Author: Kenzie

March 10, 2025

After notching all-time highs intra-month, equity markets fell off considerably to close lower in February, with the S&P500 declining -1.3% for its second negative month in the last three. Weakness was seen especially in technology and other economically sensitive small-cap areas, while defensive sectors like energy and utilities held up well. Continuing the emerging 2025 trends, International stocks (both developed and emerging) outpaced US markets, and the equally weighted S&P index exceeded its market-cap weighted counterpart. Treasury yields fell and safe-haven assets such as gold posted strong gains in the flight to safety. Volatility spiked with the VIX index rising above 20 and holding, a clear signal of market anxiety.

This plunge in sentiment was a result of several bearish themes. Inflation angst intensified, as February’s CPI report showed rising prices which spooked investors and underscored the need for more Fed work to combat sticky inflation. Uncertainty around trade policy also came to the fore, as President Trump expanded his previously announced tariffs to include an additional 25% on vehicle imports, with potential further duties targeting the semiconductor and pharmaceutical industries. Investors are understandably weighing the potential impacts of these aggressive policies, with many economists expecting lower growth and/or higher future inflation. To add insult to injury, economic growth concerns emerged as the both the Conference Board Index and Purchasing Manufacturers Index for services contracted steeply. Risk off, risk off.

Despite the challenging month, there were glimmers of hopes for bulls to hold onto. Corporate earnings growth has shown remarkable resilience, with 75% of reporting S&P500 companies posting positive earnings surprises and 63% exceeding revenue expectations. The blended Q4 earnings growth rate sits at 18.2%, far exceeding market expectations of 11.9% and marking the strongest quarterly performance in over three years. Expectations for 2025 remain high, and if they are met – or exceeded – we could see strong earnings provide some much-needed fundamental support for the post-election rally to continue.

An additional pillar of support could take the form of a lower interest rate environment. During February, Fed Chair Powell testified before Congress and despite comments on holding short-term rates steady, longer-term bond yields fell steadily during the month. Although short-term rates continue to grapple with mixed inflation and labor-market data, the 10-year treasury yield has quietly declined from a peak of 4.79% in January to 4.2% by the end of February. These declining yields supported fixed income returns during the month, which were broadly positive. More importantly, they served as a counterweight to the broad sentiment decline seen in the equity markets and provided ballast to diversified and more bond-heavy allocations.

A quick note here on an important word in the preceding sentence: diversified. For much of recent market history, diversification as an allocation principle has not been overly rewarded. As market breadth and concentration has narrowed it has been a smaller and smaller subset of markets, sectors, and companies that have propelled the market onward, while other neglected sectors have lagged. Often, diversification has felt disappointing. But in recent months, diversification has been well rewarded as market dynamics have shifted and different assets have begun to move in different directions.

We saw that in clear relief during February’s turbulence as technology and risky segments sold off while international stocks, bonds, and more defensive stocks held up. This is a welcome reminder that diversification remains a solid principle around which to construct a portfolio. Spreading allocations across a variety of asset classes, geographies, and vehicles is an effective strategy to reduce the idiosyncratic risk of having a lot of eggs in a single basket. This helps to smooth out what might otherwise be a bumpy ride, which is exactly what we saw in February. Diversification is the bedrock of our asset allocation process at Boston Wealth Strategies, one that we stick with across all market environments, and one that we feel will serve us (and our clients) well into the future. February’s sell-off has provided a welcome reminder of this fact.

Next month we have the usual slew of economic releases, as well as the FOMC meeting on the 19th. We will be watching closely and will keep you posted as developments arise. As ever, we sincerely appreciate your trust and support.

Sincerely,
Jason D. Edinger
Chief Investment Officer
Boston Wealth Strategies

* Disclosure: Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

February 7, 2025

After concluding 2024 on a challenging note, equities ended January higher, with the Dow Jones Industrial Average leading the way (+4.8%) and the S&P / NASDAQ just slightly behind (+2.8% and +2.3% respectively). Small-caps also notched gains, although they remain underwater from December’s 8% drawdown. Interestingly, market breadth and participation improved materially during the month, with the equal-weight S&P index outperforming the official index by nearly ¾ of a point. This was a welcome about-face from the poor breadth and participation seen in 2023 and 2024, where technology stocks – specifically the Magnificent 7 – enormously outperformed the rest of the market. Still, the legacy index reached several new record highs during the month to close just below all-time highs. Historically, when stocks have risen in the month of January, the calendar year has ended in positive territory approximately 85% of the time. Very healthy.

The impressive performance in equities came on the back of mostly positive developments out of Washington, D.C. Both pro-growth and deregulatory polices unleashed pent-up animal spirits, which combined with a minor dip in bond yields provided stocks with some relief. These supporting dynamics were weighed against new and potentially larger tariffs against Canada, Mexico, and China, which were the topic of much argument despite not being officially announced until early February. Although these aggressive and nationalist policies were somewhat priced in after Donald Trump’s November election win, any surprises or new tariffs against other counties could result higher volatility in the coming weeks.

The artificial intelligence revolution encountered a setback in January, as China’s AI darling startup DeepSeek ignited a sell-off in the technology sector after it’s relative affordability challenged the sky-high CAPEX spending rates for US companies such as Nvidia Corp. This called into question the extent of US dominance in the space and America’s leadership in the global AI race. The market reaction was swift and violent, with Nvidia falling 17% on Monday the 27th, shedding billions in market cap and falling below its 200 daily moving average (DMA) for the first time in 2 years. Nvidia’s market cap loss on that day alone was greater than the market cap of 487 companies within the S&P500. Still, by the end of the week, the markets enjoyed a nice rebound and clawed back some of their losses as DeepSeek’s cost savings appeared to be somewhat “exaggerated.”

Moving on to the Federal Reserve, the central bank did what everyone expected it to do: held interests steady in the 4.25-4.5% range, noting that inflation remains sticky and unemployment has stabilized at a low level. Market reaction was muted, as this meeting and ensuring press conference was mostly quiet and uneventful. Still, Chair Powell did mention that the bank was in no hurry to cut rates further, and most market participants see the Fed holding until at least midyear. It seems that the Fed pause is finally upon us.

In terms of economic data, it was a mixed bag with core inflation coming in slightly ahead of expectations while headline inflation was slightly lower. Much of this sticky inflation is a result of the strong and resilient American consumer, which combined with the tight labor market has provided ongoing support. As is often said, if people have jobs than people have money. And if people have money, they will spend it.

Corporate earnings were also mixed in January, with 36% of S&P500 companies having reported though end-of-month. Of these reporting companies, approximately 77% have boasted earnings per share (EPS) above estimates, especially in the financials and communication sectors. Overall, corporate earnings appear solid but not spectacular, and we will be keeping a close eye as February concludes the Q424 earnings season.

Looking forward, we have the usual slate of monthly economic data (employment, inflation, and GDP), any disappointment in which could be the catalyst for continued market volatility. Perhaps even more important will be ongoing and ever-changing developments with respect to tariffs on trading partners, namely Mexico, Canada, and China. From a seasonality standpoint, February tends to be in the bottom 1/3 in terms of historical monthly returns, averaging just 0.15% over the last decade. We will remain vigilant and react to new data as necessary. Until next month, we thank you greatly for your ongoing trust and support.

Sincerely,
Jason D. Edinger
Chief Investment Officer
Boston Wealth Strategies

February 3, 2025



January 7, 2025

Santa Rally Fails To Materialize But Stocks Log Epic Year

Stocks ended 2024 with a whimper, as the S&P500 lost -2.4% in December to close at 5,882. The fabled “Santa Claus rally,” which generally sees the market post strong gains in the final days of the year, was not meant to be this time as a combination of profit-taking and rebalancing resulted in December losses. Nonetheless, the fourth quarter and calendar year were strongly positive, with the benchmark index gaining 25% in 2024 and registering 57 new all-time highs. This strength comes on the back of a solid 2023, and the market’s two-year performance is the best in nearly 25 years. Despite Santa’s conspicuous December absence, equity investors were indeed on the good list this year and were rewarded accordingly.

Looking under the hood, 2024 was a story of large-cap domination, with mega-cap names outperforming the broader S&P500 by more than 8%. The “Magnificent Seven” stocks turned in another blockbuster year, gaining 67% in 2024 and representing 55% over the overall market return! This dynamic has been consistent over the last several years and reminds us that concentration risk in the broad indices remains a key consideration for asset allocators. Small- and mid-cap stocks performed well on an absolute basis, registering double-digit gains but lagging far behind their large-cap brethren. “The bigger the better” as they say.

The Federal Reserve cut its benchmark interest rate by a quarter point in December, just as expected. This reduction came despite increased inflation expectations, with year-end estimates for 2024, 2025, and 2026 all being revised higher. Arguably more important than the cut itself, the bank’s messaging implied fewer cuts in 2025, which has landed squarely front of mind for many investors and market participants. Immediately following the announcement, bond yields rose – especially in the 2–3-year maturity range – which reflect the market’s expectation of a “Fed pause.” The bond market, commonly referred to as the “smart money,” is clearly telling us that it has concerns over the Fed’s ability to push inflation lower from here. Accordingly, the month of December and the entire fourth quarter were challenging for bonds, as rising yields forced prices down resulting in modest losses across the major indices. The Bloomberg US Aggregate index fell -1.64% during the month, but still managed to close 2024 in the green with a meager 1.25% total return.

Alternative investments – namely gold and cryptocurrency – were in the headlines all year long. The former, although slightly down in December, was the bright and shiny star amongst alternatives in 2024, turning in a +27% year and outperforming the S&P500. This was the precious metal’s best year since 2010, and was fueled mainly by incessant central bank purchasing, easing monetary policy and geopolitical strife. This strong performance for gold was achieved in spite of traditional headwinds in the strong US dollar and rising bond yields.

Bitcoin also attracted major attention during the year, as the launch of several ETFs catapulted the digital asset into the mainstream. One particular bitcoin ETF has seen its assets under management grow to $50B in less than a year, making it arguably one of the most successful new product launches ever. BTC’s price rose 100% in 2024, driven by the above ETF adoption (and associated inflows), general risk-on positioning, and pro-crypto sentiment on the part of the incoming administration. Rumors of President Elect Trump using bitcoin as a reserve asset on “day one” of the administration have only added fuel to the fire.

Looking forward, investors are relying on robust corporate earnings as the primary means for the bull market to continue. Earnings are forecasted to grow 2.1% in 2025, which should provide support for equities at current or slightly higher valuations. But we must always be prepared for the unknown, which is everywhere around us as we enter the new year. Of particular note are the effects of the incoming administration’s policies on international trade, immigration, deregulation, and taxes (among others). As ever, we will do our best to be prepared for a wide range of outcomes, and position portfolios accordingly. While we cannot predict what 2025 will bring, we can and will stick to the knitting which has served us so well in the past: a well-reasoned, disciplined process that is adhered to across all market environments.

We are excited to embark on another year with our valued friends, family, and clients. We hope it is fruitful and prosperous for all. Until next month, we wish you a happy new year and thank you for your ongoing trust and support.

Sincerely,

Jason D. Edinger

Chief Investment Officer

Boston Wealth Strategies

December 6, 2024

Black Friday concluded the final day of November trading, and the holiday-shortened session put an exclamation point on a
tremendous month for equities. Following a quick and conclusive election – which saw Republicans advance in almost all categories
– markets staged a relief rally to close the month at new all-time highs. The S&P500 rose 5.9% during November, posting its best
month of the year. In a change of trend, small-capitalization stocks also participated, with the Russell 2000 gaining 11% (!) to deliver
its best month in nearly a year. This stellar performance in the wake of November 5th should come as no surprise; the market tends
to rise post-election as uncertainty has been eliminated. As the chart below clearly shows, the more that time passes after the big
day, the smoother the ride becomes for stocks (and bonds).

Source: “Elections, The Fed, and Uncertainty: Navigating the Fixed Income Market”; Weitz Investment Management

Election results were clearly the primary driver of November performance, as the market quickly priced in expectations for further
tax cuts, additional fiscal support, and government deregulation. Presumably, all the above are positive for economic growth and by
extension, future market performance. On the tax front, it is all but assured that the 2017 Tax Cuts & Jobs Act will be extended.
Additionally, President Elect Trump has proposed even further corporate tax cuts (from 21% to 15%), which could maintain margins
and boost S&P500 earnings by 4-5%. While Trump’s cabinet selections have received mixed reviews, the market cheered on the
nomination of Scott Bessent to Secretary of the Treasury, noting the former hedge fund manager’s reasonable and pro-growth
stance. All told, the markets received an undeniable boost from the election and while the devil remains in the details, the initial and
ensuing reaction has been highly positive.

The other major development in November was the further normalization of monetary policy on the part of the Federal Reserve.
The central bank cut interest rates by a further 0.25% which brought the target to a range of 4.5-4.75%. Given the backdrop of
strong economic growth and a sturdy labor market, this was entirely expected and well-received by the market. Fed Chair Powell
indicated that the trends of a good economy, cooling inflation, and normalizing labor market looked poised to continue. Notably, he
also reiterated that the committee remains “data dependent,” and that future rate decisions would be made from meeting to
meeting. Accordingly, the yield on the 10-year Treasury fell from 4.39% to 4.19%.

Economic data came in mostly strong, delivering even more market optimism. Q3 GDP data was unchanged from its initial estimate
and showed growth clocking in at a 2.8% rate. Personal incomes and spending also ticked up marginally, reinforcing the notion that
the American consumer remains on solid footing. Inflation readings were slightly mixed, with both the CPI and PCE Index (the Fed’s
preferred measure) in line with expectations. Jobs data were also mixed but consistent with a strong, although slowing, labor market
(October data included one-time effects of hurricanes and a strike at Boeing). All told, there was nothing in the monthly data to
spook markets or knock them off their upward course. Good news for bulls.

Looking forward, the next key piece of data will be the November jobs report, which will give the Fed insight into labor market
trends. We also have the usual inflation metrics, which will be weighed heavily during the next Fed meeting, taking place December
17-18. Finally, market participants are already looking through to the next quarterly earnings season, where expectations are high.
Many analysts are expecting the strongest quarterly growth in three years. All these pieces will collectively determine the market’s
next move and will serve to set the stage for 2025 direction.

This will be our last writing of 2024. It has been a pleasure to share our thoughts and insights during a magnificent and truly stellar
year. As the sun sets on 2024, we wish all of you the happiest of holidays and continued prosperity during the new year. As ever, we
thank you for your ongoing trust and support.

Sincerely,
Jason D. Edinger
Chief Investment Officer
Boston Wealth Strategies

November 7, 2024

October ended with a downturn for the major indices, which were spooked by mixed corporate earnings, increasing bond yields, and the looming presidential election. The S&P500 gave back modest ground during the month, losing -0.92% during the period to close at 5,705. Small capitalization stocks fared even worse, losing -2.6% while correlating strongly with higher interest rates. As economic data continue to come in strong, rates have risen accordingly, and small caps have struggled. October concluded with sharp losses and pounded nails in the winning streak coffins: it was the first negative month since July for the NASDAQ and both the Dow and S&P500 had five-month positive streaks snapped. Boo-hoo.

Volatility increased markedly during October, as investors jockeyed to position portfolios ahead of the presidential election. Rates and bond markets showed the highest relative volatility, as yields have surged on the back of inflationary campaign rhetoric and decreased expectations for future rate cuts. During the month, yields across the curve backed up around 0.5% depending on the precise maturity. This put pressure on bond prices and resulted in losses across all the major bond indices. During the 1.5 months since the Fed began the easing cycle, economic data have continued to come in strong and cast doubts over how many cuts that the market has priced in. Stuck between a rock and a hard place, Chair Powell has his work cut out for him if he is to deliver on both amount and size of market expectations.

Powerful headwinds to lower future interest rates have come in the form of ongoing economic strength, minor but sticky inflation, and a sustained low unemployment rate. None of the October data contradicted these points:

• October payrolls were weak (+12K jobs created) but resulted in no change to the unemployment rate
• September inflation came in slightly hotter than anticipated (0.2% monthly versus 0.1% expected)
• Headline GDP came in slightly weaker (2.8%) but personal consumption, which accounts for 2/3 of the economy, came in at a strong +3.7%

In keeping with the above, the Federal Open Market Committee is widely expected to reduce its target Federal Funds Rate when it meets November 7^th, most likely by 0.25%. Nevertheless, investors have clearly recalibrated their thinking relative to how aggressive the central bank will be in cutting rates over the next cycle. Accordingly, we expect volatility to remain elevated in the near term.

Gold and other precious metals continue to grab headlines as their blistering rallies continue. Physical gold rose +4.2% during the month and hit multiple all-time highs after storming nearly 6% higher in September. While we have seen furious demand on the part of global governments and central banks, recently we have seen a safe-haven trend emerge ahead of the election, which still appears too close to call. Gold is up an incredible 33% this year, arguably sparking even more demand and resulting in an upward, virtuous cycle. Moving forward, potential tailwinds for gold and metals include global monetary easing, sticky inflation, increased fiscal imbalances (deficits), associated dollar debasement, and geopolitical conflict. Not to mention the ever-present FOMO!

As of this writing, we are less than 24 hours until Election Day. Naturally, there is a lot of political noise dominating the landscape. While we would not be surprised to see heightened volatility in the immediate aftermath of the election,  we do recognize that markets tend to look through elections to quickly and efficiently price in any major policy implications. And the further we travel away from the big day, the smoother the ride tends to be for both stocks and bonds. We rest assured knowing that time is the great equalizer.

Outside of the election, the economic data continue to point to a soft landing with no recession. The Fed is telegraphing that it intends to continue its loosening policy, outside of major dislocations in terms of employment and/or inflation. It is widely expected that the bank will cut interest rates a further 0.25% while awaiting crucial economic data before the final December meeting. From a seasonal perspective, November has been the best month for stocks over the last decade and has posted an average return of 3.81%. Not shabby. Either way, November 2024 will likely be an epic month in many regards, and we stand watchful with our investment processes firmly in place.

We wish you a very early Happy Thanksgiving and as ever, we thank you for your ongoing trust and support.

Sincerely,

Jason D. Edinger

Chief Investment Officer

Boston Wealth Strategies