article titled Here's How We're Rebalancing the Portfolio as We Enter the 2nd Quarter.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

Here’s How We’re Rebalancing the Portfolio as We Enter the Second Quarter

Fifteen years ago this week, the stock market bottomed after the vicious bear market crash from the global financial crisis. The S&P 500 fell almost 57% before hitting its low point on March 9, 2009. Like all bad markets have in the past, this one came to an end. The decade of the 2000s went down as one of the worst decades for stock investors.

We have experienced incredible gains since then. The S&P 500 is up more than 900% on a total basis return over the past 15 years. Don’t assume that this climb was in a straight line, either. Over the last 15 years, we’ve had two bear market close calls (2011 and 2018), a global pandemic bear market in 2020 and another bear market in 2022.

The key lesson to remember is that long-term investors were rewarded for remaining invested!

This year, the S&P 500 was positive in the first two months for the first time since 2019. Historically, gains during the first two months of the year have suggested above-average returns for the rest of the year. Going back to 1950, the following months have been higher 27 out of 28 times, with an average return of 14.8%. The S&P 500 was up 19.9% in years when both January and February were higher.

A Positive January and February Is a Good Thing for 2024

S&P 500 performance for the year, based on if January and February are higher

Source: Carson Investment Research, FactSet 2/26/24 (1950-present)

We are starting to see more breadth in this market compared to last year. The Magnificent Seven has not been nearly as magnificent as last year. Nvidia and Meta have started the year very strong, but the remaining five stocks have seen mixed results. As of this week, all 11 sectors of the S&P 500 are positive year-to-date. This is a sign of a much broader rally in the stock market, compared to last year being so heavily dominated by technology stocks.

Magnificent Seven Performance, 2023 vs. 2024

From a portfolio management perspective, we continue to look ahead. The markets are forward-looking, often telling us what may happen ahead of time. The market seems to have put recession talk in the rearview mirror and has moved on to Fed watch: When will the Fed begin cutting interest rates in 2024? Earlier in the year, the market was pricing in as many as six cuts of 25 basis points. That number now is down to three. 

Inflation continues to show signs of weakening but remains persistently, stubbornly above the targeted 2% level. With an eye on the future, we are making the following portfolio changes as we end the first quarter:

1. We are beginning to see the broadening of the market away from the Magnificent Seven stocks. Technology stocks continue to be the leading sector in the S&P 500, led by the continued advancement of artificial intelligence. The key for investors is to distinguish between what is hype and what is real from an investment standpoint.

Artificial intelligence is no longer just a buzzword. Companies across all sectors are beginning to harness its potential to automate complex tasks, streamline workflow and accelerate technological advancements. This is not like the GameStop trade during the pandemic. From an equity perspective, we are maintaining our allocation to large-cap stocks as well as technology stocks.

Internationally, we added a position to maintain the overall overseas allocation but switched to a manager that allows for additional flexibility investing not only in developed markets but also in emerging markets. Rebalancing is important to capture some of the winnings and redistribute throughout the rest of the portfolio.

2. We continue to increase the duration of the fixed-income portfolio as we near the peak of interest rates. The longer-dated maturities at the end of the yield curve are more volatile than the short-end of the yield curve. Like with our equity allocation, it is important to rebalance our fixed-income allocations.

We like our fixed-income positions, but from time to time, they need to be shifted to the right size in the right position for where we see the markets heading. We believe that when rates fall, we will be able to capture nice income, along with capital appreciation from rising bond prices.

We continue to maneuver the portfolio in response to where we think the puck is moving.

The world in which interest rates stay higher for longer is not one we have been accustomed to for the last 15 years. Financial markets, both stocks and bonds, may be more volatile in response, and we have seen glimpses of this in the first quarter.

With higher yields for longer, investors are being compensated in cash through money markets and CDs. However, as soon as the Fed lowers the fed funds rate, we will see those yields fall rapidly. We think that much of the pain from rising interest rates is behind us and the key to navigating volatility remains being in a diversified portfolio. We will continue to monitor the portfolio and make changes to go to the puck, not wait for the puck to come to us.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Capital Group, Carson, FS Investments, Schwab

Promo for an article titled Here's Why We Focus on Investing in Liquid Markets.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

Here’s Why We Focus on Investing in Liquid Markets

One of the most important factors to consider with an investment is its liquidity — how quickly your money or investment can be converted to cash or how quickly your asset be sold without affecting its price too much. The ease with which this is possible is determined by the liquidity of the underlying asset, whether stocks, bonds, commodities or real assets.

Liquid assets may not always be the sexiest investments, but they will be available when they’re needed.

In the stock market, a stock, index fund or mutual fund must be able to be bought or sold quickly and with minimal impact to the stock’s price. Shares of large-cap companies traded on major stock exchanges tend to be highly liquid. Smaller companies are typically listed on smaller exchanges, and their shares can be less liquid, unless they are packaged into an index fund or mutual fund.

Investing in liquid securities is typically less risky than investing in illiquid ones. Therefore, illiquid assets tend to require a higher risk premium as compensation.

Large investors (such as pension funds or endowments like Harvard or Yale) tend to invest in illiquid assets with the hope of higher returns and increased diversification. This is what is called the illiquidity premium.

Historically, more illiquid private investments have been more accessible to the super-wealthy. The selling point for many of these investments is lower correlation to the stock market, lower market volatility on monthly statements and (investors hope) higher returns.

Examples of these private or alternative investments include private equity, hedge funds, venture capital, real estate, commodities and cryptocurrencies. The chart below illustrates the spectrum of liquidity well. It is important to keep in mind that as you move from more liquid to less liquid, the risk level also increases.

Where Assets Generally Sit on the Liquidity Spectrum

Source: John Hancock Investment Management, Stern School of Business at New York University, 2019

When times are tough or when markets are going through a rough patch, we find that liquidity is most important to our clients. The sexy alternative investments are typically the least liquid during that time, but pundits talk about the merits of being illiquid, as the “value of the fund” doesn’t fluctuate as much — there is not as much statement risk. That is because the investment’s illiquidity causes the true value of the holding to be unknown if the market were in a downtrend and it had to be sold early.

At CD Wealth, our philosophy is to focus on the liquid markets: money markets, fixed income (municipal bonds, corporate bonds, Treasuries, CDs), individual equities, mutual funds and index funds.

We are not investing our clients’ monies in alternative investments, whether liquid or illiquid. To use a golf analogy, we play in the fairway. We want to ensure that if a client needs their money, whatever is in the portfolio can be sold. That doesn’t necessarily mean that there would not be a loss, but it would mean that the holding is liquid, and you would have access to your monies. 

Think of this as a pyramid. The highest level of the pyramid has the most risk; often this includes holdings that are not liquid. If you had to sell, you may take a large loss, but there is also the opportunity for large gains. It is possible to make good money investing only in liquid securities. Those who have owned stocks like the Magnificent Seven will tell you that they have had great returns over the last 15 months while remaining liquid. 

The lowest level of the pyramid is the safest and most liquid. These are cash and cash alternatives, along with fixed-income holdings. You can have liquid investments in each of the three rungs of the pyramid, but it is difficult to own illiquid investments in each of the three rungs. One of the largest risks is the inability to access your monies when you need them. 

Having a mix of liquid assets can help you achieve your financial goals while also providing a safety net in times of uncertainty when money may be needed most. Understanding the pros and cons of each type of asset – liquid or illiquid – helps you make informed decisions about what is right for each person and family based on their financial needs.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: John Hancock, Investopedia

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

What Do the Market Indicators Tell Us About What Lies Ahead in 2024?

Stocks have picked up right where we left off at the end of 2023. Last week, the S&P 500 officially closed above 5,000 for the first time — and in a little less than three years, the S&P has gained more than 1,000 points.

The chart below looks at where stocks traded one month, three months, six months and one year after each of the major milestones for the S&P 500. On average, stocks are up 8.6% one year after these major milestones.

5,000 Is Here, Now What?

S&P 500 returns after major milestones

Source: Carson Investment Research, FactSet 2/9/2024 (1928-current). Note: Data on the S&P starts on 1/3/1928.

Just a year ago, investors were being bombarded with talk of an imminent recession. We now have a healthy economy with inflation well off highs from 2022, a Federal Reserve bank indicating rate cuts are likely to occur in 2024, improving productivity and stocks at all-time highs. 

Stocks have rallied over 22% during the past 4 months. The S&P 500 finished higher 14 of the last 15 weeks – something that hasn’t happened since 1972. A downturn would be perfectly normal following this rally.

The chart below shows that higher prices may remain likely. When stocks have been up more than 5% in the month of February, the market has been higher more than 70% of the time at year end — for an average gain of over 9%.

A Good Start to 2024 Could Mean the Bull Continues

S&P 500 performance when >5% YTD return in February

Source: Carson Investment Research, FactSet 2/11/2024
Investors are looking for any sign or clarity in a market environment where things may not make sense to everyone. This is a good time to review different market indicators that are worth watching, some just for fun and some that carry much more weight.

1. Super Bowl Indicator: First introduced in 1978, this indicator suggests that a win by a team from the NFC meant the stock market would probably go up that year. For more than 30 years, the indicator had an impressive success rate of 95%. In the years when the AFC team has won, the S&P has earned an average return of 8.2%. When the NFC team has won, the average return has been an impressive 9.7%. Both are favorable sets of returns. More recently, the indicator has had a less-convincing track record, including the last two times the Chiefs have won.

2. The January Barometer: As January goes, so goes the year. As we wrote recently, it is true that January has more consistently indicated the direction of the stock market than any other month. Since 1969, when stocks posted a gain in January, the market ended higher 70% of the time. As a reminder, the market finished higher in January this year.

Source:  Charles Schwab, Bloomberg data as of 2/2/2024

3. First Five Days: This indicator says that the direction of the market during the first five days of January determines whether the market will be up or down for the whole year. Over the past 44 years, full-year gain followed 19 of the 24 times that the market finished higher. However, the market has posted a gain of more than 70% of the time, no matter what the market did the first five days — and a market decline during the first five days has been a predictor only 25% of the time.

4. Consumer Price Index: This week, the Consumer Price Index for January came in hotter than expected, as CPI rose .3% over December. On an annual basis, CPI was up 3.1%, well above the Fed’s target of 2%. Policymakers are watching closely to ensure it continues to trend to the 2% target, and both the stock and bond market react accordingly. As seen on Tuesday, inflation (as reported by CPI) can affect the market in the short term. Time will tell if Tuesday’s selloff was an overreaction to one inflation report or the start of a trend.

5. Yield Curve: The government bond market tends to signal a global recession when short-term bond yields rise above long-term yields. In 2023, the Group of Seven countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) all had inverted yield curves. Only one country, the United States, has avoided recession and negative GDP growth for one quarter last year. A return to a more normal yield curve may signal a better outlook for these countries. An inverted yield curve has been a strong recessionary indicator in the past. Every recession has been preceded by an inverted yield curve, but not every inverted yield curve has led to a recession.

6. Equal Weighted Index: Most stock market indexes are capital weighted. Market capitalization is stock price times number of shares outstanding. The larger the market capitalization, the larger the weighting for most indexes, and the bigger the impact on market performance. Equal-weighted index has each stock at the same weighting, providing a measure of what the average stock is doing rather than a handful of the largest ones, known as the Magnificent Seven. In general, the greater the number of stocks pushing the market higher, referred to as market breadth, the more support the market has. The last 14+ months have seen very little breadth to the market gains.

No one indicator or past statistical support provides a guarantee of future performance. Sometimes, people look for causation and not correlation. The popularity of certain indicators for investment decisions is a testament to the desire for an easy answer on how to invest in complex markets.

It is important to look at a multitude of economic data as well as leading and lagging indicators and not get pulled into making decisions based on a single month of data — or on a single data point.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, Kestra Investment Management, Schwab

Promo for an article titled The January Barometer: What Does a Strong Start Mean for the Year Ahead?

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

The January Barometer: What Does a Strong Start Mean for the Year Ahead?

Stocks continued to move higher throughout January, as the S&P 500 has been positive 12 out of the last 13 weeks. The question is, does a good January mean much for the rest of the year?

It turns out that the “January Barometer” could be a good sign for investors. Historically, when the first month of the year is positive, the rest of the year is higher 86% of the time — up nearly 12% on average. When the first month of the year is lower, the market is higher 60% of the time — up only about 2% on average. Overall, a strong January is potentially a good sign.

So Goes January, Goes the Year

The January Barometer says a strong January for stocks is a good sign

Chart showing the relation between January performance and year-end performance for the S&P 500.
Source: Carson Investment Research, FactSet 1/26/2024 (1950-Current). The January Barometer looks at S&P 500 returns based on January returns.

People tend to assume that higher rates are bad for stocks and lower rates are good. What we have seen since the beginning of 2023 is that markets have been strong not because of rates going up or down, but because the economy has been strong.

The assumption was that higher rates would force us into a recession, which would have been bad for corporate earnings, which ultimately is what the market cares about. Instead, we have seen stronger-than-expected earnings in many different companies and sectors, not just technology.

Market analysts continue to expect double-digit earnings growth in 2024. With rates as high as they are today, the assumption is that they will go back down soon. Some economists are aggressively calling for and predicting rate cuts this year.

The risk to the market remains that rates stay higher for longer. The Fed will need to continue to tread cautiously as it battles the possibility of lowering interest rates, but not at the expense of inflation rearing its ugly head again and repeating the mistakes of the 1980s.

Interest Rate Hikes Haven’t Necessarily Been Bad for Stocks

Chart showing the relation of the federal funds rate and the S&P 500 since 1982.
Sources: Capital Group, Federal Reserve, Standard & Poor’s. S&P total returns during prior hiking cycles are based on the total return for the S&P 500 Index between the date of the first increase in the target federal funds rate and the date of the final increase in the target federal funds rate. The federal funds rate shown is the average monthly effective federal funds rate, which reflects the volume-weighted median interest rate that depository institutions charge each other for overnight loans of funds. As of Dec. 31, 2023. Past results are not predictive of results in future periods.

U.S. consumers have weathered the higher interest rate environment quite well. This has a lot to do with the fact that the debt profile of households with significant leverage is comprised of lower-rate, longer-term mortgage balances, compared to higher-rate, shorter-term credit card balances. Household incomes remain strong, especially with inflation easing. This continues to drive consumer consumption.

If you expect inflation to continue to ease, that means real income remains strong. Consumer spending has accelerated as we have seen real income growth from tight labor markets, ongoing spending from excess savings and rising household net worth.

Consumer Financial Obligations and Household Mortgage Debt Service

Each has risen since the 2021 lows, but are still low historically

Chart showing Consumer Financial Obligations and Household Mortgage Debt Service.
Source: Financial obligations ratio: automobile lease payments, rental payments on tenant-occupied property, homeowners’ insurance and property tax payments relative to disposable personal income. Household Mortgage Debt Service Ratio corresponds to the mortgage debt as a share of disposable income. Source: Federal Reserve, Macrobond, Fidelity (AART), as of 12/11/23.

Now that the market is back to all-time highs, what happens next? The economy continues to roll along. GDP expanded at an annual rate of 3.3%, adjusting for inflation. The economy continues to be underestimated.

It is very difficult to be in a recession with low unemployment, strong GDP, double-digit earnings growth and inflation easing. This does not mean that we don’t expect bumps in the road ahead during 2024. We still have plenty of uncertainty: market domination by a select few stocks, conflict in the Middle East and Ukraine and lofty valuations, not to mention a presidential election in November.

As always, a well-diversified portfolio can help to limit the impact of volatile markets and to maintain focus on long-term market results.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Capital Group, Carson, FactSet, Fidelity, KIM, Schwab

Promo for an article titled The Market Hit Another All-Time High. What Happens Next?

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

The Market Hit Another All-Time High. What Happens Next?

It took a little more than two years, but the S&P 500 closed at a new all-time high on Friday. The previous high, set in early January 2022, preceded a sharp drop in the market that was sparked by war in the Ukraine, supply-chain challenges from the pandemic and a spike in inflation not seen since the 1980s.

The bear market ended in October 2022, and since then, stocks have recovered from the 25% drop — despite many economists and Wall Street analysts predicting that a weakening economy, tapped-out consumers and higher rates would keep stocks from moving higher.

S&P 500 Hits Record 4,839.8 Close

Recent milestone closes since January 2020

Chart showing milestone closes for the S&P 500 since January 2020.
Source: FactSet. Chart: CNBC.

The S&P 500 has set more than 1,000 new highs since 1957 — meaning a record high was set on 7.1% of all trading days. In our opinion, stocks trading at all-time highs is perfectly normal and should not be viewed as a warning sign.

It is more unusual to go a year without a record high — like we did in 2023 — which has happened just 13 times. After setting a new high, returns were better than average 12 of those 13 times, with an average return of more than 11% in those 12 instances.

Don’t Fear New Highs

S&P 500 performance after a new all-time high and more than a year without making one

Chart showing S&P 500 performance after a new all-time high and more than a year without making one.
Source: Carson Investment Research, FactSet 01/19/2024 (1957-current)

The Magnificent Seven stocks – Alphabet, Amazon, Google, Meta, Microsoft, Nvidia and Tesla – have been a big reason for the market rise over the last 12-plus months. At year end, those seven stocks had a market capitalization (value) of about $12 trillion. To get to the S&P’s next $12 trillion in market capitalization, you need to look at 42 companies to find similar value.

The S&P 500 Index has a forward P/E (price to earnings ratio) of less than 16 when you exclude the Magnificent Seven stocks. That is not expensive from a historical perspective. Earnings growth estimates for the Magnificent Seven remain strong, as analysts are expecting more than 20% for those seven stocks and more than 11% for the S&P 500 as a whole.

Long-term estimates for the Magnificent Seven remain high, but these stocks come with increased volatility. Risks to the group include elevated expectations as well as potential global weakness and heightened regulations in several of the companies. This is a good reminder to maintain diversification around the Magnificent Seven.

Can the Magnificent Seven Maintain Their Dominance?

Stocks of the S&P 500 (USD billions)

Chart showing the Magnificent Seven's combined value vs. the next 42 companies combined.
Sources: Capital Group, LSEG. Next 42 companies represent stocks following the Magnificent Seven, ranked by market capitalization, with the above stocks topping the list. Sales are the net sales (or revenues) of the relevant item reported in the last 12 months. Profit is represented by the trailing 12-month operating profit. As of Dec. 31, 2023.

We believe a good source of diversification in 2024 will be the fixed-income market. Both stocks and bonds had a terrible year in 2022, and diversification was thrown out the window that year. For most of last year, bonds continued to struggle. It was not until the fourth quarter — when the Fed started hinting about the end of the rate-hiking cycle and potential rate cuts in 2024 — that bonds rebounded and ended the year in the positive.

We believe bonds are poised to return to their more traditional roles as a portfolio stabilizer and a source of diversification. We continue to see investors focus on short-term Treasuries, CDs and money market funds.

The current level of money market funds is more than $6 trillion, almost double the average from 2011 to 2017. We anticipate that as the Fed provides a clearer signal for interest-rate cuts, monies will flow out of shorter-duration bonds and money market and into longer-dated bonds.

As a reminder, when interest rates fall, bond prices increase, providing a boost to bond returns. This is the main reason that bonds should be a stabilizer in 2024, as it is widely expected that the Fed will begin to reduce interest rates at some point this year. There is no hard and fast rule that says that money from money market funds must flow into equities. Those funds may flow into stocks and bonds, helping both asset classes potentially have a strong 2024.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, CNBC, FactSet, Capital Group

Promo for an article titled 4 Keys for Keeping Your Investments on Track, No Matter What 2024 Brings.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

4 Keys for Keeping Your Investments on Track, No Matter What 2024 Brings

Isn’t it amazing how different the market feels at the start of 2024 compared to last year? At this time last year, everyone was feeling pessimistic about the markets, bracing for a recession and expecting another down year. For now, the economy remains resilient, inflation continues to show signs of cooling and the S&P 500 has bounced back to within 1% of its all-time high, set in January 2022.

The markets continue to find ways to surprise investors and do the unexpected. We never know when a “black swan” event may arise, but that doesn’t prevent TV pundits and economists from making wild forecasts about market crashes or what cliff we may fall off next.

No matter what is in store for us in the year ahead, here are four keys to keeping your long-term plan on track:

1. Manage your election-year anxiety.

Political news will dominate the headlines for 2024, here in the United States and elsewhere. More than half of the world’s population will go to the polls this year, including last week’s election in Taiwan. As we all know, the U.S. election is set to be contentious and anxiety-provoking. 

Election uncertainty probably will trigger higher market volatility. Historically, the party that wins the election has had little impact on long-term market returns. As measured by the S&P 500, the 10-year annualized return of stocks from the start of an election year is over 10% for both Republicans and Democrats. If volatility arises this year, it will provide opportunities for investors who stay focused on long-term investments.

Red, Blue and You: Politics Don’t Matter Much for Investors

10-year growth of hypothetical $10K investment made in the S&P 500 Index at start of election year (USD)

Chart showing the 10-year growth of a hypothetical $10K investment made in the S&P 500 Index at start of election years.
Sources: Capital Group, Standard & Poor’s. Each 10-year period begins on January 1 of the first year shown and ends on December 31 of the 10th year. For example, the first period covers Jan. 1, 1936, through Dec. 31, 1945. Figures shown are past results and are predictive of results in future periods.

2. Consider your cash carefully.

Cash may not be as attractive as we think this year. Investors shifted trillions of dollars into cash in 2022 and 2023. Money market funds are sitting at almost $6 trillion, a record level of cash. According to NDR data, money market funds added $1.4 trillion in 2023. 

Not all that money is from funds that came out of the stock market. Investors shifted money from bank deposits to money market funds to take advantage of the higher yields, as banks are offering less yield than a traditional money market fund. While it is important to have your rainy-day cash bucket, cash as a long-term investment might not be as attractive as you think. 

The risk is the opportunity cost of waiting to invest. The chart below compares stocks to cash over 10 years from May 2013 to May 2023; the market returned almost three times more than cash over that same time. That is the opportunity cost.

Cash vs. Stocks: Growth of $1M

Chart showing the growth of a $1M investment in cash and stocks since 2014.
Date range: 5/9/2013-5/10/2023. For illustrative purposes only. Past performance is not indicative of future returns.

3. Pay attention to innovation and diversification.

Artificial intelligence captured the heart of investors in 2023. We all know the story of the Magnificent Seven tech stocks and their effect on market returns last year. At the end of 2023, the 10 largest companies in the S&P 500 accounted for almost 31% of the market capitalization. With such a small number of companies accounting for a sizeable portion of market returns, diversification took a back seat last year until late in the fourth quarter.

Innovation is not going away as AI is still in the early stages of a long-term play. However, diversification remains essential. As seen in the chart below, asset classes perform differently from year to year — and rarely do the same ones remain at the top. Bonds failed to provide diversification in 2022, and that trend continued for much of last year. 

However, with inflation falling faster than expected and the Fed indicating that it is done raising rates, bonds rallied in the fourth quarter and ended the year in the positive. The end of a tightening cycle has historically been a good time to own bonds, providing additional diversification outside of equities.

The Periodic Table of Investment Returns

Periodic table of investment returns.
Data source: FMRCo, Bloomberg, Haver Analytics, FactSet. Data as of 1/7/24. Past performance is no guarantee of future results.

4. Remember that the markets are resilient.

Investors can always find reasons not to invest: war, interest rates, government strife, politics — almost 20 separate events over the last 25 years. Each one of those felt momentous at the time. Look at the chart below; notice the missed returns if you used those events as reasons not to invest.

Many of the worries that weighed heavily on the markets in 2023 have dissipated, but the markets and the economy still face plenty of risks. Undoubtedly, we will experience similar events going forward, but it is critically important to remember that markets are resilient — and historically, they have always bounced back.

Market Disturbances Are Inevitable and Frequent

MSCI All Country World Index

Chart showing market performance juxtaposed against major historic events.
Sources: MSCI, RIMES. As of Dec. 31, 2023. Data is indexed to 100 on Jan. 1, 1987, based on the MSCI All Country World Index from Jan. 1, 1987, through Dec. 31, 1987, the MSCI World Index with gross returns from Jan. 1, 1988, through Dec. 31, 2000, and the MSCI ACWI with net returns thereafter. Shown on a logarithmic scale. Past results are not predictive of results in future periods.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Capital Group, Fidelity, Kestra Investment Management, Marketwatch, YCharts

Promo for an article titled Here's Why Investors Shouldn't Panic Over the Market's New Year's Hangover.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.

Here’s Why Investors Shouldn’t Panic Over the Market’s New Year’s Hangover

After nine consecutive weeks of gains, the S&P 500 finally fell last week, marking the end of the longest win streak since 2004. The end-of-the-year rally was strong, thanks to the Federal Reserve’s pivot that signaled interest rate cuts may be ahead.

After a late comeback from bonds, last year was the third-best year out of the last 20 for a global 60/40 stock/bond portfolio. Investors have already started to worry that the Santa Claus rally fizzled out, and the first five days of the year ended down. 

The markets have seen extreme strength since late October (and remember, the markets do not go up in a straight line). Some now worry that the gains of last year are in the rearview mirror because of mixed economic data, speculation about rate cuts and war in the Middle East.

The chart below shows that the first five trading days of the year have been negative 27 times over the last 70, years and the results have been mixed. In 12 of the 27 instances, negative returns for the S&P 500 have followed for an average downturn of 15%. However, the market finished up 14 times with an average return of 13.25%. We are not ready to determine how the year is going to finish based on five trading days.

A Negative First 5 Days Could Be a Warning Sign

 S&P 500 performance when the first five days are negative

Chart showing cases in which the first five days of the market are negative.
Source: Carson Investment Research, FactSet 01/08/2024

The S&P 500 remains in close range to all-time trading highs. As of this writing, the S&P is a little more than 1% below its record high, set in January 2022. Some may worry that they have missed the rally or question if it makes sense to invest at these levels. Investing at all-time highs has not historically led to a meaningful difference in future returns.

Over the last 50+ years, if you invested in the S&P at all-time highs, your investment would have been higher 70% of the time one year later, with a median return of 12%. If you had invested at any time, the median return a year later would have been 10.5%.

You know the drill: We talk regularly about not timing the market, and we don’t see these circumstances any differently. We recognize that markets are near all-time highs, but that does not mean the market is not investible or that investors should wait for a potential pullback.

Stocks Have Historically Never Failed to Regain a Prior High

S&P 500 Index level and all-time highs, 1970-present

Chart showing the S&P index level and all time highs since 1970.
Sources: Bloomberg Finance L.P., JPM WM. Data as of Dec. 29, 2023. Past performance is not a guarantee of future results. It is not possible to invest directly in an index.

Historically, times like these — marked by slowing inflation, solid earnings growth and the Fed easing — tend to be a good time for stocks. Analysts expect double-digit earnings growth for 2024. At the same time, when inflation has been between 2% and 3%, stocks have returned an annual average rate of 14% going back to 1950. Another interesting tidbit is that in years when the Fed has cut rates without a recession, we have seen the strongest market returns.

Stocks Are in the Sweet Spot: Moderate Inflation & Accelerating Earnings

S&P 500 annual returns in different inflation environments, 1950-2022

Chart showing S&P performance in different inflation environments.
Source: (Top) J.P. Morgan Wealth Management, Bureau of Labor Statistics, Bloomberg Finance L.P. Analysis through year-end 2022. (Bottom) Morgan Stanley, FactSet. Data as of November 2023. Past performance is not a guarantee of future results. It is not possible to invest directly in an index.

The recession that many have been fearing since the start of 2023 has yet to materialize, and those who have been predicting a full recession have moved to a potential “soft landing.” The U.S. economy is strong, with GDP at 4.9%, unemployment under 4% and Consumer Price Index last reported at 3.1%. At year end, there was almost $6 trillion of cash sitting in money market funds.

A healthy economy may mean that the Fed does not cut rates as much as markets expect. Current economic numbers suggest that there will be no recession in 2024. While economic conditions appear solid, the bottom line is that there are sure to be surprises in the year ahead, as there have always been. This is an important time to remember that time in the market beats timing the market and waiting for bad news to bring the market down.

The CD Wealth Formula

We help our clients reach and maintain financial stability by following a specific plan, catered to each client. 

Our focus remains on long-term investing with a strategic allocation while maintaining a tactical approach. Our decisions to make changes are calculated and well thought out, looking at where we see the economy is heading. We are not guessing or market timing. We are anticipating and moving to those areas of strength in the economy — and in the stock market. 

We will continue to focus on the fact that what really matters right now is time in the market, not out of the market. That means staying the course and continuing to invest, even when the markets dip, to take advantage of potential market upturns. We continue to adhere to the tried-and-true disciplines of diversification, periodic rebalancing and looking forward, while not making investment decisions based on where we have been.

It is important to focus on the long-term goal, not on one specific data point or indicator. Long-term fundamentals are what matter. In markets and moments like these, it is essential to stick to the financial plan. Investing is about following a disciplined process over time.

Sources: Carson, JP Morgan

Promo for an article titled Plenty of Reasons To Be Bullish About 2024.

This material contains an assessment of the market and economic environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. Forward-looking statements are subject to certain risks and uncertainties. Actual results, performance, or achievements may differ materially from those expressed or implied. Information is based on data gathered from what we believe are reliable sources.

Using diversification as part of your investment strategy neither assures nor guarantees better performance and cannot protect against loss of principal due to changing market conditions.

Past performance is not a guarantee of future results.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS) an affiliate of Kestra IS. CD Wealth Management and Bluespring Wealth Partners LLC* are affiliates of Kestra IS and Kestra AS.  Investor Disclosures: https://bit.ly/KF-Disclosures

*Bluespring Wealth Partners, LLC acquires and supports high quality investment adviser and wealth management companies throughout the United States.

Fidelity Investments and Fidelity Institutional® (together “Fidelity”) is an independent company, unaffiliated with Kestra Financial or CD Wealth Management. Fidelity is a service provider to both. There is no form of legal partnership, agency affiliation, or similar relationship between your financial advisor and Fidelity, nor is such a relationship created or implied by the information herein. Fidelity has not been involved with the preparation of the content supplied by CD Wealth Management and does not guarantee, or assume any responsibility for, its content. Fidelity Investments is a registered service mark of FMR LLC. Fidelity Institutional provides clearing, custody, or other brokerage services through National Financial Services LLC or Fidelity Brokerage Services LLC, Members NYSE, SIPC.