Markets Update; Challenges for 2025; Bright Spots

A lot has occurred since my last post in mid-March. If you were asleep for all of April, you would not have noticed the tumultuous month starting the 2^nd quarter as President Trump announced the initial tariffs on April 2^nd. The quick 15% sell-off in stock prices has now been erased and stock prices have stabilized and show a small loss of 1-2% year-to-date on the S&P 500 and Dow. Stock sectors that  have bested the general market (S&P 500) this year include Utilities, Financials, Staples and Telecom. Under-performers include HealthCare, Energy, Technology and Consumer Discretionary stocks.

Bond prices likewise had a wild ride post tariff maneuvering but are essentially unchanged since year-end. Shorter maturity U.S. Government debt (Treasury Bills) pay 4.25% or so on your cash not used for other investments.

Interest rates are not falling either, which is not favorable for borrowers for cars and homes. Housing and shelter costs are still elevated at +4% over one year.

Overall inflation is coming down for many items; the latest report last week showed an annual rise at +2.3% rate. Gasoline prices fell for each of the last 3 months, and are down 12% year-over-year, and the most affordable since Memorial Day, 2020 (see table below). Medical care is +3% over the same time period. The just approved budget bill by our Congress calls for more spending and some tax cuts, so we’ll see how that affects our economy and interest rates.

The one bright spot making money this year is Gold, as it continues to add to its gains from last year. It increased $500 an ounce in the 1^st quarter, and another $230 since then as of this writing. That’s $730 by my calcs, or +27% so far this year, greatly helping your portfolio during stock and bond price stagnation.

We advocate owning some physical gold coins and some exchange traded funds you buy like stocks; GLD or SGOL that track the gold price daily. Gold trading ended today at $3,357 per shiny ounce.

  

Using a model portfolio of $100,000, if you were allocated this year at 50% stocks, 30% bonds (Treasury bills paying 4.25%), and 20% Gold-related holdings, you would be up 6% year-to-date to $106,000.  This allocation is mainly based upon my position that stocks and Gold are very unlikely to both decline together over the longer (6-12  months) time-frame, and gains in both Gold and stocks are likely if held long-term. 

I wish everyone a safe and joyous Memorial Day weekend.

~ Barry Unterbrink, C.R.P.C.

 
Memorial Day gasoline futures prices (market price, no taxes).
  2017   $1.57
  2018   $2.14
  2019   $1.80
  2020   $1.03
  2021   $2.21
  2022   $4.02
  2023   $2.43
  2024   $2.49
  2025   $2.13  close (5/23/25)

 

 

 

2024 Markets Recap and Review

Dear Clients and Friends,

Here's my 2024 Year-End Financial Markets Review. I'm rather late posting this, as I traveled to China for 6 weeks and returned in early March. Reach out to me at Unterbrink@usa.net with any questions and comments, please.

The financial markets in 2024 returned nice gains for most investors. Stocks logged their second double digit gain of +13% for the Dow Jones and +23% for the S&P 500 index. The technology-laden NASDAQ increased even more at +29%. You have to look back to the late 90’s euphoric years of 1997-1998 to find the last back-to-back gains like these. History shows that the average gain for the S&P 500 following consecutive +20% gains is +6.7%, so that would still be positive, but lower and perhaps expected given the stellar performance.

The talk of the new technology called Artificial Intelligence, or AI, was the chief driving catalyst behind the outsized gains across other sectors also.  Microsoft and Meta Platforms (Facebook) are building data centers that will require massive power usage, so Electric Utility’s will benefit, along with natural gas pipelines, energy plays. Utilities gained +23% last year, Consumer Discretionary, (think Nike, Home Depot, McDonald’s) rose +24%, and Financial sector stocks (banks, American Express, MasterCard), up a nice +30%.

A few sectors of the stock market did not participate. Health Care stocks only could muster a 3% gain on average, and Materials stocks, (think Dupont, International Paper, US Steel) were about break-even!

Some don’t buy into this AI story-line, and suggest that it’s time to play defense in 2025, hedging your bets and taking some chips off the table so to speak. We’re in that camp somewhat, and have used cash and especially GOLD to offset – and add to – the stock market gains the past couple years. Also, we’ve added value-oriented stocks and ETF’s in place of growth names to – hopefully – lessen the impact of a downturn in stock prices.

The Bond market experienced a volatile year, as interest rates were on hold and not raised by the Federal Reserve (last hike was July, 2023). When they finally did cut rates last September, the bond market responded with HIGHER market rates, as if the bond investors didn’t believe the reason for the cut. The November and December rate cuts by the Fed totaling 0.75% also did little to change the course of interest rates that investors and consumers use. Interest rates went UP after the first and second rate cuts. Of public interest, the 30-year mortgage interest rate to borrow increase from 6.1% to 6.8% in the three months following the September 18^th cut. That’s not helping folks buy a home, is it? Here in mid-March, borrowing rates are still “sticky”, with the 10-year Treasury Note at 4.3% and the 30-year mortgage rate at 6.6%. Analysts say that a rate below 6% will spur a big rise in home-buying. We’ll see, if and when that occurs. Investors and savers can still get a positive return in the bond market, as inflation is running at 3% year-over-year and bonds yield above that.

The third leg of our investment stool is Gold. The precious metal has performed nothing short of spectacular the past few years. Gold prices rose $560/ounce last year, for a 27% gain. In 2023 they were up $250. The real breakout in price was after the Hamas invasion of Israel near $1,860. The Russian invasion of Ukraine in early 2022 set up that rally somewhat also I feel, as wars tend to create a favorable environment for Gold. The U.S. Inflation was raging also; year-over-year inflation was running at +7.8% at the time of both events. Central Governments were big buyers of Gold – and still are today – as a store of value, while Gold jewelry demand was up 9% last year, according to the World Gold Council. Gold miners can only find about 1%-2% more Gold each year; it’s that hard to mine. Lastly, all the above ground Gold in the world measures about 25 cubic yards! Talk about the scarcity and alure of the yellow metal. As I write this, Gold’s trading at $3,001 an ounce, an increase of $375 this year.

Since it's so late in the 1st quarter that ends in two weeks, I will post again sometime in April with a review of the markets and my positioning for the next few months.

Profitably Yours,

~Barry

 

 

 

 

 

 

 

 

Year End Review - Dead Reckoning Results

 

I’m wishing all my clients and friends a Happy and Prosperous New Year 2025.

With just one day left in 2024, The stock market looks like it will end this year with another double-digit gain; up about 25% on the S&P 500 Index and up 13% or so on the Dow Jones Industrial average. Looking at the major Sectors of the stock market that I normally report on for a good representation of performance, here is the tally through Dec. 27^th.

The Sectors out-performing the S&P 500 Index: Telecom Services, +35%, Technology, +32%, Financial stocks, +31%, Consumer Discretionary, +27%. Sectors showing gains but under-performing the S&P 500: Utilities, +23%, Industrial Stocks, +18%, Consumer Staples, +14%, Energy and Real Estate, +5% each. The bottom dwellers are Health Care, +4%, and Materials, +1.3%. Tossing in our two commodity-based investments of Gold and Silver, they logged in at +26% and +21% respectively.

The other two classes of assets that are most often used in portfolio construction, Bonds and Cash – certainly under-performed stocks. Bonds are barely were break-even in the 2021-2022 period; a slight gain in '23 and about even this year. We advocated to shun Corporate and Government bonds the past two years in favor of short term Treasury bills – maturing in one year or less -  as they are very stable in price and yields were between 4.5% to 5.6% the past two years. That was essentially risk-free interest paid by the U.S. Treasury! Three-month T-bills today are paying 4.25%, Six months at 4.17%.;  (rate chart below) 

I use a portfolio management system that was formulated by my father Larry back in 2018. He labeled it the Dead-Reckoning (DR) portfolio system. His business partner used Dead Reckoning in his Navy duties way back when to calculate future positions and movement of ships at sea. I try to anticipate movements in stocks based on the past price and technical data.

Each month I use this to select investments, type and quantity – and then allocate money to stocks, bonds, precious metals, and Cash. The general premise of DR is that strong sectors tend to continue to move up in price over time; they don’t wiggle around month to month. Once a trend develops, it often moves in that direction for awhile.

Also, when investments move to new highs; think Apple or the price of Gold, there’s a ‘pile on’ effect for those who don’t own it. Then there are no owners at a loss, so there is little reason to sell. Example: Once Gold prices moved above their prior high near $2,050 after the October 2023 Hamas Invasion of Israel, it rallied $700/ounce to new highs last month of $2,775.

Does this always work? Of course not. You can get tricked when investments or sectors move rapidly. Energy and Technology did this to me in the recent past. We’re spread out across 7-8 areas, so no one area will hurt the performance too much. Generally, the portfolio owns 2-3 Market Sectors (of 10) using low expense exchange-traded funds, always a 10% or more holding in Gold, the balance in short term cash or T-bills or money funds earning 4% plus.

I select new buys and sells that get replaced every month; but often hold the same ones for multiple months until they fall off the ranking system.

Here's the record: 1/1/2018 – 11/30/2024

Dead Reckoning Portfolio Management
(Compound Annual Growth Rate):            +7.71%
$100,000 grows to $167,185

S&P 500 Index
$100,000 grows to $221,693                    +12.20%

My DR system under-performed the overall market. Is that relatively good?

You could have just sat in the S&P 500 index almost 7 years and made more money; all stocks, no bonds, no cash or Gold. BUT…you lived through the 2020 COVID bear market, when the S&P 500 fell 20% in 3 months. Then came the 2022 Bear Market, when the S&P lost 19.2% in value that year. Could you have navigated those down-turns, or had the gumption to hold on? That’s two tough calls to make; when to sell and then when to buy. I’ve seen some very poor decision-making in Bear Markets that take years to recover from.

For the DR portfolio, it FELL 7% during the worst COVID period (1^st quarter, 2020), and it also FELL 7.5% during the 2022 (full year) bear market. We call those stats draw-down, or the maximum loss of value from point A to point B. The 2024 performance thus far is noted in the footnote below.

Sure, a lot more goes into portfolio construction and management than just percentages up and down. Your age, your risk tollerance, tax strategy - if it's not retirement account money. I would be fairly accurate to say that all investors would be better served by a diversified portfolio as their main holding, filling in the rest of the space with other investments in real estate, Crypto, annuities, cash value life insurance to name a few.

I hope you found this helpful, and share with your friends please.

Reach out if you have any questions or comments.
And again, be safe out there, wishing you a prosperous 2025!

~Barry

 

2024 Performance thru 11/30/24. (DR)                  +17 %
2024 Performance thru 11/30/24. SP500                +28 %

* all performance stats noted do not include dividends or interest payments; the
dividends/interest of the DR portfolio system and the S&P 500 would be fairly comparable across all portfolio construction time periods.