​The Guidance Wealth office will close early on Thursday, January 30th at 4:00pm.
  
 
The Markets
 
What moves financial markets? The short answer is: Lots of things!
 
Almost one hundred years ago, Benjamin Graham and David L. Dodd wrote, “the market is a voting machine, whereon countless individuals register choices which are the product partly of reason and partly of emotion.” Today, the same holds true. Stock prices are influenced by many factors. Here are three examples: 

1.  Market trends. Last year, companies with strong momentum characteristics—meaning their prices were trending higher—generally did well. “The main rationale behind momentum investing is that once a trend is well-established, it is likely to continue,” reported the Corporate Finance Institute. 
The idea may seem contrary to the primary rule of investing, sell high and buy low, but the approach is backed by academic research. It “captures the tendency for market trends to persist for a while, whether it’s because more investors are jumping in or are late to absorb new information,” reported Justina Lee of Bloomberg. As one researcher told Lee, “Momentum investing is great until it’s not.”
 
2.  Investor sentiment. Emotion plays a significant role in stock market volatility. For example, last week, we saw a relief rally. Asian stocks rose and the Standard & Poor’s (S&P) 500 Index hit a new high because the news was less bad than investors had expected. Isabelle Lee, Lu Wang, and Phil Serafino of Bloomberg explained: 
“Despite the protectionist threats of the campaign trail, Trump held off on imposing levies on key trading partners this week, and just last night delivered his most mollifying message yet to China by saying that he would rather not have to use tariffs against the world’s second-biggest economy. Cue a relief rally across markets.”
 
3.  Company fundamentals. Graham and Dodd recommended fundamental analysis to identify stocks with good value. Investors who rely on fundamental analysis study companies’ financial statements, and consider assets and liabilities, revenue and expenses, earnings and cash flow, and other factors. Then they do some math to evaluate the company’s value using various measures like the price-to-earnings ratio. In theory, a company with a low share price relative to its earnings is a good value. 
No one knows how markets will perform over the short term. That’s one reason it’s important to hold a diversified portfolio. Owning investments that perform differently in various market conditions helps manage investment risk and may smooth returns over time.
 
Last week, major U.S. stock indices rose. The S&P 500 moved higher over the week, the Dow Jones Industrial Average gained 2.2 percent, and the Nasdaq Composite rose 1.7 percent, reported Paul R. LaMonica of Barron’s. Yields on U.S. Treasuries were relatively steady.

​The Markets
 
As the markets turn.
 
Last week, investors breathed a sigh of relief when the latest price data showed core inflation, which excludes volatile food and energy prices, moved lower in December.
 
Investors has been worried because economists forecasted inflation would be stickier in December, reported Frank Lee of Morningstar. If that proved out, the Fed might have stopped lowering the federal funds rate, which would have had adverse implications for company performance and stock prices. So when core inflation dropped to 3.2 percent year over year, investors celebrated.
 
Some think the celebration might be premature.
 
Jacob Sonenshine of Barron’s reported, “Stocks jumped after this week’s inflation data. The problem is that there’s not a lot to love in the numbers. The reality is that inflation remains well above the Federal Reserve’s 2 [percent] goal. The average headline [Consumer Price Index] has been 2.7 [percent] in the past three months, above the 2.6 [percent] average for the three months that ended in September. So the trend of inflation, when considering a larger sample size of results, is inching higher, not lower…The result is that the Fed is unlikely to reduce interest rates aggressively. The federal-funds futures market now expects just one interest-rate cut this year…”
 
Inflation wasn’t the only reason investor optimism surged last week, though. Fourth quarter earnings season—the time when management lets investors know how the companies performed in the prior quarter—got off to a strong start. “Big Banks set a positive note earlier this week, while [a large semiconductor company] sparked further enthusiasm among chip stocks. Things will only heat up in the weeks ahead, as Wall Street sizes up results from the market's heaviest hitters,” reported Connor Smith of Barron’s.
 
We should all be prepared for markets to be volatile this year.
 
While last week delivered attractive gains overall, the week before stock and bond markets moved in the opposite direction. Jurrien Timmer of Fidelity explained why we may see significant volatility this year:
 
“While I continue to believe we are in a bull market—with rising earnings poised to pull the weight of the market still higher—this recent volatility could be a sign of things to come. Later stages of a bull market tend to be more volatile. And it doesn’t take as much to disrupt the market’s mojo when valuations like price-earnings (PE) ratios are high, as they have been. But moreover, I believe the interest-rate angst that’s been weighing on the market isn’t likely to go away anytime soon, and could be a recurring feature of the year ahead.”
 
Last week, major U.S. stock indices rose sharply, and yields on longer maturities of U.S. Treasuries fell.

THE COSTLIEST NATURAL DISASTERS IN U.S. HISTORY. The Los Angeles wildfires were still burning when this was written, and it’s not yet possible to understand the full economic impact of the event. Last week, AccuWeather “increased its preliminary estimate of the total damage and economic loss to between $250 billion and $275 billion,” reported Monica Danielle. A week earlier, the estimate had been $52 billion to $57 billion.
 
If the new forecast holds up, it puts the wildfires at or near the top of the list of costliest natural disasters in the United States. Not including the wildfires, six of the top 10 events have happened over the past decade. Here are the top 10, as listed in AARP.org using data from the National Oceanic and Atmospheric Administration (NOAA). (All dollar figures were adjusted for inflation.)

In 2024, there were 27 weather and climate events that inflicted damage of $1 billion or more. Since 1980, there have been 403 events of that magnitude, with a total price tag of more than $2.9 trillion, reported NOAA.                                                          
 
Weekly Focus – Think About It
“Young people, I want to beg of you always keep your eyes open to what Mother Nature has to teach you. By so doing you will learn many valuable things every day of your life.“
—George Washington Carver, African American botanist and Inventor
 
 
Investment Advisory services offered through Guidance Investment Advisors, LLC, doing business as Guidance Wealth, LLC, a registered investment adviser registered with the Securities and Exchange Commission. SEC Registration does not imply any level of skill or training.
 
* These views are those of Carson Coaching, and not the presenting Investment Adviser Representative or the Representative’s Registered Investment Adviser, and should not be construed as investment advice.
* This newsletter was prepared by Carson Coaching. Carson Coaching is not affiliated with the named registered investment adviser.
* Weekly Market Commentaries are sent as mass email communications by the designated email address [email protected]
* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.
* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.
* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.
* All indexes referenced are unmanaged. The volatility of indexes could be materially different from that of a client’s portfolio. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment. You cannot invest directly in an index.
* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.
* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
* Gold represents the 3:00 p.m. (London time) gold price as reported by the London Bullion Market Association and is expressed in U.S. Dollars per fine troy ounce. The source for gold data is Federal Reserve Bank of St. Louis (FRED), https://fred.stlouisfed.org/series/GOLDPMGBD228NLBM.
* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.
* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.
* The Dow Jones Industrial Average (DJIA), commonly known as “The Dow,” is an index representing 30 stock of companies maintained and reviewed by the editors of The Wall Street Journal.
* The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system.
* International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.
* The risk of loss in trading commodities and futures can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. The high degree of leverage is often obtainable in commodity trading and can work against you as well as for you. The use of leverage can lead to large losses as well as gains.
* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
* Past performance does not guarantee future results. Investing involves risk, including loss of principal.
* The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee it is accurate or complete.
* There is no guarantee a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
* Asset allocation does not ensure a profit or protect against a loss.
* Consult your financial professional before making any investment decision.
 
Sources:
https://www.bls.gov/news.release/pdf/cpi.pdf
https://www.morningstar.com/economy/december-cpi-forecasts-predict-stalled-progress-inflation
https://www.barrons.com/articles/stock-market-inflation-rally-5a458448?refsec=the-trader&mod=topics_the-trader (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-20-25_Barrons_Why%20the%20Stock%20Market%20is%20Getting%20Ahead%20of%20Itself_3.pdf)
https://www.barrons.com/livecoverage/stock-market-today-011725?mod=hp_LEDE_C_1 (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-20-25_Barrons_Dow%20S&P%20Mark%20Best%20Weeks%20Since%20Nov_4.pdf)
https://www.fidelity.com/learning-center/trading-investing/rocky-start
https://www.barrons.com/market-data?mod=BOL_TOPNAV (or go to https://resources.carsongroup.com/hubfs/WMC-Source/2025/01-20-25_Barrons_Data_6.pdf)
https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value_month=202501
https://www.accuweather.com/en/weather-news/accuweather-estimates-more-than-250-billion-in-damages-and-economic-loss-from-la-wildfires/1733821
https://www.accuweather.com/en/blogs-webinars/california-wildfires-52-57b-damage-estimate-accuweather-report/1731718
https://www.aarp.org/politics-society/history/info-2021/costliest-natural-disasters.html
https://www.ncei.noaa.gov/access/billions/
https://www.pbs.org/newshour/politics/notable-quotes-from-jimmy-carters-funeral
​

The Guidance Wealth office will be closed Monday, January 20th, in observance of Martin Luther King Jr. Day.  Our office will re-open at 9:00AM on Tuesday January 21st.
  
 
The Markets
 
Bond yields are rising—and they have investors’ attention.
 
Last year, the United States Federal Reserve (Fed) lowered the federal funds rate by one percent. (The federal funds rate is the interest rate the Fed charges banks. It influences other interest rates.) This shift in Fed policy made a lot of people happy.
 

• Companies, business owners, and consumers cheered because Fed rate cuts typically lower borrowing costs. As a result, rates on business loans, home equity loans, auto loans and credit cards tend to move lower.

 

• Stock investors were enthusiastic because lower borrowing costs can reduce companies’ expenses and increase profits, and that can lift stock prices higher. Since the stock market moves in anticipation of future events, rate cut expectations are already reflected in many companies’ stock prices.

 

• Prospective homebuyers were optimistic. Fixed mortgage rates are linked to the yield of the 10-year U.S. Treasury note, and they hoped it might also move lower.

 
Bondholders were more skeptical. Even as the Fed was cutting the federal funds rate, yields on longer maturities of U.S. government bonds were moving higher—not lower. One reason is that economic data—including last week’s strong jobs report—continue to confirm that economic growth and inflation are exceeding expectations. As a result, the Fed may be inclined toward fewer rate cuts in 2025.
 
“For stocks, higher bond yields imply no increase in price/earnings ratios and possibly some contraction from current levels,” reported Randall W. Forsyth of Barron’s. Changing expectations for Fed actions and company performance is likely to shift analysts’ outlook for stock market performance.
 
There is a second reason for the divergence in Fed actions and government bond yields, according to economist Mohamed El-Erian, a columnist for Bloomberg. He explained that key government bond yields in advanced economies “are widely regarded as the most accurate gauge of the economic outlook, including growth, inflation and central bank policies.” In his opinion, “Yield increases show that investors are closely watching whether advanced economies have the ability to deal with high debt and rising borrowing costs.” 
 
Last week, major U.S. stock indices moved lower, and yields on longer maturities of U.S. Treasuries continued to rise.

The Markets
 
Hello, 2025! 
 
As we head into a new year, it can be helpful to look back at the previous year—and 2024 was a doozy. Stocks in the United States delivered a double-double—posting double-digit gains for a second year in a row. That kind of performance is a relative rarity and has only occurred nine times over the last 96 years, according to Tony DeSpirito of BlackRock.
 
So, how well did U.S. stocks perform? Here are annual returns for major U.S. stock indexes over the past two years—plus the return for 2022 as a reminder that stocks don’t always move higher.

Throughout 2024, share price gains were supported by several factors, including:
 

• Enthusiasm for Artificial Intelligence (AI). Magnificent Seven stocks had another big year. “The group…averaged a gain of 65 [percent] this year, compared with an average of 111 [percent] last year, according to Dow Jones Market Data,” reported Emily Dattilo of Barron’s in December 2024. “The Mag 7 has made up 57 [percent] of the S&P 500’s…market [capitalization] gain this year versus 65 [percent] last year.”

 

• Strong corporate revenue and earnings growth. Many publicly traded companies have been making more money and growing profits. For the full year 2024, analysts expect companies in the S&P 500 to report year over year earnings growth of 9.4 percent and revenue growth of 5.1 percent. In 2025, expectations are even higher. Earnings growth was forecast to be 14.8 percent and revenue growth 5.8 percent for the year, reported John Butters of FactSet.

 

• A solid U.S. economy. “Over the last few years, the U.S. economy has consistently defied expectations for a slowdown, and 2024 was no different. Despite uncertainty around a presidential election, elevated interest rates and a cooling labor market, economic growth remained solid this year,” reported Augusta Saraiva of Bloomberg.

 

• Steady consumer spending. A key driver for the economy was robust consumer spending. “Even as hiring slowed, wage growth continued to outpace inflation and household wealth reached new records, supporting an ongoing expansion in household spending,” wrote Saraiva.

 

• Anticipation of Federal Reserve rate cuts. For much of the year, investors eagerly anticipated Federal Reserve (Fed) rates. In general, when the Fed lowers the federal funds rate, borrowing becomes less expensive which can boost corporate earnings and share prices, explained Mary Hall of Investopedia.

 
These factors helped U.S. stocks repeatedly set new record highs during the final quarter of the year. However, the stock rally stalled in December after the Fed expressed concerns about inflation and modified its forecast for 2025 rate cuts “amid slower progress on inflation and an uncertain policy outlook,” reported Sarah Hansen and Bella Albrecht of Morningstar.
 
In the bond market, many sectors delivered positive returns over the full year 2024. However, quite a few gave back some gains in the last months of the year. “Bond markets saw a major selloff in the fourth quarter, sparked by the outcome of the U.S. presidential election and the potential for stronger economic growth, inflationary policies, and more deficit spending in the years ahead,” reported Hansen and Albrecht. The yield on the benchmark 10-year U.S. Treasury note started the year at 3.95 percent and finished the year at 4.58 percent.
 
Last week, which was shorter than usual due to the New Year’s holiday, major U.S. stock indices finished lower. The yield curve continued to steepen as yields on shorter maturities of U.S. Treasuries fell, while yields on longer maturities rose.