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Market Update & Investment Commentary
Data as of 12/31/2024 (unless stated otherwise)
US Markets
In 2024, US Large Growth equities, measured by the Russell 1000 Growth Index, continued to outperform US Large Value equities, measured by the Russell 1000 Value Index, with returns more than double. The forward P/E for the Russell 1000 Growth is now 28.9x versus a historical average of 21.1x, and for the Russell 1000 Value, it is 16.2x compared to 14.2x historically (data since 1997). Growth stocks typically have higher multiples because their valuations tend to be based more on future profit expectations rather than current cash flows. Currently, growth/value valuation ratios are at their highest since the early 2000s dot-com bubble, driven by big tech and AI. While we aim to benefit from this growth, our portfolios also anticipate potential corrections, favoring value securities slightly and using active management in growth positions to mitigate risks of significant drawdowns.
Below are the total returns for major US asset classes for 2024:
International Markets
International equities are valued at 13.3x for the MSCI ACWI Ex-US, compared to 21.5x for the S&P 500. This 38% discount is much lower than the long-term average of 17.8%. Therefore, International Equities remain valuable in diversified portfolios, as they cost less per dollar of earnings compared to US equities.Additionally, having exposure to different geographical regions can provide a hedge against country-specific risks and market fluctuations. For example, while the US economy might face challenges, other countries could be experiencing economic growth, which can help balance overall portfolio performance. Furthermore, international companies often operate in industries or sectors that are less represented in the US market, offering unique investment opportunities. Such diversification can lead to improved risk-adjusted returns over time, helping investors achieve their financial goals with greater stability.
Economy
J.P. Morgan's chart below shows that consumer spending has been a major contributor to GDP growth, averaging 1.7% since 2000 and making up about two-thirds of GDP composition. Consumers play a crucial role in economic growth or slowdown. While inflation, rising interest rates, and growing debt have challenged consumers, a resilient labor market and solid stock market gains have supported continued spending and propped up balance sheets.
We are monitoring Bureau of Labor Statistics data and inflation closely, as these will influence the Federal Reserve's rate cut decisions. Lower interest rates could relieve consumer debt and boost spending, fueling further growth. However, cutting rates too quickly might reignite inflation, while being too slow could pressure consumers and businesses, potentially causing a recession.
The role of consumer sentiment cannot be underestimated either. Indicators like the Consumer Confidence Index provide insights into how optimistic or pessimistic people feel about their financial situation and the overall economy. Positive sentiment often correlates with increased spending, while negative sentiment can lead to cautious financial behaviors.
Policymakers must balance stimulating growth with maintaining price stability. The timing and magnitude of interest rate adjustments by the Federal Reserve will play a critical role in shaping the economic outlook. A carefully calibrated approach to monetary policy can help sustain consumer spending without triggering adverse effects like runaway inflation or economic contraction.
Summary
Reflecting on another year of excellent returns, it is essential to acknowledge that adhering to a disciplined approach is the optimal path to financial security. We continue to conduct regular rebalancing to ensure our clients' portfolios align with their risk tolerance and maintain their progress towards a successful retirement. Additionally, we employ various strategies, including tax loss harvesting, asset location, Roth conversions, and routine screening of our positions to maximize the potential of our clients' portfolios. While markets can be unpredictable in the short term, we understand that having a long-term plan and consistently following it is the foundation of successful investing. As always, we are available to discuss any questions or concerns you may have.
Important Disclosure Information:
Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Columbus Wealth Management, [“CWM”]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from CWM. CWM is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.cbuswm.com. Please Remember: If you are a CWM client, please contact CWM, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please also remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your CWM account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your CWM accounts; and, (3) a description of each comparative benchmark/index is available upon request.