Q3 Market Update, Market Updates, Government Shutdown & Year-End Information

Despite continued concerns about tariffs, stubborn inflation, weakening employment and a government shutdown, the US Stock market continues to churn out strong returns.

The S&P 500 has gained 34% since it’s low on April 8, bringing the total return for the year to 14.8%. While small-cap stocks, as measured by the Russell 2000, returned 14.8%, bringing the year-to-date return for this category to 10.4%.

The falling dollar continued to boost global stocks which logged a third consecutive quarter of strong returns. International equities are the best performing asset class this year with developed and emerging markets each gaining over 25%.

Category	Index	3rd Quarter	Year To Date
Bonds	Bloomberg US Aggregate Bond	2.0%	6.1%
US Large Stocks	S&P 500	8.1%	14.8%
US Small Stocks	Russell 2000	12.4%	10.4%
International Stocks	MSCI World ex US	5.3%	25.3%
Emerging Markets	MSCI Emerging Markets	10.6%	27.5%
Real Estate	Dow Jones US REIT	5.1%	4.5%

In September, the Fed lowered interest rates by .25%. This reduction, along with predictions of future reductions, boosted both US stocks and bonds, as lower rates generally spur economic growth. Unfortunately, the Fed’s willingness to lower rates before seeing inflation return to their long-term target of 2% does indicate that they have concerns about slowing economic growth and the weakening employment outlook.

Today, the market’s forward P/E Ratio, which is calculated using projected earnings rather than historical earnings, is 22.8, significantly above the long-term average of 16.9. The last two times when the forward P/E was this high were during Covid-19 and the tech bubble in 2000.

While this does indicate that stocks are expensive, we do not recommend market timing. Stocks have shown a history of remaining expensive for an extended period and selling out can cause you to miss out on potential returns. We do, however, believe this this is a good time to rebalance your portfolio if your equity allocation is above your long-term target. It is also a good time to review your personal goals and risk tolerance to ensure that your allocation matches those goals. We will be taking care of any necessary rebalancing for you. If you feel that your goals or risk tolerance have changed, we encourage you to contact our office to schedule a review.

Gold, Bonds & Stocks

Historically, gold has served as a hedge against inflation and a haven during economic uncertainty. Long-term returns have been lackluster. Recent concerns over inflation, tariffs and the declining dollar have triggered foreign central banks to aggressively purchase metals, driving the price to record levels.

You have likely seen advertisements from precious metals dealers. They encourage investors to purchase coins or bars which include significant commissions and require professional storage. A more convenient and less expensive option is to purchase exchange traded funds which can be held in your existing brokerage account.

We do not generally include precious metals as a part of our core portfolios. Additionally, we would be cautions about buying at these inflated levels. However, there are good arguments that the asset class reduces portfolio risk by increasing diversification.

If you are interested in learning more about the advantages and disadvantages of investing in precious metals, please call our office.

Government Shutdown

As we write this, one of the most significant events playing out is the government shutdown. The primary sticking point is a fight over ACA subsidies which are set to expire at the end of 2025. These expanded subsidies were enacted to ensure that people had access to health insurance during Covid and were extended by the Inflation Reduction Act. Democrats argue that the expansion has greatly reduced the number of uninsured and should be made permanent, while republicans argue the cost of the program is too great.

The longest government shutdown was in 2018 and lasted just 35 days. Historically, these short-term shutdowns have not inflicted significant economic impact outside the individuals who are furloughed. This time, both sides seem extremely dug in and unwilling to budge on their demands. More significantly, in a move not seen before, the White House is attempting to force congress to pass a continuing resolution by firing government employees. This adds additional levels of uncertainty.

Year End Information

The figures for Social Security cost of living and Medicare premium adjustments are currently delayed due to the government shutdown. We are anticipating adjustments of approximately 2.7%.

Medicare - Open enrollment for prescription drug plans is October 15 to December 7.

IRA Minimum Distributions - IRA owners aged 73 or older are required to take minimum distributions from their IRA each year. We will be contacting all affected clients who hold their IRA through our firm. If you have additional retirement plans outside our firm, please contact our office to ensure that the correct distributions are made from all accounts.

Charitable Giving – Most taxpayers no longer itemize their deductions. There are still methods to receive a tax benefit for your generosity:

1. Donating appreciated stock directly to a charity

2. IRA owners who have reached age 70½. May make Qualified Charitable Donations directly from an IRA without claiming the distribution on their taxes.

Educational Saving- Depending on your state of residence, you may be eligible for a state tax deduction or tax credit for contributions to 529 education savings accounts for your children or grandchildren.

Roth Conversions - Converting funds from your traditional IRA to a Roth IRA during years when your tax bracket is lower can reduce your lifetime tax burden and reduce your children’s taxes on retirement accounts which they inherit.

Employer Benefits - Many employers have an open enrollment for benefits this time of year. If you have questions or concerns about your benefits, please contact our office.

If you would like additional information on any of these topics, please contact our office. We encourage you to act early in the quarter as some transactions take time to process, particularly around the holiday season.