Category: Insights

Read all of the insights coming from the experts at confluence financial partners.

  • Stock Market Recap: April 2024

    Month in Review

    • April saw major bond and stock markets decline due to a shifting interest rate outlook, following higher-than-expected inflation data. The S&P 500 had its first 5% or greater drop since October 2023 in April.
    • In the equity market – areas with greater sensitivity to high interest rates lagged, such as small cap stocks (-7.04%, Russell 2000 TR Index). Large cap stocks also declined, with value stocks down -4.27% (Russell 1000 Value TR Index) and growth stocks down -4.24% (Russell 1000 Growth TR Index). Emerging market equities bucked the trend and finished in positive territory (+0.45% MSCI Emerging Market NR Index).
    • As of April 30th, investors were no longer pricing a cut to the Fed Fund rate for 2024, leading major bond markets to 2024 lows (-2.53% in April, Bloomberg Barclays Aggregate Bond TR Index).

    Looking Beyond Narrow Equity Market Leadership

    Large growth companies continue to drive a large portion of the US equity market’s results during the past three and five years – April was no different. The S&P 500 (weighted by the size of the companies in the index) has outperformed the equal-weighted S&P 500 (representing the results of the average company) by an increasingly wide margin over the past 18 to 24 months.

    This has been driven by fast-growing technology companies: technology stocks represent roughly 30% of the market-cap weighted S&P 500, compared to 14% weight in the equal-weighted S&P 500. However, it is important to adopt a longer perspective during these unusual periods. Over the past 15- and 20-year periods, as well as since 2003 – the equal weighted S&P 500 index is ahead or in-line with the market cap weighted S&P 500. On a calendar year basis, the equal-weighted S&P 500 has finished ahead 12 out of 21 years through 2023.

    Although the market has been very top heavy, with the fast-growing technology companies driving the market, markets are cyclical, and longer-time horizons highlight the balance over time.

    Source: Raymond James, FactSet. Data as of 2/29/2024. Since inception date of the equal-weighted is 1/3/2003.

    What’s on Deck for May?

    • Inflation data will be top-of-mind given the recent hot streak in data. Federal Reserve commentary around the data will also be closely watched by investors.
    • First quarter 2024 earnings will wrap up in May. Through the end of April, earnings have finished ahead of expectations for S&P 500 companies that have reported. 
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    April-2024-Market-RecapDownload

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    William Winkeler

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  • Exit Planning: 5 Important Points for Business Owners to Consider

    Exit Planning is an extremely important concept for business owners.

    What is Exit Planning you may ask?

    The conventional definition is it is the creation of a plan and strategy to ultimately transfer or liquidate the ownership of a business. This definition, however, is too rigid in our opinion and focuses on the end goal rather than the process. We believe Exit Planning is vital to business owners, even if they are not considering an imminent sale of their business.

    The planning done today increases the value in a business tomorrow. Exit Planning or “value creation” is not a one-time event and should always be part of the business strategy.

    As Certified Exit Planning Advisors (CEPA), we have leveraged the Exit Planning Institute’s program to expand our knowledge in this area. The following are important points for business owners to consider:

    • The Exit Planning process should begin a minimum of 3 years prior to a potential transfer. Value creation is a process that takes time.
    • To improve your business, ask yourself every 90 days whether you are figuring out how to grow or whether you are preparing to sell.
    • There are numerous exit options. Make sure you understand all of them. There is sometimes value where you do not expect!
    • Business attractiveness is not necessarily exit readiness. A business can be attractive to potential buyers, but have a management team or business that is not ready to transfer for a variety of reasons. Determine what is needed to increase readiness.
    • Surround yourself with the right advisors and consultants. Build your value creation team. This should consist of professionals such as accountants, attorneys, financial planners, and business brokers all who have experience in Exit Planning.

    If you have any questions about the future of your business or know of someone who may find value in a discussion, please let us know.

    Gregory Weimer
    About the Author

    Gregory developed a passion for the financial services industry early in life, drawn to the meaningful impact investing and thoughtful financial planning can have on people’s lives.

    McMurray

    724-271-8801
    gregory.weimer@confluencefp.com
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    Gregory Weimer

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  • Stock Market Recap: May 2024

    Month in Review

    • Markets rebounded after the first 5% drop in April, with all major stock and bond markets finishing May in positive territory.
    • Technology powered large cap growth higher (+5.99%, Russell 1000 Growth TR Index), leading all equity markets higher during the month. Small cap stocks rebounded during the month of May, with the Russell 2000 rising +5.02% (Russell 2000 TR Index). Outside the United States, developed international and emerging market equities both rose in May.
    • Major bond markets also rallied higher in May as investors’ outlook for interest rate cuts stabilized. The Barclays Aggregate Bond TR Index rose +1.70% in May.

    Improving Fundamental Picture

    Equity markets are off to a strong start to 2024, despite surprising persistence of inflation and higher-for-longer interest rates.

    What has been driving markets higher through these headwinds?

    This year has been characterized by improving fundamentals, both with corporate earnings and dividends rising above expectations. First quarter earnings for the S&P 500 have risen nearly twice the estimates from earlier in 2024, and investors have also increased 2025 earnings growth estimates to nearly +14%. Increased investments in technology, along with the supporting infrastructure, appear to have been underestimated by investors heading in 2024. Estimates for growth in 2024 and 2025 have also increased for US small cap stocks and international stocks.

    Sources: Capital Group, FactSet. Earnings growth refers to annual change in earnings per share. As of May 14, 2024.

    Dividends are also tracking ahead of expectations, thanks in part to an increase in dividend payments among technology companies. S&P Dow Jones estimates the S&P 500 dividend to increase by 6% in 2024, compared to a 5% increase in 2023. Over the long-run, stocks will follow fundamentals, and corporate earnings and dividends have been a positive surprise in 2024.

    What’s on Deck for June?

    • No rate cuts are expected, but investors will continue to focus on inflation data and Federal Reserve communication throughout the month.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: August 2023

    Month in Review

    • Major stock indices broke a two-month streak of gains, with all major indices finishing down for the month.
    • Growth companies regained favor after two months of value and small cap companies leading the market.
    • Bond prices declined due to rising interest rates.

    Insight on Inflation

    Despite the market volatility, evidence from July’s inflation report suggests progress towards a “soft landing” scenario, where inflation is gradually decreasing, and the economy avoids a recession. In July, headline inflation was at +3.3%, year-over-year, down from its peak of 9.1% in June 2022. Unlike June 2022, supply chains and goods have largely normalized, with wages and services being the key drivers of inflation today.

    Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations.  Guide to the Markets – U.S. Data are as of August 31, 2023.

    What’s on Deck for September?

    • The August jobs report supplied additional evidence towards a “soft landing” outcome – more people joined the workforce while wage growth slowed, indicating steady but slower economic growth.
    • A “soft landing” could lead to the Federal Reserve not needing to raise interest rates as high as previously predicted, potentially benefiting stocks and bonds.
    • Investors will now pay close attention to the September and November Federal Reserve meetings for clues about future rate hikes or general shifts in policy.

    Download the August 2023 Market Recap below:

    Market-Recap-Aug-2023-1Download
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Stock Market Recap: June 2024

    Month in Review

    • Mega-cap growth companies rallied sharply higher in June, pushing the S&P 500 higher during the month (+3.59, S&P 500 TR Index). 
    • The rally in mega-cap growth companies opened a wide gap between growth and value in June: large cap growth rose +6.74% (Russell 1000 Growth TR Index), while large cap value fell -0.94% (Russell 1000 Value TR Index).
    • Interest rates fell as data showed a drop in the rate of inflation, which pushed bond markets higher during the month (+0.95%, Barclays US Aggregate Bond TR Index)

    Mega Concentration

    The outlook for corporate earnings has shifted higher- analysts now expect S&P 500 earnings to have grown +9% year-over-year the previous quarter. The increased growth expectations are driven in large part by a belief in the continued growth of investment in technology and alternative intelligence.

    This reacceleration of growth expectations has resulted in the mega-cap companies representing a large portion of the S&P 500’s value: the top 10 companies in the S&P 500 make-up 37% of the index’s value, the largest weight since the index was created. The impact of the increased concentration in the top 10 companies can be seen in the difference between the index (+15.3% YTD, S&P 500 TR Index) and the average stock (+5.1% YTD, S&P 500 Equal Weighted TR Index).

    There are high expectations for future growth in the top 10 companies of the S&P 500: their contribution to earnings over the last 12 months stands at roughly 27%, compared to a weight of 37%. This is a reminder for investors to maintain a diversified approach; markets such as US small cap stocks and international stocks offer lower valuations with an improving fundamental outlook.

    Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each month. As of 5/31/2024, the top 10 companies in the index were MSFT (7.0%), AAPL (6.3%), NVDA (6.1%), AMZN (3.6%), META (2.3%), GOOGL (2.3%), GOOG (1.9%), BRK.B (1.7%), LLY (1.5%), JPM (1.3%), and AVGO (1.3%). The remaining stocks represent the rest of the 492 companies in the S&P 500.

    What’s on Deck for July?

    • Earnings season starts on July 12th; investors expect second quarter earnings to have grown +9% year/year. If earnings growth finishes that high, it would be the strongest quarterly growth rate since 2021.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • The Collector’s Journey: How to Plan for the Legacy of Your Treasures

    As enthusiasts and collectors approach the later stages of their lives, the act of collecting takes on new dimensions. Some may be content to sell their collection and pass the proceeds on to heirs, but for others the treasures that have been amassed over the years are now an opportunity to leave a legacy that will continue to endure.

    Here are four considerations to help navigate this phase of your collecting journey:

    1. Legacy Planning and Succession Strategy

    If you haven’t already, start to incorporate your collection into your broader estate plan. Decide how your treasures will be managed, preserved, or passed on. Engage with experts who specialize in collectibles and estate management, particularly those well-versed in the tax implications of transferring collections.

    Consider which heirs will receive each item and why, taking into account their emotional significance and potential for instilling responsibility. If you aim to establish a philanthropic legacy, donating to a museum or organization aligned with your mission not only offers tax benefits but also ensures parts of your collection remain together.

    2. Balancing Emotional and Financial Value

    While financial considerations have likely played a role in your collecting journey, the emotional value of your treasures becomes increasingly significant as you near this phase. Embrace the joy and memories your collection evokes. If the next chapter is one that doesn’t fetch your estate the highest possible payout or the most optimal tax deduction, that can be OK if the destination fulfills your wishes and maximizes the emotional component of the transition.

    3. Philanthropy & Impact

    Consider the broader impact your collection can have. Some individuals opt for philanthropic endeavors that align with the themes of their collection. For example, a collector of classic cars may choose to donate his or her collection to an automobile museum that will display the vehicles and allow them to continue to provide joy for many. Donating items, contributing proceeds to charitable causes, or establishing cultural endowments can solidify your legacy as one that extends beyond material possessions.

    4. Don’t Forget Logistics

    Once you’ve established a robust plan for your collection, it’s crucial to have capable individuals ready to carry it out. For vehicles, consider arranging for an appraisal in advance or identify a trusted appraiser to guide those handling your estate. If you anticipate liquidating a coin collection after your passing, take the initiative to identify a reputable precious metals dealer beforehand. By personally selecting the third parties involved, you can alleviate the executor’s potential challenges in managing and distributing your collection.

    As your collecting journey matures, it evolves into a narrative of legacy and stewardship. It’s important to recognize that your collection signifies not just an investment, but a testament to the diverse experiences of your life. Take the necessary time and consider that at Confluence Financial Partners, we’re here to help. Collaborating with the right professionals can help ease the burden and ensure both your life and legacy are maximized.

    Randy Holcombe
    About the Author

    The opportunity to make a positive difference in people’s lives is why Randy chose a career in wealth management. He is passionate about helping his clients achieve their goals and cut through the constant noise of the day-to-day financial markets.

    Grove City, Pittsburgh

    724-458-5233
    randall.holcombe@confluencefp.com
    Email Randy

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    Randy Holcombe

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  • Stock Market Recap: July 2024

    Month in Review

    • Major reversals across the equity market, with small cap stocks and value stocks outpacing the large-cap and growth peers sharply in July.
    • Catalyzed by decelerating inflation data, small cap stocks (Russell 2000 TR Index, +10.16%) finished significantly ahead of large cap stocks (S&P 500 TR Index, +1.22% and large cap growth stocks (Russell 1000 Growth TR Index, -1.70%).
    • Additionally, the S&P 500 had its first daily drop greater than 2% in July, the first time in over 350 trading days. This was the longest such streak of low daily volatility in over 15 years.

    Equity Market Rotation

    Last month’s monthly update discussed the record levels of concentration in the S&P 500 – a factor that likely played a role in the significant shift equity markets saw in July.

    After the June inflation (CPI) report was released, investors shifted expectations to a much higher likelihood of a rate cut in September. Generally, small cap stocks have a greater sensitivity to interest rates, given the use of more floating rate debt compared to large cap stocks. This factor, combined with improving earnings fundamentals, resulted in the Russell 2000 outperforming the NASDAQ by over 5% the day of the inflation report. This represents the largest single day outperformance of small cap stocks versus technology stocks in over 40-years (chart below)

    Source: JPMorgan Asset Management, Bloomberg, as of July 21, 2024

    Small caps kept up the momentum of July, along with large cap value stocks (Russell 1000 Value TR Index, +5.11%).

    July represented an important reminder to long-term investors about the benefits of maintaining a diversified approach

    What’s on Deck for August?

    • Earnings season wraps up in August: as of 7/29/2024, 40% of S&P 500 companies have reported earnings, and 76% are beating expectations for the second quarter.
    • The Federal Reserve is expected to use August to signal its intentions around cutting interest rates during its September meeting. The Federal Reserve last hiked in July 2023 and has held rates constant since.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill
    May-2024-Market-RecapDownload

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    William Winkeler

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  • Stock Market Recap: October 2023

    Month in Review

    • Stocks fell during the month of October, marking the third straight monthly decline for the S&P 500 Index.
    • Bond markets also fell again during the month, the fifth straight monthly decline for the asset class.
    • Concerns over US government funding helped keep interest rates higher in October, pressuring stock and bond markets again.
    • US corporate earnings season is also in full swing, with over 50% of the S&P 500 having reported by the end of the month. Companies have thus far reported positive earnings growth with mixed outlooks.

    Last Rate Hike? Now What?

    The Federal Reserve held its November committee meeting, where they kept interest rates unchanged. Following the press conference, investors are now expecting interest rates to be unchanged again in December (only a 15% probability of a December rate hike as of 11/2/2023).  If the Federal Reserve is finished increasing interest rates this cycle, what does that mean for the stock market? Going back to 1929, there are no clear trends, the range of outcomes following the last hike is very wide historically. While various talking heads remain hyper-focused on short-term events such as this, it is more important than ever that investors maintain their focus on long-term fundamentals.  

    What’s on Deck for November?

    • The autoworkers strike appears to be nearing resolution, while a potential government shutdown remains a possibility ahead of the November 17th deadline.
    • Corporate earnings season is nearly two-thirds complete, with companies reporting earnings ahead of estimates on average, and clocking positive growth this quarter. Investors will focus on forward guidance from companies as the season wraps-up.
    • The next Federal Reserve meeting is not until December 13th, so in the interim investors will continue to look for communications and sign-posts for confirmation the Federal Reserve is done increasing interest rates. The Federal Reserve did confirm their on-going effort to reverse their quantitative easing (QE) program, which is expected to keep interest rates elevated.

    Download the October 2023 Market Recap below:

    Market-Recap-Oct-2023Download
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Building a Secure Retirement: The Confluence 401(k) Service Structure  

    Whether you are a business owner offering a retirement plan to your employees or are an employee participating in a company sponsored retirement plan, managing the benefit & saving for retirement both can feel like an isolating process. Too often we see a lack of guidance or knowledge from financial advisors to be able to serve as a resource to the company or its employees.  

    Confluence understands these challenges with a dedicated team of financial advisors collaborating with employee retirement plans. We have built a comprehensive 401(k) service structure – Confluence Standard of Care, designed to offer peace of mind to the employer, while supporting employees to make informed decisions to reach their financial & retirement goals. 

    Our 401(k) Standard of Care service structure centers on four key pillars: 

    1. Personalized Employer Review Meetings:  “One size fits all” does not work when it comes to 401(k) plans. Through regularly scheduled meetings, we collaborate with employers to monitor the employer plan to make sure it continues to fit the company’s needs and goals.  

    During these meetings we will discuss the following topics: 

    • Plan investment analysis: considering the quantitative and qualitative results to ensure we have skillful managers in place. 
    • Courageous plan design: striving to increase an employer’s benefits return on investment while striving to enhance participant retirement outcomes.  
    • Fee benchmarking: every 3 years we lead an RFP driven process to ensure apple-to-apple comparisons and to help maximize a plan’s negotiating leverage. 
    • Fiduciary guidance: to support the employer and mitigate potential liabilities. 

    2. Employee engagement:  Our education team uses highly customized plan participant content structured to help optimize outcomes and increase financial wellness. We deliver multiple types of meetings throughout the year. These meetings run the spectrum from group education to 1on1 individual consultations, and life stage education designed to meet the employee at their individual career stage.  

    3. Regular investment monitoring & investment analysis:  As a member of the Retirement Plan Advisor Group (RPAG), we have access to their proprietary fund ranking system that aims to enhance outcomes, manage risks, and reduce fiduciary exposure. Employers receive quarterly plan “report cards” detailing investments scores.  In addition to the fund scores, Confluence has an internal Investment Advisor Committee that provides guidance on selected investment managers and incorporates a qualitative layer of oversight to the fund analysis programs used.  

    4. Ongoing communication & support: In addition to the processes outlined above, we deliver a variety of additional touchpoints designed to keep employers and participants informed and engaged. This includes informative webinars, quarterly newsletters, and campaigns to address specific plan demographics or concerns.

    By utilizing these services, employers can have the confidence in knowing their 401(k) is managed effectively while employees have the opportunity to understand their benefits options.  

    Our team is here to guide you every step of the way. Should you have any questions or require further information on how our service delivery model can benefit your organization, please do not hesitate to contact us or listen to our podcasts today! 

    Confluence Wealth Services, Inc. d/b/a Confluence Financial Partners is a SEC-registered investment adviser. Confluence Financial Partners only transacts business in states where it is properly registered or notice filed or excluded or exempted from registration requirements. The security of electronic mail sent through the Internet is not guaranteed. All email sent to or from this address will be received or otherwise recorded by the Confluence Financial Partners corporate email system and is subject to archival, monitoring and/or review, by and/or disclosure to, someone other than the recipient. Confluence Financial Partners recommends you do not send confidential information to us via electronic mail, including social security numbers, account numbers, and personal identification numbers, unless properly encrypted. A copy of our current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request or by visiting the following link:https://live-confluencefp.pantheonsite.io/form-adv-2a/

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    Brian Stout

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  • Stock Market Recap: November 2023

    Month in Review

    • Stocks rose sharply in November, breaking a three-month losing streak. Gains were broad based across major markets.
    • Bond markets also broke a five-month losing streak, posting strong results as short- and long-term interest rates fell significantly during November.
    • Multiple data points illustrated that inflation is in continued decline, raising investor confidence that the Federal Reserve is done hiking and turning its focus to potential rate cuts in 2024. 

    A November to Remember!

    November was a month to remember for investors: The S&P 500 posted its strongest November since 1980 (rising roughly 9%) and the Barclays Aggregate Bond Index had its best month since May 1985 (rising roughly 4.5%).

    What were the catalysts for such a sharp reversal?

    Investor sentiment had become overly negative – a three-month losing streak for stocks and a 5-month losing streak for bonds. This set-up was followed by unexpected positive developments on the fight against inflation. Multiple readings during November showed inflation rising by less than expectations. Federal Reserve officials also affirmed progress towards normalizing inflation, the decline can be seen in the exhibit below. The positive developments on inflation drove interest rates lower, sending stock and bond prices higher, as investors now shift their attention away from rate hikes to rate cuts.  

    Source: BLS, FactSet, J.P. Morgan Asset Management. CPI used is CPI-U and values shown are % change vs. one year ago. Core CPI is defined as CPI excluding food and energy prices. The Personal Consumption Expenditure (PCE) deflator employs an evolving chain-weighted basket of consumer expenditures instead of the fixed-weight basket used in CPI calculations. Guide to the Markets – U.S. Data are as of November 30, 2023.

    What’s on Deck for December?

    • Earnings season is wrapped up and government shutdown issues have been pushed out until January 19th and February 2nd of 2024.
    • The Federal Reserve meeting on December 13th will be watched closely for comments on the timing and magnitude of the first rate cut and the on-going shrinking of the Fed’s balance sheet. At time of writing, futures markets are implying a 50% chance of a 25bps rate cut during the March 20th, 2024 meeting.
    • As we enter 2024, the US Presidential election will once again be a focus. Despite a significant amount of noise, it is important to remember that the S&P 500 has only had negative returns in election years two of the last 20 election years (2000, 2008).

    Download the November 2023 Market Recap below:

    Nov-2023-Market-RecapDownload
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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