“We’re Going Down!!!??? Not if we keep driving forward!”
… Santa Claus, a Sealed Bag of Chips, and a Drive to the Mountains.
Happy New Year! It’s 7am on January 1st, 2025 and I am sitting in my living room with my second cup of coffee next to a warm fire. I love this time of day! During regular weekdays, I start a little earlier (around 5:30am) with my quiet time... reviewing the previous day’s happenings, and planning my day. I also love this time of year! I have decided to forego the traditional New Year’s resolution (which, if I’m honest, I will probably not completely follow through with anyway) and use this New Year’s Day to reflect on the previous year and plan my year ahead.
2024 was full of transitions and milestones for my business and my family. As I expressed in my message at Thanksgiving, I am deeply appreciative and humbled for the unwavering trust and support I have received from my friends, family, and clients throughout the year.
The equity markets experienced robust performance once again, with the S&P 500 index achieving the second consecutive year of positive returns exceeding 20%. This remarkable feat was primarily driven by the exceptional performance of the renowned Magnificent Seven companies, which capitalized on the growing optimism surrounding the transformative potential of Artificial Intelligence (AI). The substantial increase in the valuations of these seven companies has demonstrated an unprecedented trajectory, indicating prospects for continued growth.
It was not long ago that the investment world marveled at the first trillion dollar U.S. company (AAPL in 2019). Now, a mere five years after the TWELVE figure barrier was broken by a U.S. company, we celebrate EIGHT trillion-plus dollar companies worldwide ( https://startuptalky.com/trillion-dollar-companies/ ) and we now anticipate the first FOUR trillion dollar company on the horizon! The euphoria of the last twelve months has been such that the Santa Claus Rally of 2024 was almost a foregone conclusion to some. The Santa Claus Rally is defined by Investopedia.com as “the sustained increases found in the stock market during the last five trading days of December through the first two trading days of January.” Alas, it is looking more like this rally we anticipated may be skipping us this year. Does this mean that the bull market is over? Most research I have read recently would assert that it is not! LPL Financial’s 2025 Outlook suggests that the bull market, now in its third year, is expected to continue its run…. But not without its volatilities. According to Nasdaq.com, “What’s important to know is that pullbacks and corrections are common. Every bull market has them. In fact, stocks usually pull back about -5% roughly 3-4 times per year. (A pullback is defined as a decline between -5% and -9.99%.) I refer to this phenomenon as:
‘The Sealed Bag of Chips’
My family and I have been blessed to call Flagstaff, AZ our home for over 23 years.Those not familiar with the topography of Arizona would be surprised to hear that Flagstaff is at 7,000 feet above sea level, with Humphreys Peak topping out at 12,633 feet! A bag of chips, sealed at much lower elevations, will expand and even burst open if not sealed adequately when transported up to Flagstaff. Allow me a little latitude to illustrate: To prevent the need for ‘aisle 3 cleanup’, bags must be securely sealed, transported in climate-controlled vehicles, allowed to acclimate during the journey, or, in extreme cases, partially ventilated to continue onward.The changes in elevation are akin to the market values rising. At some points during its ascent, momentum has to pause - or even pull back - in order to acclimatize to allow for further increases. In the investing realm, steady and gradual climbs with occasional pauses are ideal. However, this isn’t always the case. A longer time horizon allows us to ride out the shifts in momentum whilst not derailing our objectives.
‘A Drive to the Mountains’
One winter, when our son Justin was no more than 3 years old, our family took a day trip to Phoenix for some warmer weather. On our way back home, about half way into our drive, Justin asked: “Daddy, where are we going?”. Without hesitation, I answered: “We’re driving back up to Flagstaff”. At that very moment, we happened to be coasting downhill toward the Verde Valley before resuming the incline up the mountain. Dejectedly, he retorted:“WE’RE NOT GOING UP, WE’RE GOING DOWN!!!” I had to explain to Justin that, often, on route to our destinations, the road may not point directly toward the objective at any given time. With a reliable vehicle and the resolve to drive onward, we will eventually get there. In my over twenty years as a Financial Consultant, I have told Justin’s story countless times. Sometimes, our emotions compel us to ‘get off the vehicle’ when we sense that we are ‘going downhill’. Staying the course is what gets us to our planned destination.
As we embark on navigating through 2025, I look forward to our discussions on the economy, the markets and each of your unique circumstances in order to align risk tolerances, objectives and time horizons.