MARKET WATCH
As I’m sitting here on New Year’s Eve, with seven hours until the crystal ball drops in Times Square, finishing up the Winter Newsletter, you might be tempted to say to me, “Hey John, get a life”. With the end of 2023 at hand, however, it is actually a pleasant task to sum up the performance of the markets this year, and to point out the positives and negatives we may encounter in 2024. As we began 2023, nobody was sure whether we had even seen the lows of the bear market, inflation was just beginning to trend downward and many, if not most, investors were anticipating a recession.
Yet, a year later, the worst fears were not realized, and the markets climbed the proverbial “wall of worry” propelling the Dow Jones Industrial Average (DJIA)* beyond its previous record of 36,799.65 set on January 4, 2022, to seven new highs in the closing days of 2023. The DJIA surpassed 37,000 for the first time in December and finished the year at 37,689.54 for a 13.70 percent gain.
The S&P 500* also turned in a stellar performance, although it has not topped its previous record of 4,796.56 set on January 3, 2022. The index flirted with the record in the waning days of December but closed out the year at 4,769.83 which was a 24.23 percent increase and just 0.56 percent from its all-time high. Breaking the old record certainly gives us something to look forward to in the New Year.
The NASDAQ* rallied significantly during the year with the continued emphasis on artificial intelligence (AI) and the additional role of semiconductors and computing power in our ever-increasing technological world. While still not surpassing the previous record of 16,057.44 set on November 11, 2021, the index increased a whopping 42.43 percent to 15,011.35 just seven percentage points from its all-time record. The advance of the Magnificent Seven tech stocks garnered much of the attention this year, but it is also important to note the Russell 2000*, which is the index that tracks the 2,000 smallest public companies in the US markets, gained 15.14 percent making this rally one that lifted all boats, so to speak.
Even before the dust settled on this year’s market performance, many professional investors, news commentators and other pundits were questioning whether it was too much too soon and whether we pulled forward gains from 2024. While this is certainly a good question to ask, it misses a more important point. Since almost no one saw this type of performance coming, it once again gives credence to the folly of market timing. As we’ve discussed before, rallies and downturns happen rapidly and most of us are just not nimble enough to time these moves consistently, never mind timing which of the moves are truly significant.
So, what ignited the Santa Claus rally of 2023? The tone of the Federal Open Market Committee (FOMC) meeting on November 1, 2023 was the catalyst. While Chairman Powell never said “Mission Accomplished” in regard to taming inflation, holding rates steady at 5.25-5.50 percent drove the 10-year Treasury yield to 3.88 percent as of the last trading day in December. Currently, this still leaves us with an inverted yield curve and markets anticipating six rate cuts in 2024 to get the yield curve to depict a positive slope. We have discussed the yield curve’s negative slope in relation to recession, so at this point, it is still a concern for next year.
As I mentioned earlier, inflation has not been vanquished yet, but the most recent Personal Consumption Expenditures Report (PCE) showed inflation dropped by 0.1 percent in November. The Consumer Price Index and Producer Price Index have also both edged lower. The BLS will release the jobs report for December on January 5, 2024, and the consensus is for 155,000 new jobs to be created.
The geopolitical situation has produced heated tensions. We’re witnessing two wars with very high stakes and tremendous destruction. The rebuilding when all is done will take years. Russia and Iran may have made strategic mistakes underestimating our resolve, but only time will tell. China is watching and to top it off, 2024 is an election year.
Icy waters from winters past; a harbinger of things to come?
IRS NOTES RULE CHANGE FOR RMDS FOR THOSE Born IN 1951
Required minimum distributions, or RMDs, are amounts that many retirement plan and IRA account owners must withdraw each year. RMDs are taxable income and may be subject to penalties if not timely taken. For individuals born before 1951, RMDs from IRAs and retirement plans should, for the most part, already have begun and are required for 2023.
For 2023, there is a new rule. The Secure 2.0 Act raised the age that account owners must begin taking RMDs. For 2023, the age at which account owners must start taking RMD’s goes up from age 72 to age 73, so individuals born in 1951 must receive their first RMD by April 1, 2025.
The RMD rules require individuals to take withdrawals from their IRAs (including SIMPLE IRAs and SEP IRAs) every year once they reach age 72 (73 if the account owner reaches age 72 in 2023 or later), even if they're still employed.
Owners of Roth IRAs are not required to take withdrawals during their lifetime. However, after the death of the account owner, beneficiaries of a Roth IRA are subject to the RMD rules.
The RMD rules also apply to employer-sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans and 457(b) plans. Participants in employer-sponsored retirement plans can delay taking their RMDs until they retire, unless they are a 5% owner of the business sponsoring the plan. For more information about RMDs or other tax questions you might have, contact me, or go to irs.gov.
DON’T LOSE INTEREST: MANAGING CASH IN YOUR BROKERAGE ACCOUNT
Most of us would not leave cash lying around our homes. However, many investors end up doing this with cash in their brokerage accounts. Uninvested cash is a potentially valuable part of your investment portfolio. So, it is advantageous to pay attention to it, especially when interest rates move up or down. You should know the facts about your uninvested cash, the different cash management programs available and the right questions to ask.
What Is a Cash Management Program?
When you open a brokerage account, a firm typically asks you to select a cash management program for uninvested cash in your account. You may have cash that’s not invested because you deposited money in your account, you received cash dividends or interest, or you sold one or more of your investments.
A cash management program ensures that your uninvested cash is available to you when you’re ready to invest it or use it for something else, like paying bills. These funds can accumulate slowly, so you might not initially notice. However, what happens to the cash in your account when you’re not using it?
Options for Managing Your Cash
Typical options for your uninvested cash include leaving it in your brokerage account, “sweeping” (automatically transferring) it to a bank deposit account as part of a bank sweep program or sweeping it to a money market mutual fund as part of a money market sweep program. Many full-service brokerage firms offer only a bank sweep program, which can pay far less interest than a money market mutual fund account. Bank sweep programs do provide the investor FDIC insurance up to the $250,000 limit per customer.
Uninvested cash left in your brokerage account is known as a “free credit balance”. Firms may or may not pay you interest on your free credit balance. In a sweep program, a firm sweeps your uninvested cash each day from your brokerage account into a deposit account at a bank or a money market mutual fund. Exploring other options often makes sense because interest rates can vary widely depending on the cash management program or firm. Interest rates for money market funds, bank sweep programs and free credit balances sometimes are nearly the same; other times, particularly in a higher interest rate environment, the difference between their interest rates can be significant.
Understanding Your Uninvested Cash
When evaluating what to do with your uninvested cash, consider the following:
- How much uninvested cash is in my brokerage account?
- What cash management program am I in?
- What other alternatives are available to me?
- Which alternative offers the highest interest rate?
- Is FDIC insurance important to me?
Thanks to FINRA for some of the information in this article. If you have any questions regarding your brokerage account or the interest rate on your free credit balance (cash) please don’t hesitate to call or email me for more information.might not initially notice. However, what happens to the cash in your account when you’re not using it?
Company Information
John H. Kaighn offers various products and services under the trade name of Jersey Benefits Advisors.
PO Box 1406
Ocean City, NJ 08270
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Osaic Wealth, Inc. Securities and Advisory Services are offered through Osaic Wealth, Inc. Member FINRA & SIPC.
Osaic Wealth, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth, Inc.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Osaic Wealth, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Insurance Services and Third Party Administration offered through Jersey Benefits Group, Inc., a licensed Insurance Agency in the State of New Jersey.
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (856) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
All opinions expressed in this newsletter are independent of Osaic Wealth, Inc. and are solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
