Rates & Reindeer
Like Santa and his reindeer on their annual Christmas Eve journey, the US stock market soared to lofty heights in 2024. During the fourth quarter, large US tech companies once again led the charge, resulting in strong gains for the NASDAQ index and pulling the S&P 500 into positive territory. Most other categories of investments struggled during the final months of the year, which can be seen in the nearly flat return for the Dow Jones index as well as negative results from international stocks (EAFE index) and many categories of bonds (as seen in the Bloomberg Agg bond index).
International stock returns lagged in large part due to the strengthening of the US dollar. Since most non-US stocks are denominated in other currencies, their value in US dollar terms is negatively impacted when the dollar experiences a sudden rise in value verses those other currencies. There is regular movement in currency valuations, though it doesn’t always line up as closely with calendar quarters as it did in 2024, with a relatively stable valuation in the first half of the year, a decline throughout the third quarter, then a sharp rise during the fourth quarter.
Interest rates rose notably throughout the last three months of the year, even as the Fed lowered their key interest rate. This negatively impacted bond prices in the short-term and the stock market reacted unfavorably when it was announced that fewer rate cuts were anticipated in 2025. The news was unwelcome to borrowers but may help holders of money markets and CDs to eke out a bit more interest earnings in the coming months than originally expected.
As we move into 2025, a key item we’ll be watching is how the incoming Congress and President address the expiration of the Tax Cuts & Jobs Act, which expires at the end of 2025. Extending the lower tax rates for individuals and tax breaks for businesses could add more than $3.5 trillion to the Federal deficit over the next decade. However, letting the law expire with no action would result in one of the largest nominal tax hikes in US history. At this point, it appears the most likely scenario is an extension of current rates, or something very similar. Once details begin to emerge, we’ll be looking for any planning opportunities that may present themselves.
The start of a new year frequently brings with it predictions and market projections from a host of investment managers and companies. Newspapers will publish expert opinions, analysts will speak on TV, and online forums/newsletters will be especially active. Despite this hype, it becomes increasingly clear each year that no one person, company, or amount of resources can predict the future. Rather than speculate about what is to come, our focus remains on prudent positioning and long-term planning to ensure we’re able to navigate whatever economic and investment environment we find ourselves in.
We hope you had a wonderful time over the holidays and wish you a happy, healthy, and prosperous 2025.
The Pratt Wealth Management Team
Tax Notice & Reminders
Change for Form 5498
- Beginning with the 2024 tax year, our account custodian, NFS, will only issue Form 5498 for retirement accounts that received contributions (including rollovers, recharacterizations, or conversions), rather than issuing them for all IRAs
- The timing for the Form 5498 is also changing. Clients will receive their 2024 Form 5498 in May of 2025.
- Please note: Form 5498 is not required to file your tax return. For contribution activity, including rollovers and 2024 year-end values, please refer to your December 2024 statement.
As always, 1099 tax forms for non-retirement accounts will not be available until mid/late-February. Please schedule tax preparation appointments accordingly.
