As we progress through 2024, it's essential to look back at the eventful year that was 2023 in the U.S. financial markets and anticipate what lies ahead. Last year was marked by resilience and unexpected strength in U.S. Equities, with significant recoveries and gains across major indexes despite challenges. The S&P 500, Nasdaq 100, and Dow Jones Industrial Average all witnessed impressive growth, highlighting the markets' ability to navigate through uncertainties.  One notable aspect as we move into 2024 is the substantial amount of uninvested cash, around $6 trillion, sitting on the sidelines. This reserve has the potential to provide considerable support to the equity markets if it begins to flow into stocks. Additionally, other asset classes like bonds and gold have shown resilience, with bonds recovering towards the end of the year and gold maintaining its value even as interest rates rose. The outlook for 2024 remains cautiously optimistic, with attention on consumer behavior, inflation trends, and the Federal Reserve's rate decisions. Despite rising consumer debt, retail sales and consumer confidence have been strong, suggesting continued resilience. However, with the Federal Reserve's stance and the upcoming Bitcoin "halving" event, there's a mix of anticipation and uncertainty. As we navigate these evolving dynamics, it's crucial to stay informed and adapt our strategies accordingly. The lessons from the past, especially the resilience shown during challenging times, remind us of the importance of long-term investing and maintaining a balanced perspective. For any concerns or queries about how these developments might impact your portfolio, feel free to reach out for personalized advice and support.

As we step into the new year, staying informed about the latest changes in financial planning opportunities is crucial, especially when it comes to optimizing your savings and tax benefits. A significant update for 2024 concerns Flexible Spending Arrangements (FSAs), an essential tool for managing out-of-pocket healthcare and dependent care expenses efficiently. 2024 FSA Contribution Limits For the 2024 plan year, the contribution limit for FSAs has been increased, allowing employees to allocate up to $3,200 from their payroll deductions. This adjustment represents a $150 increase from the previous year, presenting an opportunity to save more while reducing taxable income. Contributions to an FSA are exempt from federal income tax, Social Security tax, and Medicare tax, which enhances your ability to save money on expenses you would incur anyway. Doubling Your Advantage The benefits don’t stop with individual contributions. If your spouse has access to an FSA through their employer, they too can contribute up to the new limit, potentially doubling the family’s tax-advantaged savings. Additionally, the carryover feature of FSAs has become even more flexible, with up to $640 of unused funds eligible for transfer to the next year, provided your plan accommodates this option.  This increase in contribution limits offers a strategic advantage for managing healthcare costs more effectively while taking advantage of tax breaks. By maximizing your FSA contributions, you can ensure that you’re not only preparing for unexpected medical expenses but also optimizing your financial strategy for the year ahead. Remember, planning and utilizing these tax-advantaged accounts can make a significant difference in your financial health and overall savings strategy.

Inflation is a silent storm that can erode the purchasing power of your savings over time, especially concerning your retirement nest egg. While global and national inflation trends capture headlines, the real impact hits closer to home for many. The gradual increase in prices affects how much your retirement dollars will be worth in the future, potentially derailing your plans for a comfortable retirement. Understanding Inflation’s Impact Research by LIMRA in 2016 highlighted a startling reality: a seemingly modest 1% inflation rate over twenty years could diminish your Social Security benefits by $34,406. If inflation were to rise to 3%, you could see over $117,000 evaporate from your expected benefits. Moreover, the Centers for Medicare and Medicaid Services pointed out that in 2018, healthcare expenditures outpaced general inflation, growing by 4.6% compared to the average inflation rate of 2.4%. This discrepancy signifies that essential expenses, such as healthcare, housing, travel, and family support, could climb at rates that outstrip general inflation, further stretching your retirement budget. Strategies to Mitigate Inflation Thankfully, there are strategies to counteract the effects of inflation on your retirement savings:  Downsize Your Living Space : Moving to a smaller home can significantly reduce your expenses related to property taxes, utilities, homeowners insurance, and maintenance. Diversify Your Investments : Incorporate assets in your portfolio that historically have hedged against inflation, such as Real Estate Investment Trusts (REITs) or stocks in the energy sector. Incorporate Bonds : Balancing your investment in stocks with bonds can provide a more conservative approach to safeguarding your nest egg against inflation’s unpredictable nature. Inflation may pose a challenge to maintaining the value of your retirement savings, but with proactive planning and strategic adjustments, you can navigate these waters and secure your dreams for the golden years. Remember, you’re not alone in this journey—reaching out for guidance can help you devise a robust plan to overcome the subtle yet significant impact of inflation.

2021 was a year of recovery and rebound. We expect that 2022, in contrast, will be a year of moderation -specifically in growth, inflation and returns. Our outlook prefers non-US equities, recovery should favor undervalued cyclical stocks over expensive growth stocks. Ultimately, the speed of tightening monetary policy will have a direct effect of market performance.  A year after Covid-19 changed the course of travel, socialization, and financial markets, 2021 witnessed a much quicker rebound than had been anticipated. The equity market upswing caught many by surprise as it was not anticipated. Inflation brought about by supply constraints and rising labor costs is expected to linger well into 2022, with little abatement as underlying inflationary pressures persist. Some economists are even expecting stagflation to become an issue in 2022 should economic growth stagger and inflationary pressures persist. Labor shortages triggered by the pandemic continue into 2022, leading to wage inflation and difficulty for employers filling over 10 million open positions nationwide. Workers are quitting their jobs at record levels, transitioning to higher paying positions and new occupations. Consensus is that the Federal Reserve is on course to start removing monetary stimulus from the economy and begin raising short term rates as soon as March, in order to curtail inflation. Federal Reserve governor Christopher Waller described current inflationary pressures as “alarmingly high”. Pandemic driven volatility due to uncertainty affected financial markets throughout 2021, distorting economic data and possibly misleading Federal Reserve members. Central banks from various countries worldwide have started to raise short term interest rates in their efforts to combat inflationary threats in both developed and emerging economies. Rates Start Their Steady Climb – Fixed Income Overview Various fixed income analysts expect a reversal in downward trending rates as the Fed prepares to start raising short term rates as early as the first quarter of 2022. The Fed is on track to shrink its balance sheet of mortgage and treasury bonds sooner rather than later. The expectation is that the Fed will continue reducing or selling off portions of its $8.76 trillion balance sheet over the next few months. Markets view this dynamic as a form of tightening monetary policy, signaling the deliberate attempt to stifle inflation by slowing economic expansion. The 10 year treasury bond yield rose in the final trading days of 2021 to 1.52%, up from 0.93% at the end of 2020. Corporate bond yields also rose for the year, yet not as significant as U.S. government bond yields. Equity Markets Surprised Many In 2021 – Global Equity Overview All sectors of the S&P 500 Index posted gains in 2021, with the energy sector leading, following a dismal outcome in 2020. Real estate, technology and financial sectors were also leading sectors in 2021. Domestic equity markets were resilient to the challenges brought about by the pandemic, faring better than developed international and emerging equity markets in 2021. Massive fiscal and monetary stimulus aided U.S. based companies amid supply constraints and labor shortages. U.S. companies continue to absorb higher production costs and pass them along to consumers in the form of higher prices while maintaining favorable profit margins. Such a scenario bodes well for stocks of companies that exhibit these characteristics. Record Mortgage Issuance Expected To Continue…For Now – Housing Market Overview A robust housing market led to a record number of mortgages issued in 2020, with over $4 trillion in mortgage loans issued as reported by the Mortgage Bankers Association. A rush to refinance and purchase is expected as rates start to rise in 2022. Continued low interest rates, work at home transitions, and rising wages all contributed to an ongoing demand for homes nationwide. Rising rates over the past two months have slowed the pace of refinances, yet purchases continue to materialize. For some homebuyers, rising home prices have put homeownership out of reach, even with low interest rates and higher wages. The Federal Reserve Bank of Atlanta found that mortgages have become less affordable relative to income the most since 2008. It revealed that Americans needed about 29% of their income to pay a mortgage payment on a median priced home in early 2021, rising to 33% in October 2021. IRS Introduces New Tax Brackets & Standard Deductions For 2022 – Tax Planning Heading into the new year, the recent higher than expected inflation numbers will also be affecting tax rates for everyone. The IRS has adjusted 2022 tax brackets to reflect the most recent inflation data. Ironically, the adjustment for higher inflation will amount to lower tax rates for many taxpayers. For those earning more in 2022 than in 2021, the applicable tax bracket may actually be lower than the prior tax year because of the inflation adjustment. How Inflation Might Ease – Consumer Behavior The pandemic pulled forward or accelerated an enormous amount of consumer spending that was pent up for months during lock downs and closures. As a result, demand for automobiles, homes, furniture, and appliances all skyrocketed, driving prices higher and evaporating inventories. Much of the pulled forward demand is expected to ease especially among consumers and businesses that modified their business models in order to work from home. As the transition for millions has begun to settle and become complete, additional transitions are expected to be limited. Elevated prices for essentials including food and gasoline will limit how much money consumers have for discretionary items such as movies, furniture, and automobiles. As discretionary income falls, so does consumer demand, alleviating inflationary pressures. Several economists are predicting a pullback in the inflation rate as consumers slow spending behaviors and overall demand eases. Sources: Federal Reserve, Census Bureau, CDC, Labor Dept., Treasury Dept., Bureau of Labor Statistic, Mortgage Bankers Association, Federal Reserve,IRS, taxpolicycneter.org, taxfoundation.org

The onset of the most recent Covid variant, known as Omicron, stands to stall a global economic resurgence which has been gradual and fragile. The World Health Organization (WHO) reported that the new variant may pose a greater reinfection risk and be more transmissible than previous variants leading to reimposed travel restrictions and restricted trade.  Some economists believe that excessive stimulus efforts to offset the pandemic slowdown may have led to inflationary pressures as enormous amounts of federal debt were issued and consumers spent stimulus funds in a short period. Elevated food and energy prices may start to hinder consumer expenditures and dampen economic growth heading into 2022. Both food and energy account for a significant portion of household expenditures for millions of Americans, leaving less available for discretionary expenditures. The Federal Reserve faces a new dilemma, slowing inflation simultaneously while also trying to maintain gradual economic expansion. Comments by Fed Chair Jerome Powell validated that the Federal Reserve now recognizes inflation as not transitory but becoming longer term. It is expected that the Federal Reserve will continue to slow its pace of bond buying as a stimulus effort, resulting in a removal of liquidity from the financial markets. Such a strategy is expected to produce higher rates and increased market volatility. Global equity markets saw a pullback in late November as heightened virus fears drove uncertainty throughout the financial markets. Concern surrounding revised growth estimates drove rates lower as bond prices rose. The growing popularity of using cryptocurrency for transactions and as an investment is expected to trigger tax consequences for those venturing into the digital currency arena. The IRS announced plans to track and identify digital currency transactions in order to tax gains on transactions. Many are being caught off guard. The most recent Inflation data rose 6.2% year over year from October 2020 to October 2021, the largest annual increase since 1990. Supply constraints along with increased consumer demand for goods propelled overall prices higher throughout the economy. (Sources: Fed, WHO, Labor Dept., IRS) IRS Introduces New Tax Brackets & Standard Deductions For 2022 – Tax Planning Heading into the new year, the recent higher than expected inflation numbers will also be affecting tax rates for everyone. The IRS has adjusted 2022 tax brackets to reflect the most recent inflation data. Ironically, the adjustment for higher inflation will amount to lower tax rates for many taxpayers. For those earning more in 2022 than in 2021, the applicable tax bracket may actually be lower than the prior tax year because of the inflation adjustment. Standard deductions and estate tax exclusions have also risen for tax year 2022. Sources: IRS, taxpolicycenter.org, taxfoundation.org Rates In Flux As Omicron Creates Uncertainty – Fixed Income Overview The renomination of Fed Chair Jerome Powell for another four years is not expected to result in any changes to monetary policy objectives. With the emergence of the new Covid variant, the Fed now has the challenge of taming inflation while not stifling a sensitive economic recovery. Comments by the Fed Chair conveyed that the Fed will start raising rates once it has ceased buying treasury and mortgage bonds as a stimulus effort. It signaled that it may start that process before the third quarter of 2022. Tapering objectives by the Federal Reserve may be modified should the latest Covid variant prove to hinder economic recovery, yet the Fed is still on track to add another $420 billion to its already inflated $8 trillion balance sheet. Rates were in a state of flux at the end of November as short-term government bond yields rose simultaneously as longer term yields fell. Economists view this dynamic as a flattening yield curve representative of slowing economic growth. The yield curve flattened to levels not reached since the onset of the pandemic in 2020. Sources: Fed, U.S. Treasury Domestic Equities Diverge From International Equities – Global Markets Overview Global equity markets pulled back at month end as heightened virus fears drove uncertainty. Energy sector stocks saw a reversal from ongoing appreciation throughout the year, yet still stand as the top performing sector of the S&P 500 Index. Uncertainty in global growth tends to influence commodities and energy, in turn driving volatility higher. Domestic equities have been trending higher relative to international equities where certain regions are seeing negative year to date returns. Earnings for U.S. based companies continue to show expansion even with lingering supply and production issues. Some market analysts believe that inflation will abate over the next few months with a continuation of loose monetary policy, which is expected to bode well for equity markets. Sources: Bloomberg, S&P How Inflation Might Ease – Consumer Behavior The pandemic pulled forward or accelerated an enormous amount of consumer spending that was pent up for months during lock downs and closures. As a result, demand for automobiles, homes, furniture, and appliances all skyrocketed, driving prices higher and evaporating inventories. Much of the pulled forward demand is expected to ease especially among consumers and businesses that modified their business models in order to work from home. As the transition for millions has begun to settle and become complete, additional transitions are expected to be limited. Elevated prices for essentials including food and gasoline will limit how much money consumers have for discretionary items such as movies, furniture, and automobiles. As discretionary income falls, so does consumer demand, alleviating inflationary pressures. Several economists are predicting a pullback in the inflation rate as consumers slow spending behaviors and overall demand eases. The most recent inflation data revealed an annual inflation rate of 6.2% from October 2020 to October 2021, the steepest increase in 31 years. Economists and market analysts alike believe that inflation may be temporary for certain goods yet more lasting for others as consumers determine where to spend. (Sources: Bureau of Labor Statistics) Labor Force Participation Rate Still Below Prior To Pandemic – Labor Market Update Workers across all age groups are still not willing or able to work as they did before the pandemic. The participation rate is basically the percentage of the population that is either working or actively looking for work. That percentage has fallen to 61.8% as of November 2021, down from 63.3% in February 2020. The 1.5% difference may seem small yet still represents over 2.4 million workers that have essentially left the workforce. Those leaving the workforce include prime working age adults 25-54 years of age, as well as teenagers and 65 year olds. There are various reasons why workers leave the workforce including health, lack of skill sets, and retirement. With the onset of baby boomers retiring, succeeding generations will make up the majority of the workforce over the next few years. The pandemic brought about early retirement for many workers in their 60s and 70s, removing tens of thousands from the workforce and eventually will be filled by younger workers. (Source: U.S. Department of Labor) Year-End Tax Planning For Cryptocurrency Transactions – Tax Planning As millions of investors dabbled in cryptocurrency this past year, the IRS has heightened its surveillance of transactions in order to tax gains. The pending infrastructure bill in Washington, Build Back Better, contains an entire section on identifying and taxing gains on cryptocurrency transactions. The rapid and extensive emergence of cryptocurrency transactions has brought about uncertainty surrounding taxing transactions as an asset, similar to a stock, rather than a currency. Some cryptocurrency trading platforms also pay interest on lended digital currency positions, creating yet another tax liability on the interest earned. Since the federal government sees a tremendous tax revenue opportunity in taxing digital currency transactions, the IRS has already started to issue tax ramification guidelines applicable to such transactions. The U.S. government expects to raise about $28 billion over the next ten years by tracking and taxing transactions. Digital wallets, which hold cryptocurrencies, may be required to report holdings and transactions to the IRS, similar to traditional financial institutions. The IRS also plans to crack down on taxpayers not reporting gains from crypto transactions, as noted on the most recent IRS tax return forms. Some crypto trading platforms intend to start issuing 1099-Misc and 1099-K forms in order to comply with IRS reporting requirements. As consumers become more comfortable with making payments with digital currencies, each transaction may become a taxable event. The ability to store cryptocurrency in a digital wallet, then use it for a purchase, may trigger a tax consequence if the currency is sold at a gain in order to make the purchase. The IRS is expected to require platforms providing digital wallets to maintain the cost basis on all currency transactions. Should a 1099 form not be issued by the digital currency platform used, then the IRS is suggesting that taxpayers maintain a record of all purchases and sells in order to properly report any taxable gains or losses. (Source: IRS) Release of Oil Reserves Hasn’t Reduced Gas Prices Much If Any – Oil Sector Review The administration announced in November that it had authorized the release of 50 million barrels of oil from the strategic petroleum reserve (SPR) in order to help alleviate rising gasoline prices across the nation. Markets reacted to the release as non consequential, since the 50 million barrels of oil amount to roughly 5 days of U.S. oil production. Some industry advocates argued that additional production might be warranted in order to ease pricing pressures. OPEC, as well as U.S. based oil producers, are reluctant to ramp up production due to the threat of another sudden global slowdown similar to what occurred last March and April 2020. Oil prices fell below $20 per barrel and traded negative at times in April 2020 as demand for oil collapsed. A severe shortage of oil storage in the weeks following the demand collapse drove several drillers and producers out of business. Ironically, the energy sector, which is primarily made up of oil industry companies, is the leading performing sector of the S&P 500 Index so far this year. (Sources: U.S. Energy Information Administration)