Below are the economic and market highlights for the week:
- In a widely expected move, the Federal Reserve cut interest rates by 0.25% on Thursday, bringing its benchmark lending rate to a target range of 4.50% to 4.75%. This is the second consecutive central bank cut following September’s jumbo 0.50% reduction. In post-meeting remarks, Fed Chair Jerome Powell noted the cut will help maintain the strength of the economy and the labor market while expressing confidence that lower rates won’t result in a resurgence in inflation.
- Service-oriented companies, including retailers and restaurants, expanded in October at their fastest pace in more than two years. The ISM Services Index climbed to 56 during the month, up from September’s 54.9. Numbers above 50 indicate expansion while numbers below signal contraction. The headline figure was driven by a 5 point jump in employment which rose to 53, a 14-month high. New orders and production also grew, while the prices gauge showed signs of easing inflation slipping 1.3 points to 58.1.
- U.S. consumer sentiment increased to 73.1 in November, its highest level since April. The move higher was driven by optimism for the future as the expectations index surged to 78.5, its highest reading since mid-2021. Survey respondents pointed to an improved outlook for personal finances from strengthening income and short-run business conditions as signs for optimism.
Trump Trade Leads Markets Higher
Markets rallied to new highs this week as Donald Trump defeated Kamala Harris to become the nation’s 47TH president. In the process Trump became just the second candidate in U.S. history to win nonconsecutive White House terms. The news sent the Dow Jones Industrial Average to a 1,500-point gain on Wednesday. Meanwhile, the S&P 500 jumped 2.53% for its best post-election day in history. Wednesday’s bullishness was extended for the remainder of the week with the Federal Reserve announcing another 0.25% interest rate cut, its second consecutive cut in this rate-cutting cycle. On the economic front, the economy remained solidly in expansion mode as the services industry grew at its fastest pace in more than two years while consumer sentiment moved higher on an improved outlook for personal finances. For the week, all three major indices scored another round of fresh all-time highs.
Although the numbers continue to roll in for the House of Representatives, it looks increasingly likely that Republicans will control the White House and both chambers of Congress, giving the party considerable leverage in passing their legislative priorities. The economy was voters’ number one priority this election cycle with 45% feeling that they were financially worse off than they were four years ago. On that topic, Trump led Harris by a 22% margin. Judging by this week’s reaction, markets expect the GOP will extend the 2017 tax cuts that were set to expire in 2025, along with cutting corporate tax rates and taking aggressive measures to cut costs and reduce regulation. Those priorities on the fiscal side along with the expectation that monetary policy will continue to ease left investors elated this week.
The Week Ahead
Key reports include retail sales and CPI and PPI.
Year End Financial Planning Reminders
It’s hard to believe we are already into the second week of November. Thanksgiving is less than three weeks away, and Christmas is just 47 days away. With fewer than two months remaining before we welcome a new year, below are financial housekeeping reminders to usher in 2025 in good financial shape. This list is by no means exhaustive, and we encourage you to meet with your advisor to evaluate your financial situation and ensure you are on track towards achieving your goals.
1. Make Retirement Account Contributions.
Before the end of the year, check that you have maxed out all available qualified retirement accounts. Contributions to workplace retirement accounts must be made before December 31st, while IRA contributions can be made up to the tax filing deadline regardless of tax extensions. If your employer offers a 401(k), 403(b) or 457 plan, contribute the maximum amount you can afford and be sure to take advantage of any matching employer contributions. The current annual contribution limit is $23,000 (plus an additional $7,500 catch-up contribution for anyone who is age 50 or over). You have until April 15, 2025 to make your IRA contributions for 2024. Traditional IRA limits are $7,000 if you’re under 50. If you are older than 50, you can contribute $8,000. If you are a business owner, consider contributing to a SEP IRA. The amount that can be contributed in a SEP (Simplified Employee Pension) IRA is the lesser of 25% of compensation or $69,000 for 2024.
2. Take Your Required Minimum Distribution (RMD).
If you are 73 or above, you may be required to withdraw a minimum amount from your retirement account. If you do not need your RMD for living expenses and if you are charitably inclined, a great option to consider is a qualified charitable distribution (QCD). You may contribute all or some of your RMD, up to $105,000, to a qualified public charity and avoid paying tax on the distribution.
3. Recognize Capital Gains or Losses.
The goal of investing is to generate profits or gains. Those gains may generate a tax bill. Wherever possible, Probity Advisors, Inc. attempts to offset gains and losses within an account throughout the calendar year: this is called tax loss harvesting. If no losses are available, we may potentially defer the sale of securities that would result in short-term gains until they reach the favorable long-term gain status. Additionally, an investor may realize a loss from a capital investment outside of their portfolio which can be used to offset a gain within their investment portfolio. This strategy can potentially improve overall after-tax returns. Remember to alert your advisor of any realized gains or losses outside of your Probity Advisors account and be sure to consult with your CPA regarding any tax implications.
4. Utilize Estate and Gift Tax Exclusions.
Each year, you can make gifts of securities or cash to individuals up to the gift tax exclusion without incurring gift tax and without depleting your estate tax exclusion amount. The annual gift tax exclusion amount is $18,000 per recipient for 2024. In addition, individuals can pay for medical or education expenses directly to a provider or institution on behalf of someone else without being subject to gift taxes and without using their gift tax exclusion amount.
5. Complete any charitable giving or year-end gifting.
Make any gifts or charitable contributions soon to avoid delays and to ensure your gifts are processed prior to December 31st. Charitable donations can help reduce your tax burden, but there are rules that must be met in order to take the tax deduction. Contributions must be made to what the IRS deems as “qualified organizations.” Consider donating appreciated stock to charity which may allow you to avoid capital gains taxes and realize an income tax deduction. An advisor can discuss tax-advantaged strategies for making the most of your gifts to your favorite charities.
6. Maximize Your Health Savings Account.
A Health Savings Account (HSA) is a type of savings account that allows you to set aside money on a pre-tax basis to pay for qualified medical expenses if you have a high deductible health insurance plan. If you have an HSA, make sure you are contributing the maximum amount. In 2024, the self-only contribution limit is $4,150, and for family coverage it is $7,750. Those who are age 55 and older can contribute an extra $1,000.
7. Spend Flexible Spending Account dollars.
Flexible spending accounts (FSAs) are tax advantaged accounts offered by employers to help workers pay for medical expenses or dependent care with pre-tax dollars. The amount a worker decides to contribute for the year is deducted from their salary before income taxes. Unused funds in FSAs are typically forfeited at year end, so be sure to use the funds for eligible health and medical expenses by December 31st. Some plans may not follow the calendar year, so check with your plan to confirm deadlines.
8. Contribute to a 529.
In 2024, under the gift tax exclusion rules, individuals can gift up to $18,000 in a single 529 plan without those fees counting against the lifetime gift tax exemption amount. The contribution and potential tax benefits vary by state, but for most states, December 31st is the deadline. Anyone, including grandparents, aunts, uncles, or friends, can help a child save for high cost of college. Beyond tuition, qualified expenses include books, classroom supplies, fees, electronics such as a computer, and reasonable room and board charges. The average annual cost of a four-year public school for out-of-state students is $46,730, while a private four-year school costs $60,420, so a 529 plan can help families prepare for the college years.
9. Talk to your family about your legacy goals.
The holiday season often brings families together. It presents an opportunity to share your hopes, dreams, and legacy plans with your loved ones. Consider having a family meeting to coordinate and communicate financial and estate matters. Our advisors can help you prepare and plan for these meetings, and while discussions about money can sometimes be difficult or uncomfortable, it is truly a gift to family members to have open communication and build understanding of your wishes and intent. We’ve found that legacy sharing can eliminate potential future hurt feelings and discord among family members.
10. Review your estate plan, including your will, trusts, and power of attorney appointment(s)
A basic estate plan includes a will, as well as instructions for what happens if you can no longer make decisions for yourself. We advise clients to name a health care proxy, someone who can make medical decisions on your behalf if needed, and establish a living will, also called a directive to physicians or advance directive, regarding end-of-life medical care. Medical and financial powers of attorney (POA) can be held by more than one person. If you have aging parents, talk to them about their requests as well.
11. Review beneficiaries
Review beneficiaries for all of your retirement accounts and life insurance policies to ensure they reflect your wishes and intents. These types of assets are not subject to the terms of a person’s will and will pass to the beneficiary based solely on your beneficiary designation form(s). Make sure all of your hard-earned assets are going to the desired beneficiaries by reviewing your designation forms periodically and carefully.
12. Save for a rainy day.
The rule of thumb for how much to save in an emergency fund is typically six to nine months of living expenses. If you are getting a year-end bonus, it might be a good idea to put that away for any unexpected events or emergencies that may arise.
13. Readdress investment goals.
There’s nothing like starting off the new year on good financial footing. Consider taking another look at your short- and long-term investment goals, your overall contributions, and your portfolio allocations to verify that you’re still on track.
14. Create a plan for financial paperwork, passwords and digital assets
Now is a good time to make sure your financial documents are stored safely and that your loved ones know how to access them, including your will, trust documents, POAs, retirement and bank accounts, life insurance policies, partnership and corporate operating agreements, real estate deeds, etc. If something were to happen to you, loved ones will need to know the locations and access information to safes, safe-deposit boxes, and alarms. Be sure to include any digital property or assets you may have such as photos, music, and other online accounts, and make sure your loved ones can locate a list of your accounts and the corresponding usernames and passwords, including PINs and other access information for your computer, email accounts, bank and investment accounts, and cell phone.
15. Schedule a meeting with your advisor
Regular, in-person meetings with your advisor are an important part of managing and protecting your wealth. The process allows you to assess the health of your finances and to adjust your financial goals. An advisor can help make sure your investment strategy is on track, that you are protecting your income and preserving your assets, and help you better understand the “big picture” of your overall financial planning efforts. Please feel free to call our office at (214) 891-8131 to schedule a time to speak with your advisor.