Q3 2025 Investment Commentary

Contributed by: Center Investment Department

The third quarter of 2025 was one for the record books. The S&P 500 hit new all-time highs 23 times during the quarter. That is the most new highs in a single quarter since 1998! Bonds and small company stocks did not want to be left behind. The Russell 2000 set its own first record high since 2021, and the Bloomberg Aggregate Bond index moved higher for the 3rd straight quarter. Developed international and emerging markets also continued their strong start to the year. For more details, check out our blog. This means that this year has been great for diversified portfolios, which have taken less risk than the S&P 500 but logged nearly as high returns for a 60% Stock/40% Bond portfolio (40% Bloomberg Aggregate Bond index, 40% S&P 500, and 20% MSCI EAFE International index).

Muted Inflation and Interest Rate Cut

While inflation is tempered for now (even though it lingers above the 2% Fed target), we will likely see it rise in the coming months. Tariffs will cause upward pressure, but low energy prices, declines in shelter inflation, and global economic sluggishness should mitigate the rise.

The Federal Reserve (The Fed) began cutting interest rates again, citing a sluggish labor market.  The first cut of .25% occurred in September and is likely to be followed by 1 or 2 more .25% cuts this year. The Fed will continue to let data drive its decision-making here. The only issue with this is that some data points may be very delayed due to the government shutdown. Lower rates will mean lower money market interest rates, but should also lead to a welcome reduction in mortgage interest rates. 

Tariffs

Tariff revenue is starting to ramp up. Both August and September reports indicate that monthly revenue was over $31 billion each month. Our weighted average tariff revenue in the U.S. is sitting just over 15% compared to just 2.5% in February of this year. As an example, if a 20% average tariff rate were in place for the next 12 months, the U.S. Treasury could collect over $600 billion, which exceeds taxes received from corporations! It remains to be seen how companies will manage this, whether they absorb the hit to their bottom line or pass it along to consumers. Given enough time, companies will also find strategies to mitigate, such as onshoring production or shifting production to countries with lower tariff rates, to stay competitive.

While tariffs were ruled unlawful by lower courts, this case is now in the Supreme Court’s hands, and it could take several months before a final ruling. So they are here to stay for the time being.

Government Shutdown

As of October 1st, the U.S. government has officially entered a shutdown—its first in nearly seven years since the record-breaking 35-day standoff in 2018. The impasse stems from Congress’s failure to pass a budget, driven by partisan disagreements over healthcare funding and proposed federal spending cuts. This has led to disruptions across key agencies, such as the Bureau of Labor Statistics, which has delayed vital economic data and raised concerns about the Federal Reserve’s ability to make informed monetary policy decisions. While this shutdown carries unique weight due to the administration’s push for permanent layoffs and structural changes, investors are reminded that volatility often presents opportunity. Shutdowns are typically brief, averaging just nine days and usually create openings for disciplined investors to reassess and rebalance.

As illustrated in the chart below, the S&P 500 has consistently trended upward in the months following past shutdowns. Despite initial turbulence, markets have shown remarkable resilience, frequently rebounding once political uncertainty fades. 12-month gains following the 20 shutdowns over the past 50 years have averaged 13%, with positive performance 85% of the time! Shutdowns may feel unsettling in the moment, but history offers a reassuring perspective: portfolios anchored in strong fundamentals tend to weather political disruptions better than reactive strategies. Staying diversified and focused on long-term goals remains the most effective approach. The chart serves as a powerful visual reminder that staying the course has historically paid off, even when headlines suggest otherwise.

Investing at All-Time Highs

We are navigating this current stock market with two competing narratives. One screams, “sell!” as valuations continue to rise to historic levels despite a weakening labor market, increased tariffs, and uncertain global trade. The other screams, “buy!” as consumers remain strong, the Fed begins cutting rates, companies continue to grow earnings, and the excitement around productivity gains from A.I. continues to accelerate. Whatever your opinion on the stock market, the fact is that the S&P 500 continued to make new all-time highs this quarter – which is NOT an indicator that stocks need to fall. On the contrary, all-time highs tend to be followed by…more all-time highs. With that being said, it is understandable to be concerned or have a cautious outlook on equity markets going forward. When times feel extra uncertain, we lean on our process, historical precedent, diversification, emergency cash reserves, and strong financial planning to provide comfort and give us the conviction we need to stick to the plan.

Gold’s Strong Performance

The remarkable run-up in gold prices this year also speaks to the themes of uncertainty and opportunity in today’s investment landscape. By the end of this quarter, gold had risen above $3,800 per ounce, marking a staggering 47% gain year-to-date and setting repeated record highs amid rate cuts, rising deficits, geopolitical tensions, and government shutdowns. Will it reach a historic new level and surpass $4,000 this year? Maybe…that is only another ~5% away. Gold is a volatile investment that typically moves in bursts, and we are currently witnessing one impressive surge. Like any investment, it comes with serious risk, though. Check out the chart below to see some of gold’s historic crashes.

It has had multiple periods where it was cut in half over YEARS. It can have beneficial attributes in an investment portfolio due to its uncorrelated nature, but no investment is perfect, so consider the risks before allocating or chasing performance. Also, keep in mind the long-term performance of gold vs. stocks and bonds.

As we enter the final stretch of 2025, your financial plan is prepared for what the markets may throw our way. Six months ago, on April 2nd, Liberation Day, the tariff plan was rolled out. This caused a sharp correction in markets, but almost as sharp a recovery. If you blinked, you probably missed it. It is an important reminder not to make knee-jerk reactions with your portfolio during these times of volatility, as you could quickly be left on the sidelines waiting for your re-entry point, especially when markets soar to new highs, as they have this year. If you have any questions, we are always here for you. Please don’t hesitate to reach out to us!

Any opinions are those of Angela Palacios, CFP®, AIF®, Nick Boguth, CFA®, CFP®, and Mallory Hunt and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Investing in gold carries special risks, including wide price fluctuations, a limited market, concentrated sources in potentially unstable countries, and an unregulated market.

Q3 2025: A Quarter of Records & Resilience in the Markets

Contributed by: Mallory Hunt

The third quarter of 2025 will be remembered as a historic chapter in the ongoing bull market, delivering a standout performance and offering a welcome boost to investor confidence and portfolio growth. Despite ongoing economic headwinds and global uncertainty, investors witnessed a powerful rally. Markets surged to record highs, driven by strong corporate earnings, a strategic rate cut from the Federal Reserve, and the continued dominance of AI-powered growth stocks. This wasn’t just a strong quarter; it was pivotal, signaling a potential turning point in the post-pandemic economic cycle and offering fresh momentum heading into the final stretch of the year. Let’s take a look at some of those record-breaking numbers:

• The S&P 500 closed above $6600 for the first time, logging 23 record highs, matching the most in any quarter since Q1 1998. Final numbers had the index up 7.79% for the quarter and over 13.72% year-to-date.

• Nasdaq Composite soared 11.24%, driven by continued momentum in AI-related stocks.

• Dow Jones Industrial Average rose 5.22%, marking its 8th record high of the year.

• Russell 2000 small-cap index jumped 12.02%, outperforming large caps and reaching its first record high since 2021.

This remarkable market performance wasn’t just pure luck; several key drivers came together to propel markets to new heights and can be credited as the fuel to this rally:

• AI Momentum: The “Magnificent 7” tech stocks (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia & Tesla) continued to dominate, with artificial intelligence innovation driving investor enthusiasm and capital inflows

• Federal Reserve Rate Cut: The Fed delivered the first rate cut of the year in September, lowering the federal funds rate by 25 basis points and signaling a shift toward a more accommodative policy. This helped ease market concerns and boost investor sentiment.

• Strong Corporate Earnings: Over 80% of S&P 500 companies exceeded earnings expectations in the second quarter of 2025, which drove investor sentiment in the third quarter and reinforced the strength of U.S. corporations.

• Global Market Participation: International markets also rallied, with emerging markets outperforming developed ones. Easing trade tensions and supportive policy measures contributed to the global upswing.

As far as sector standouts, leading the quarter’s rally was technology, powered by AI-driven momentum, strong earnings, and expanding valuations. Healthcare demonstrated resilience amid evolving policy landscapes and ongoing innovation. Small-cap stocks outperformed their large-cap counterparts, signaling broader market strength. Growth stocks continued to outpace value stocks, particularly within consumer discretionary and communication services. Meanwhile, safe-haven assets like gold and silver also surged, with gold climbing over 15% and silver approaching its 1980 highs, as investors sought protection against inflation.

While the quarter was overwhelmingly positive, several cautionary factors remain on the radar. Inflation remains above target. Equity valuations have reached elevated levels, prompting concerns that limited earnings growth could cap future gains. Geopolitical and trade tensions persist, including ongoing tariff disputes and global instability, which pose risks to supply chains and investor confidence. Additionally, the current government shutdown will likely delay critical economic data releases, potentially complicating the Federal Reserve’s policy decisions and adding uncertainty to the market outlook.

As we transition into the fourth quarter—a period that historically favors market strength—investors have reason to remain optimistic, while staying mindful of elevated valuation levels and macroeconomic signals. While past performance is never indicative of future results, the momentum from Q3 sets a compelling stage for what could be a potentially dynamic finish to the year. Staying invested and diversified remains key, as disciplined strategies continue to benefit from long-term market trends.

Mallory Hunt is a Portfolio Administrator at Center for Financial Planning, Inc.® She holds her Series 7, 63 and 65 Securities Licenses along with her Life, Accident & Health and Variable Annuities licenses.

The information contained in this blog does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Mallory Hunt and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor's situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Q2 Investment Commentary - Diversification Delivers Results

Contributed by: Angela Palacios, CFP®, AIF®

Key Highlights This Quarter:

• Diversification Outperforms
  A balanced portfolio returned +6.69%, outpacing the S&P 500’s +6.2%, while also reducing risk amid market swings.

• Market Volatility Persists
  The S&P 500 hit new highs, dropped into correction, and rebounded—all within the quarter—highlighting the value of a balanced approach.

• Tariff Tensions Resurface
  Trade negotiations remain uncertain as the U.S. approaches key deadlines. Tariff revenue is rising, largely funded by U.S. consumers and businesses.

• “Sell America” Fears Overblown
  Despite April’s rare simultaneous drop in stocks, bonds, and the dollar, foreign demand for U.S. assets remains strong. Bond yields fell, and U.S. equities hit new highs by quarter-end.

• Credit Rating Downgrade
  Moody’s downgraded the U.S. from AAA to AA1—still strong, but a signal worth monitoring.

• Consumer Resilience Holds
  TSA screenings, hotel occupancy, and restaurant reservations remain robust, signaling continued consumer strength (Source: Raymond James Up and Adam).

• Geopolitical Risks Rise
  Escalation in the Middle East caused short-term volatility and a modest rise in gold and oil prices. Historically, such events have limited long-term market impact.

• GDP Impacted by Imports
  A surge in imports ahead of tariffs dragged Q1 GDP, but underlying consumer demand and inventory growth remain solid.

The first six months of 2025 have been anything but calm—changing government leadership, trade negotiations, global conflicts, and volatile markets have kept headlines spinning. Even the Federal Reserve, after pausing rate hikes, cited 'uncertainty' caused by tariffs. We have watched the S&P 500 hit new all-time highs, fall into correction territory, and then back to new all-time highs in a very short period. A diversified portfolio has provided some welcome risk reduction this year while also outpacing the returns of the S&P 500.

Tariffs

It is likely that we will continue to see volatility as the trade war escalates again, given the approaching expiration of the 90-day negotiation deadlines with various countries. There were numerous headlines surrounding the on-again, off-again tariff situation throughout the quarter. In the second half of the quarter, the legality of certain tariffs has been called into question, but there has been little traction on this issue, and it is a lengthy process to progress through the court system. The Big, Beautiful Bill is counting on about $2.5 Trillion in tariff revenue to offset costs. It is too soon to say if this will materialize, but for now, the worst-case Tariff scenarios seem to be off the table, and with that, consumer sentiment has improved. The very early data below show that in April and May, the government is earning more in tariff revenue than it did the year before. Where is that coming from? Mostly American consumers and businesses.

Best offers from trading partners were due on June 4th. As information becomes available regarding the parameters of certain deals, it is essential to remember that it will be unrealistic to negotiate a deal with every trading partner by July 8th (the 90-day deadline). However, don't get caught up in noise from small trading partners. We should focus most closely on our top 10 trading partners, as they account for 80% of our trade volume. The EU, Mexico, China, and Canada are our top trading partners, collectively accounting for 60% of our trade.

3 possible outcomes after July 9th (most likely a mixture of all 3 as the month continues): 

1. It could be a nonevent for certain countries with additional deadline extensions ;

2. It might be a time of celebration of long-promised trade deals;

3. Or it could be a day for other countries when the hammer comes down, and tariffs are simply dictated again.

Sell America!?

Among the April drawdown post-liberation day, we saw this "sell America" theme emerge. The worry was that investors had collectively lost faith in all things America, which caused a rare occurrence where stocks, bonds, and the U.S. dollar all fell at the same time. While rare, this does not necessarily need to be a red flag. April was a bit of an anomaly compared to a "normal" market environment because President Trump shook up all global trade.

To add to the headlines, Moody's decided in May to move the U.S.A. down one notch on their credit rating system – from AAA to AA1. Still great, but not perfect. Also, it's a worrisome headline.

We are not going to ignore the headlines; they COULD be the start of larger themes, but maybe more importantly, we will track the data to see where money is ACTUALLY going. Despite the headlines, Bloomberg reported that foreign banks were still holding more U.S. treasuries than ever. Despite the "sell America" headline, it seems that everyone is still "buying America." Another confirmation of this fact is that bond yields are lower than they were when we started the year. If investors were selling U.S. bonds in mass, you would likely see higher yields. And this is without even mentioning U.S. stocks (while underperforming internationally) were hitting all-time highs at the end of June.

Here is how our new rating stacks up against the rest of the world’s largest economies.

GDP

The decline was driven by a significant surge in imports, which is a subtraction in the calculation of GDP. Imports increased at an annualized rate of 41.3% in the first quarter as companies packed in as many orders as they could ahead of anticipated tariffs from the Trump administration. The surge in imports was good for a -5% contribution to the GDP calculation in the first quarter. Final sales of goods to domestic purchasers, another sign of demand in the economy, grew at a 3% annualized rate in the first quarter, above the 2.9% seen in the fourth quarter of 2024. We saw a huge build in inventories. However, when you examine underlying demand and consumer spending growth, it was still relatively solid.

There are several interesting real-time economic indicators that help determine the health of the consumer, who accounts for 70% of our economy. TSA screenings, Hotel occupancy, and restaurant reservations are all still looking very strong throughout the quarter. People are still going out to travel and eat.

Geopolitical Events

The Middle East conflict between Iran and Israel escalated significantly in June when Israel targeted bombing Iran's nuclear capabilities and the U.S., followed by also striking their nuclear facilities later in June. As a result, we saw some initial volatility, and gold prices climbed modestly again. However, history tells us that events like these, although extremely concerning from a humanitarian perspective, often cause initial stock market volatility but have a minimal impact over the long term. Most of the time, the S&P 500 notches positive returns, with an average annual return of about 8.5% when fast-forwarded 12 months.

Oil prices also spike as Iran is responsible for supplying a portion of the world's oil. However, it is interesting to note that the U.S. has become far less dependent on importing oil. In fact, we are net EXPORTERS of oil. See the chart below:

As you enjoy these final beautiful summer months, don't hesitate to reach out to us with any questions you may have. We appreciate the trust you place with us; thank you!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Q1 2025 Investment Commentary: Diversification Results in Smoother Ride than Headlines Portray

Contributed by: Angela Palacios, CFP®, AIF®

Contributed by: Nicholas Boguth, CFA®, CFP®

The past few months have been a whirlwind—new leadership in Washington, escalating trade tensions, geopolitical conflicts, and market swings have dominated headlines. Even the Federal Reserve noted heightened 'uncertainty' after holding the Fed Funds Rate steady, and that might be an understatement.

The S&P 500 started out steady this year, gaining a few percent by mid-February and reaching a new all-time high! But the short-term whims of the stock market turned from that point as it fell sharply and briefly hit a 10% decline from its peak by mid-March (those famous "Magnificent 7" stocks got hit even harder, the notable one being TSLA that was down a whopping 53% from its high a few months prior). The S&P 500 ended at -4.5% this quarter.

While all that turmoil was occurring in the big U.S. stock names, international stocks were quietly having a fantastic quarter. The MSCI EAFE (a common stock index covering international stocks) was actually positive for the entire quarter, outperforming its U.S. counterpart by over 16% at times and ending the quarter at a positive +8%.

Bonds also did their job and provided the support we want to see during times of volatility, the Bloomberg U.S. Aggregate Bond Index added +3%.

If you were just watching the headlines, it may not have felt this way, but all of that adds up to a balanced portfolio* being essentially flat to start the year. U.S. stocks dragged down performance, while bonds and international stocks were additive. Our ultimate goal has always been to help you achieve your goals; therefore, we continue to focus on the risk reduction benefits of a diversified portfolio, and so far this year, the benefits of diversification have added up to a smoother ride.

*Morningstar's Moderate Allocation category average for the quarter was -0.3%.Source: Morningstar Direct.

Diversification

It is quarters like this that remind us why we invest in diversified portfolios and create a plan BEFORE there is market volatility.

Famed Nobel Laureate Harry Markowitz, whose investment principles still shape how portfolios are created today, said, "Diversification is the only free lunch in investing." We tend to agree, which is why we strongly believe in diversified portfolios. The only pushback I'd give is that it isn't "free"; it is actually very difficult for most investors to stay diversified. The hard part is that there is always a piece of your portfolio lagging, tempting you to second-guess it. Lately, that's been international stocks—but those who stayed the course just reaped the rewards of a quarter where international outperformed by more than 10%. Over the long haul, we believe diversification leads to favorable outcomes for investors, and we will continue to allocate accordingly.

Trade War Deja Vu

With all of the recent volatility directly induced by the trade war escalation, we have to look backward before deciding what, if anything, to do with portfolios. The most recent time period we have to look at from history is President Trump's first term when he tackled international trade, starting in late 2017 and continuing through into 2019. You can see that as various headlines escalated throughout the year, the market (the gray area) reacted mildly at first and even continued to climb higher through the summer as the war escalated. It is also important to remember that the volatility late in 2018 was not simply induced by the trade war. At the same time, the Federal Reserve (The Fed) took a tighter policy stance, increasing interest rates and giving forward guidance that it would continue to shrink its balance sheet.

The difference this time is we have lived through this before, so markets are reacting poorly and more quickly than they did before. Perhaps because they are remembering what happened in 2018 and the volatility we saw at the end of the year was still fresh in investors' minds. What is lacking in all commentary we read, though, is experts and investors forget we had a HAWKISH Fed that was raising interest rates then. Now, we have a Fed that is expected to cut rates later this year.

How We Are Trading It?

As we have warned previously, media headlines are often wrong or sensationalized. But this doesn't mean that we ignore them and what is happening. As an investment committee, we digest and step back to calmly make decisions when warranted. So, what have we been up to?

1. Taking profits in positions that have been big winners. This may look different depending on what stage of life you are in and your portfolio needs, but for all, regardless of stage, it's called rebalancing. Rebalancing isn't just a process, it can also be a very tactical tool. We have let our winners run for a long time; once they were overweight, we shifted from US Large cap to areas like bonds (big winners recently) and into areas that underperformed for years like international (also big winners recently). This was done much nearer the market top for US Large before the recent volatility occurred.

2. Lengthening duration in our bond portfolio now that intermediate term bonds are yielding more than short duration bonds. We harnessed that higher yield for your portfolio. Not to mention, some great price performance induced by market volatility recently too.

3. Raised cash for those in withdrawal stage. We did this early this year before the drawdown started. Taking advantage of a good start to the year for markets, we made sure people taking withdrawals had ample cash to fund future withdrawals, getting to sell while markets were up rather than being forced to sell down the road into weaker markets if they continued.

Remembering that portfolio management is not an "all or none" process is crucial. It is about positioning yourself to minimize emotional decisions so you can find the "opportunity" that exists in crisis. Stay tuned for more change to come in portfolios as we assess the consequence of tariffs, especially reciprocal tariffs, being put into place!

If you have questions, it is important that you reach out to your advisor.  We recommend stepping back to remember your investment goals and ask yourself if those have changed. Remember, when we are doing your planning work, we expect times like this to occur, "when, why, and how much" are the surprise but not the "if."  Our planning work knows this volatility occurs and builds cushion into your plan to be able to help manage periods like this.

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

The Magnificent Seven are a group of companies including Alphabet, Amazon, Apple, Meta Platforms, Microsoft, NVIDIA, and Tesla. Raymond James makes a market in these stocks. This is not a recommendation to purchase or sell the stocks of the companies mentioned.

Center Clients Donate over $1.3 Million in Tax-Savvy QCD’s in 2024!

Contributed by: Lauren Adams, CFA®, CFP®

We are proud to announce that The Center assisted clients in donating over $1,350,000 to charities using the Qualified Charitable Distribution (QCD) strategy in 2024!

The QCD strategy allows clients with assets in an IRA account and who are over age 70.5 to donate funds directly from their retirement account to a charity. Giving directly from an IRA to charity results in those dollar amounts not being included in taxable income for that year. That usually results in a lower tax bill for our clients and can also have positive downstream effects like lowering the amount they may pay for Medicare premiums and the portion of Social Security that is taxable to them, depending on their situation and income level. For those 73 or older, QCDs also count towards the distributions they need to take each year for their Required Minimum Distribution.

Now, there are some caveats for QCDs — you need to be at least 70.5. Also, the charity has to be a 501(c)(3). There are limits on how much you can give each year through this method, but that number is actually relatively high at $108,000 per person per year right now.

The Center’s mission is to improve lives through financial planning done right, and we are so proud to be able to help clients make such a positive impact on the world (bonus points for it being in a tax-savvy manner!).

Did you know that QCDs are only one of many charitable giving strategies that our team helps clients deploy? Watch this video to learn more about ways our clients make their charitable dollars stretch further for the causes they care about while potentially lowering their tax burden.

As always, we recommend you work with your tax preparer to understand how these strategies affect your individual situation. If you want to explore these strategies and more, contact your Center financial planner today!

Lauren Adams, CFA®, CFP®, is a Partner, CERTIFIED FINANCIAL PLANNER™ professional, and Director of Operations at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Q4 2024 Investment Commentary

Click the image above to watch the video commentary!

Contributed by: Angela Palacios, CFP®, AIF®

Contributed by: Nicholas Boguth, CFA®, CFP®

Think back to one year ago. It's January 2024. So far, the economy had avoided the recession everyone thought was coming. The S&P 500 just wrapped up a +26% year. Bonds provided some positive performance. Inflation was coming down, unemployment was still at historic lows, and the mood could be described as cautious optimism as investors expected a "growing but slowing" economy.

Most market forecasts (more on these later) expected 2024 to be good but definitely not great. ESPECIALLY in an election year, because you never know what sort of uncertainty that could bring!

Well, we just wrapped up 2024. How was it? From the lens of the financial markets, it was a strong year.

Stocks continued to climb, and bonds were slightly positive despite some bond market volatility. The S&P 500 was the standout among the major asset classes, but even small cap stocks and international stocks contributed positive performance.

Q4 brought some volatility and uncertainty between a major presidential election and multiple Fed rate cuts. U.S. stock indices climbed through the uncertainty, but international stocks and bonds fell slightly.

The big change during Q4 was the increase in bond yields as investors adjusted to what is looking like an even stronger economy than expected. A stronger economy generally comes with higher bond yields, which means less rate cuts from the Fed. This was reiterated in the Fed's Summary of Economic Projections in December that showed they expected the Fed Funds Rate to get to 3.9% by the end of 2025 (3 months prior, that projection showed an estimate of 3.4%).

We'll be watching this dynamic continue to evolve in the markets this year, but as of today investors are looking at a strong economy backed by an easing Federal Reserve, positive expectations for stock earnings, and decent bond yields providing strong fixed income options.

Interest Rates and The Economy

In December, the Federal Reserve (the Fed) held its final meeting of 2024, finalizing a year marked by significant continued disinflation and one of the strongest in recent years of economic activity. However, uncertainty always remains when looking ahead. Tariff and immigration policies proposed by the incoming administration are clouding investor's (and the Fed's) outlook for 2025.

With the Fed still in easing mode, equities should continue to be well supported (remember the old saying, "Don't fight the Fed"). While the Fed's December rate cut was a 'hawkish' cut (a cut with guidance there will be fewer future cuts), we continue to focus not on the number of cuts but more on the overall economic trajectory, which seems to be very resilient right now. With the economy still showing momentum, earnings should maintain their climb in 2025—reinforcing our positive longer-term outlook. However, in the short term, there can always be volatility, and after such a strong year, a little short-term volatility would not be unexpected.

So why doesn't this potential increased volatility scare us very much? A strong consumer!  Since the consumer makes up 70% of the U.S. Economy, we are a key ingredient to keep an eye on. The strength of the consumer in 2024 was evident through several key indicators. Consumer spending has shown consistent growth, while consumer confidence remains unshaken, driven by low unemployment rates, steady job growth, and rising wages. There could be some cracks on the horizon for consumer spending. We are starting to see consumers "trade down" a bit in their purchases, meaning they are still happy to spend but on cheaper options for goods and services. There aren't so many cracks to be concerned about yet, but it is certainly an area we watch closely.

Bonds have had a bizarre year. Coming into 2024, we weren't sure what to expect other than the unexpected. As such, the caution we have exhibited in that portion of our portfolios has helped reduce some volatility in bonds in 2024. Treasury yields have moved contrary to normal historical patterns by rising instead of falling after the Fed started to cut rates in the fall. Better-than-expected economic data and inflation not falling as fast as the market would like to see have challenged investors to reassess the Fed's expected rate path. This means yields are likely to stay a bit more elevated than everyone originally thought. If you look at inflation and employment, the Fed has largely accomplished what it set out to do, even though markets might like to see them do more. The chart below shows where we are versus the Fed's targets.

S&P 500 Price Targets and Return Expectations

Major banks and brokerage firms put out S&P 500 price targets every year, and it may or may not surprise you, but they are rarely accurate. It is impossible to predict something as volatile as the stock market over such a short time. Last year, for example, analysts ranged from bearish to bullish, and the stock market blew straight through every one of their price targets by May.

Stock performance over one year can vary dramatically, but it has been remarkably consistent over the long term.

The other thing on investors' minds right now is…can the performance continue? Of course it can! No one knows for sure if it WILL over the next year (as I said, it is impossible to predict something so volatile as the stock market over such a short time frame), but just because stocks had a tremendous last year does not mean that they must lag the following year. In fact, the statistics show there is essentially no correlation between last year's performance and the next year's performance.

Election Outcome and Markets

As the election dust settles, it is important to remember that the economy is usually the guiding force behind winners and losers in our portfolio.  Overall, rising corporate profits, continued economic expansion, and the potential for lower yields later this year provide a potentially positive backdrop for the markets, in our view.  Some areas, like international investments, may see additional headwinds from political forces like tariffs or a strong U.S. dollar.  At the same time, smaller companies in the U.S. may see some natural tailwinds from continued onshoring and disinflation. While there are many reasons for an optimistic outlook, being prepared for a downturn is evergreen. Our actions in your portfolio will reflect our continued research and developments in these areas as President Trump takes office. There are important things that we need to focus on, as always, such as making sure that you have 6-12 months of expenses set aside in cash so that we can weather any short-term volatility in markets (especially if you are retired), rebalancing to maintain proper diversification and paying close attention to tax loss harvesting and capital gains. 

A new administration may provide new risks, but when aren't there risks in investing? With new risks also come new opportunities, and our investment committee meets monthly to ensure portfolios are allocated to take advantage of constantly changing markets. Most importantly, your financial planner here at The Center is here to help you build a financial plan that gives you confidence no matter the market conditions. With that being said, onto 2025!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Yield Curve and Forward Returns

Contributed by: Nicholas Boguth, CFA®, CFP®

In 2022, there were fear-inspiring articles about the yield curve inversion. Two years later, we’re seeing the same kind of articles about the yield curve UN-inversion! It can’t be both…can it?

Let’s look back at the last 50 years of inversions and un-inversions and see if either has been a consistent signal for the stock market*.

*Source: Morningstar Direct. Performance = S&P 500 TR.

*Source: Morningstar Direct. Performance = S&P 500 TR.

Do those results surprise you? On average, returns look BETTER after inversions AND un-inversions. That headline doesn’t grab as much attention as one that provokes fear, though.

It is hard to filter out the noise when it is so prevalent in our daily lives. We listen to the noise but rely heavily on the data when making decisions in our investment process. If you have questions about your portfolio, please don’t hesitate to reach out.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

The information contained in this email does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.

Any opinions are those of Center for Financial Planning and not necessarily those of Raymond James.

The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary.

Q3 2024 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

Contributed by: Nicholas Boguth, CFA®, CFP®

This year has been off to a solid start as the melt-up continues. Even during what is usually the worst performing month on average, September, markets rallied. Mega-cap US tech stocks have remained a standout this year again and have driven much of the returns for the S&P 500 for the first half of the year. But, since then, we have seen participation from other areas of the market, such as international, particularly emerging markets, and small company stocks that have made a strong showing since interest rate cuts were back on the table and inflation continued to abate. Bonds have been positive by about the interest they have paid this year, and the Federal Reserve has started to cut interest rates with a .5% cut in September. Interest rate expectations and inflation news have been the major drivers of market returns so far this year. You may have noticed that I have left the election out of this list because the election hasn’t really driven market volatility so far. If you want to learn more about the relationship between elections and markets, check out a replay of our webinar from last month!

As we approach election day, the headlines could potentially drive some short-term volatility and, certainly, our emotions, but historically, long-term markets are driven far more by factors like economic growth, Federal Reserve direction, and fundamentals like growth and valuation. It is very likely that the outcome of the election won’t be settled by the time we wake up the next day, so this could possibly cause some short-term volatility, but we wouldn’t expect this to be sustained. A last note on politics: it is worth mentioning that Congress averted a government shutdown through the passage of a stopgap bill to fund the government through December 20. At that time, we could possibly see some political posturing surrounding this topic again, so we expect to see more headlines surrounding this late in the year. Markets tend to shrug off these headlines as we have “been there, done that” many times before.

GDP

Since the economy is a bigger driver of long-term returns, we should check in on this. As you can see from the chart below, the Federal Reserve seems to be engineering this soft landing they were hoping for.  Inflation and wages continue to come down, unemployment has grown slowly this year, retail sales have slowed a bit, and GDP shows a slowing in this chart but has since had somewhat stronger readings as the year has gone on.

Sources: Bloomberg, Bureau of Economic Analysis, Bureau of Labor Statistics.  Data as of 29 March 2024 for GDP and 31 May 2024 for other statistics.  Retail sails = adjusted retail and food services sales.  Wages = average hourly earnings.

Interestingly, Economic data is almost always revised after the fact. Data points such as how many people in an entire country are looking for jobs, how much money every citizen in a country has earned/spent/saved, or how much the prices of everything in a country have changed – these are pretty hard to track. This quarter, the Bureau of Economic Analysis revised GDP upwards by .3% in 2021, .6% in 2022, and .1% in 2023. Turns out we (consumers) spent more money than previously calculated in the past few years. Remember when we had two negative quarters of GDP growth in early 2022 (which is the technical definition of a recession), but a recession was never declared? Now, with revisions, there weren't actually two negative quarters of GDP growth. The 2nd quarter of 2022 was revised into positive growth rather than negative growth.

Headlines and Inflation

Inflation is still under the microscope despite the Fed shifting gears from the past couple of years' rate-hike environment into the rate-cut environment it has established going forward. The market will likely be watching economic data as it rolls in and reacting accordingly, as it weighs the odds of increasing inflation (and the potential reaction of the Fed moving slower with its rate cuts) OR continued disinflation/deflation (and the potential reaction of the Fed moving faster with its rate cuts). Recently, there have been some headlines of OPEC increasing oil production, which could possibly put downward pressure on oil prices. At the same time, strikes are beginning at ports on the East Coast, which could potentially slow down supply chains and put upward pressure on prices.

Yield Curve UN-Inversion

About two and a half years ago, the yield curve inverted. You can see this in the chart below, with the blue line dropping below 0 (meaning short-term rates are yielding greater than long-term rates).  We wrote about it then and shared that despite the warning sign – stocks still were positive a majority of the time 1 and 2 years later. 2022 was a rough year for both the stock and bond markets, but here we are 2.5 years later, and the S&P 500 is back, making new all-time highs.

Source: https://fred.stlouisfed.org/series/T10Y2Y

Last month, the yield curve UN-inverted (see that blue line above moving back above 0). You may have seen news articles directing attention to THAT event as the event that typically precedes recessions. It is hard to focus on the signal over the noise when the noise is so loud in our daily lives, from 24/7 media coverage to daily newspapers and endless social media feeds, but looking back on the last ten times, the yield curve UN-inverted:

• 8 out of 10 times, the S&P 500 was higher the next year.

• 10 out of 10 times, the S&P 500 was higher ten years later.

Source: Morningstar Direct. S&P 500 TR (USD)

So, what does this mean for your portfolio?

After this first rate cut by the FED, the yield curve UN-inverted AND it is looking like the FED has successfully engineered a soft landing. History can generally be a useful guide to understand how different assets (beyond just US Large cap) performed in this time period. Typically, you see risk assets doing well for equities, while in fixed income, quality tends to shine. Certain asset classes may have a little more tailwind behind them because of starting valuations and a scenario layered in where we have had high but falling inflation, so while the outcome may rhyme, it probably won't be identical to below.

Emerging Markets

Emerging markets made some noteworthy moves recently. Outside China, India, and Taiwan are experiencing excellent performance driven by monetary policy easing and their technology sectors. However, China has had some significant developments, causing them to play a bit of catchup recently. Chinese leaders announced several monetary policy initiatives that drove their recent equity return spike. First was a 50 basis point (bps) cut to the reserve requirements (the amount of cash that banks must hold in reserve against deposits). Second, they cut existing mortgage loan interest rates by 50bps. Other initiatives were also put into place to kickstart their economy. While the path forward could be bumpy, several factors remain a potential tailwind, such as reasonable valuations and company fundamentals and easing monetary policy.

Small Cap Stock Performance

Small cap stocks have been lagging their large cap counterparts for most of the last decade, but this quarter we saw one of the biggest moves in recent history from the asset class. Early in the quarter, there was a huge divergence, and small cap stocks provided a boost to portfolios. The Russell 2000 index ended the quarter +9.3%, beating out the S&P 500 index that was only up +5.9%. Many attributed the outperformance to the market reacting to a potential lower interest rate environment as it looked more certain that the Fed would be cutting rates, the cheaper starting valuations of the small cap asset class, and the overall higher volatility expected from the smaller and less liquid stocks. Whatever the catalyst was, many investors who have been waiting a long time for small cap outperformance were rewarded this past quarter.

While most of us invest with an eye years or decades into the future, short-term market swings can still trigger strong emotional reactions and sometimes push normally calm investors to become short-term traders rather than long-term investors. A properly allocated portfolio and enough cash to fund short-term needs can help to allay an emotional response that might derail your long-term plan. Is your portfolio appropriately positioned for your situation? As always, we are here to help!

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Mutual Funds vs. ETFs – What’s the Difference?

Contributed by: Nicholas Boguth, CFA®, CFP®

At the highest level…not much! Mutual funds and Exchange Traded Funds are two common types of investments that group individual securities together into a neat package to make it easier for us investors to build our ideal portfolios.

The difference between mutual funds and ETFs shows up more when you dig into the details of their liquidity, tax efficiency, costs, and transparency (more information on each difference is at the bottom of this post for anyone looking for the specifics). ETFs do have some structural benefits compared to mutual funds, which has led to their faster growth over the past decade, but the total assets invested in ETFs are still less than half that of mutual funds.

I buried the specifics at the bottom of this post because, for most of us, ETFs and mutual funds can be used interchangeably to reach our investment goals. In fact, some companies offer the exact same investment product in both fund structures.

The major question: "Which is better?" If only it were that easy…

ETFs do have a handful of advantages compared to mutual funds. Two of the most significant advantages are that they are often cheaper and more tax efficient. But like all things in investing, the best answer is…"It depends." Here are some examples where you might lean towards a mutual fund compared to an ETF: sometimes mutual funds ARE cheaper, or maybe you want to invest in a portfolio manager who doesn't offer an ETF, or perhaps you believe an asset class is better served by the mutual fund structure than the ETF, or you are holding a mutual fund in a taxable account and now have a large capital gain that you do not want to realize yet, or your trading platform charges higher fees to trade ETFs, or you want to set up automatic periodic purchases and a mutual fund is the only way to do that.

Ultimately, your investment portfolio can only be perfect for YOU. We would love the opportunity to help you build a portfolio that will help you reach your financial goals. Shoot us an email to get started!

• Liquidity: ETFs trade intra-day, similar to stocks, so you can get a different price when you buy/sell at 10 a.m. compared to 2 p.m., for example. When you buy or sell a mutual fund, the price is determined at the end of the day.

• Tax Efficiency: Mutual funds and ETFs rebalance and trade their individual holdings throughout the year, and those trades may generate capital gains. Mutual funds and ETFs must pass those capital gains onto you, the end investor. The difference is that the structure of an ETF gives it the option to create or redeem shares or "creation units" that allows them to minimize capital gains for the end investor throughout the year. From your perspective, the capital gains don't just disappear when you hold an ETF. You'll still realize those capital gains once YOU sell the ETF in your portfolio, but it gives you more control over WHEN you will realize them, which can be important for your financial plan.

• Costs: ETFs are generally cheaper than mutual funds. There are a whole host of reasons for this, from operational efficiencies to commission/load differences. However, the average ETF is about half the cost of the average mutual fund when comparing expense ratios. There are exceptions to every rule, though, and trading fees/commissions also have to be taken into consideration when building your portfolio.

• Transparency: Mutual funds generally only report their holdings to the SEC, whereas ETFs report daily. This gives end investors more transparency into what the fund is actually holding and can help inform our investment decisions.

• Minimums and periodic purchases: Mutual funds often have higher minimums than ETFs, but you cannot buy fractional shares of ETFs, which may cause some operational issues in smaller portfolios. You are also not able to set up automatic purchases or sales into or out of ETFs like you can with mutual funds.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of the author and are not necessarily those of RJFS or Raymond James. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment or investment decision. Investing involves risk, investors may incur a profit or loss regardless of strategy or strategies employed. Asset allocation does not ensure a profit or guarantee against a loss.

Q2 2024 Investment Commentary

Contributed by: Angela Palacios, CFP®, AIF®

Contributed by: Nicholas Boguth, CFA®, CFP®

When the circumstances change, our perspective evolves. This anthem of the past year highlights the importance of adaptability and openness to new information. But as much as things have changed this year, much has stayed the same. Megacap tech stocks are still driving the S&P 500 gradually upward for the year. The S&P 500 has had the best start to a presidential reelection year by logging 31 record highs this year and low volatility. Interest rates are still high. Stocks are performing better than bonds, while the U.S. continues to trounce international and large company stocks, which continue to beat small company stocks. 

Elections

The remainder of the summer and fall will surely be dominated by election headlines. Because elections can be divisive and unnerving, it's important to remember that markets are often resilient even in the face of the most unsettling election scenarios. Watch for an invitation to our upcoming election event to hear more details on this topic, but here are some quick observations:

• U.S. stocks trend upward on average in election years regardless of which candidate wins the White House

• Balanced portfolios historically help investors meet their financial planning objectives while managing risk over presidential terms

• It's time in the market and not timing that matters the most for an investor; sitting on the sidelines with long-term assets sitting in cash can be costly to a long-term investment strategy

If you look at average and median returns through a presidential cycle, you can see that election years tend to be strongly positive. Historically, median returns are over 10% in an election year, with average returns over 7% in an election year. 

Returns also tend to come more strongly in the second half of the election year, as shown in the chart below. This year has broken the mold with strong returns through the first half of the year. Usually, when this happens, there tends to continue to be strong returns also through the second half of the year.

What Has Led to These Strongly Positive Returns?

While higher interest rates and high inflation seem like a staple part of the economy now, it is easy to forget that we enjoyed decades of low interest rates, low inflation and globalization that drove those trends.

Inflation has resumed its slow march downward despite a small pause this year and some numbers that had looked like they might be turning back upward. It seems unlikely that inflation will accelerate and should continue to resume the disinflation trend. Now, most of the inflation comes from shelter costs, and we have seen rent prices level off and slow slightly. Rent prices starting to come down should help this source of inflation. You also may have noticed your insurance rates increasing. Car insurance has contributed notably to recent inflation numbers. 

Many consumers still feel the sting of higher prices because slowing inflation only means prices aren't going up at the pace they were. The price increases we experienced over the past several years are here to stay and will need to be permanently factored into budgets going forward. Many households have found substitutes by shopping around at bargain retailers, and some have been lucky enough to experience wage inflation (although not enough to offset economic inflation.

Interest Rates and The Fed

It is hard to talk about inflation without discussing The Federal Reserve and the current interest rate environment. As of the end of the quarter, the 1-year treasury rate was ~5.1%, and the 10-year treasury rate was ~4.4%. You are still getting paid MORE in short-term bonds than you are in longer-term bonds – that is strange! In a normal interest rate environment, you would get a higher coupon from longer bonds because, in return, you are taking on more risk and uncertainty from the longer time until maturity.

This environment has made it much more attractive to hold money market funds, CDs, and other short-term instruments, BUT those are not without risks of their own. If the 10-year rate falls, for example, then the risk of being in the short-term bond is that you will miss out on the price gains of the 10-year bond, and if short-term rates fall as well, then you will have to reinvest your money at a lower interest rate once your bond matures. Without knowing the path of interest rates going forward, there is no way to know with certainty which type of bond will outperform. However, we are here to help make sure your portfolio is positioned well for YOUR financial plan.

Speaking of the path of interest rates, despite inflation heading in the direction that the Fed wants, they kept the Fed Funds rate steady at the same rate as it has been for almost the past year: 5.25-5.5%. There are advocates on each side of the argument saying that they should have cut rates already OR that they should even keep further hikes on the table. Jerome Powell continues to stress data dependence and their commitment to the 2% inflation target, and this sentiment is shown in bond rates as rate cut expectations have continually been priced out of the market year-to-date. No one has control over inflation numbers, the Fed, interest rates, or the stock market – you have to  invest given the hand you are dealt.

AI and Meme Stocks

Several investment crazes have filtered into this stock market rally; some have long-term validity, and some don't. The evolving landscape surrounding artificial intelligence has strongly impacted any company investing heavily in it. Nvidia corporation has been the poster child of a rally surrounding artificial intelligence, which has been up very strongly this year, even though it has recently pulled back some. Nvidia is viewed as a pioneer in the space as its business shifted from gaming consoles to data centers where its chips now power large language models like ChatGPT.  Meanwhile, Gamestop found itself in the middle of the meme stock craze again. While returns attributed to meme stock hype are usually short-lived, the idea of social media heavily influencing trading performance is something the markets are still trying to make sense of. While investing in a long-term productivity enhancement like artificial intelligence can drive long-term fundamental returns, meme stocks are more about hype and short-term volatility.

Hopefully, you take a few moments to check out the Olympics this month. I am often in awe of the amazing talent seen from around the world. That kind of talent comes from a lifetime of diligence and hard work, much like successful investing. Natural ability or luck can only take you so far and can't be counted on. Athletes must train in various muscle groups and mental stamina to be successful. Much like athletes rely on diversified training in investing, we rely on asset diversification, good investor behavior, and consistent saving over time to reach our finish line. We are here to help ensure your investments are helping you reach the finish line no matter what the market environment looks like. Don't ever hesitate to reach out with any questions you may have.

Angela Palacios, CFP®, AIF®, is a partner and Director of Investments at Center for Financial Planning, Inc.® She chairs The Center Investment Committee and pens a quarterly Investment Commentary.

Nicholas Boguth, CFA®, CFP® is a Senior Portfolio Manager and Associate Financial Planner at Center for Financial Planning, Inc.® He performs investment research and assists with the management of client portfolios.

Any opinions are those of the Angela Palacios, CFP®, AIF® and Nick Boguth, CFA®, CFP® and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The MSCI EAFE (Europe, Australasia, and Far East) is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Past performance is not a guarantee or a predictor of future results. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.