Donna Cournoyer, Author at Moore Advisors

January 2025 Market Recap: Tech & Tariffs Turbulence

Stock and bond market performance for the first month of 2025 was pleasing.

Foreign stocks gained 4.8%, US small company stocks climbed 3.9%, US large company stocks went up 2.7%, and technology shares rose by 2.1%. Bonds were in the black, too: high-quality, intermediate-term debt returned 0.5%.

However, there was turbulence beneath the surface of the stock market, mainly due to developments in the technology sector.

One part of the Artificial Intelligence environment is Large Language Models (LLMs). These AI-powered systems are trained on massive amounts of text data, which facilitate human-like text responses to a wide range of prompts and questions.

ChatGPT is a widely recognized and utilized LLM. It was developed by OpenAI, of which Microsoft holds a minority ownership stake.

All the big tech companies, including Alphabet (Google), Amazon, Apple, Meta (Facebook), Microsoft and Tesla are spending huge amounts of money investing in LLMs and anticipating big future payoffs on this invested capital.

In addition to these well-recognized firms, a constellation of lesser-known US companies (big and small) that supply software, equipment, storage, and energy to support AI initiatives have been riding the AI wave higher.

In mid-January, a new chatbot called DeepSeek caught the attention of tech investors for several reasons: it was developed cheaply; it runs on less-expensive equipment; it is fast; and it is good. Also, its maker is a small Chinese company, not a Silicon Valley behemoth.

Whether or not DeepSeek becomes a true competitive threat to US technology companies is yet to be seen.

But it was a shot fired across the bow of US technology companies, and some US tech stocks swooned for a few days at the end of the month.

Why does this matter for US investors? The main reason is that the US stock market has become more dependent on ever-higher profits, and ever-higher stock prices, from big tech.

The information technology sector has grown from about a quarter of the US stock market a few years ago to more than one-third today.

When the future profitability of US tech companies is called into question, and when tech stocks slip, it’s harder now for stocks in other sectors to pick up the slack.

This also means that even US investors who hold well-diversified portfolios are likely to feel pain if a correction in tech stocks materializes.

In January, tech turbulence was contained to a few days, and stocks generally finished higher at the end of the month.

However, the DeepSeek tremor was a reminder that troubles for technology companies, if sustained, would probably have far reaching effects for all investors.

Regarding the safer side of investing, the “big news” in the bond market for January was: no news.

The Federal Reserve held their first FOMC meeting of 2025, where interest rate policy is reviewed and discussed, and… nothing happened.

Market participants are now expecting the Fed to stand pat for a while, and to keep the target for short-term interest rates steady for the next six months. This contrasts with the “rate cuts” that occurred during the second half of 2024.

Why is no news from the Fed big news?

It likely means savers will continue to enjoy a satisfactory rate of return on their guaranteed money that is kept in high-yield bank savings accounts and bank CDs.

With the lower bound of the Fed Funds target rate at 4.25%, this probably means short-term CDs are likely to provide a 4%+ annual percentage yield (APR) during the first half of 2025.

It also means that the Fed remains vigilant in their fight against inflation.

If the Fed is successful in convincing market participants that inflation is indeed under control, it should translate to a hospitable environment for investors who own intermediate- and longer-term bonds.

With 10-Year Treasuries yielding about 4.5%, it’s reasonable to expect 5%-plus returns for 2025 from bond allocations in investment portfolios, if inflation, and inflation expectations, remain contained in 2025.

But a trade war could be problematic for financial markets.

An emerging risk, especially to the bond market, is a new tariff regime. On February 1, President Trump announced new tariffs on a range of goods coming into the US from Canada, Mexico, and China.

Trade is huge, diverse, and complex, so the ultimate impact of higher duties isn’t easy to know. A lot depends on size, width, and length: how high tariffs go, how broadly they’re applied, and how long they last.

If tariffs come and go quickly, the inflationary impact will be minimal. But a new regime with high tariffs applied to many trade partners that lasts for an extended period could usher in higher inflation.

If expectations about future inflation go up substantially, this will likely mean higher bond yields, with lower prices and lower returns for bonds – especially for intermediate and longer-term bonds and bond funds.

And if history does rhyme (to paraphrase Mark Twain) then resurgent inflation may well prove to be a challenge for stocks, too.

Performance for the month of January is pictured below:

Note: Foreign Stocks: MSCI EAFE International Index; US Small Co: CRSP US Small Cap Index; US Large Co = S&P 500 Index; US Tech Stocks: Nasdaq 100 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Donna Cournoyer In Reading Recommendations

How to Retire

Researcher Christine Benz, Director of Personal Finance and Retirement Planning for Morningstar, recently published How to Retire: 20 Lessons for a Happy, Successful, and Wealthy Retirement.

In the book, Benz interviews academicians and practitioners from the world of personal finance and retirement, with specialties in financial planning, tax, estate planning, insurance, asset allocation, Social Security, healthcare, and hospice care.

Each chapter is structured in a Question-and-Answer format, so the reader is able to engage as an observer of an interview.

In addition to lots of good advice about managing finances in retirement, Benz also moves beyond dollars and cents.

She says: “When, and how to retire is less than 50% related to money. Yes, you need to have the funds. But more important, you need:

A network of people who care about you
To practice healthy habits and take care of your body
A plan for your days
Activities that bring you joy”

The book is both information rich and thought provoking and will be a good resource for those in retirement, or approaching that milestone.

-RK

Donna Cournoyer In College Planning

High School Juniors in Focus

A new year often brings with it a chance to review and renew plans and aspirations and to take action on important items and goals.

January is a good time to solidify college planning goals and to start taking action on steps toward the goals you have for seeing your student off to college.

It may seem like a long way off, but the next year and a half likely will be a blur!

Junior year is important for admissions applications, so keep your high school Junior’s focus on their studies and activities.

Here are some steps you can add to your checklist and start completing now:

January-March

Register for Spring SAT and/or ACT exams. Consider the SAT Subject Test.
Make a list of important criteria for which college you will attend: do you want a large university? A small community? What majors interest you? What sports and activities? Are there unique services you need? Will the school have these? What is the Cost of Attendance? And so on.
Make your college list and find out when they have Spring tours- begin visiting schools on your list. Start with the closer schools.
Do some online research on your school list and see if they measure up to your criteria and find out all you can and make lists of comparisons, including price!

April-May

Finish your year well! Keep your grades up- schools will be requesting your junior transcripts for college applications.
Consider adding activities to your schedule if you are not involved in many.
Continue to visit colleges. Many Open Houses are in Spring. Make any travel plans ahead of time, if needed. Make a list of questions to ask beforehand.
Read some college applications so it is not all new to you in Fall.
Make a list of potential people you may want to ask for letters of recommendation. Teachers, employers, counselors, etc.
Explore summer opportunities for work and include college campuses if you are near one.

For more information on checklists for Summer, Fall and Senior Year, please see previous articles:

-DC

Donna Cournoyer In Financial Planning

Social Security Fairness Act

On January 5, 2025 the Social Security Fairness Act became law. It will provide new or additional Social Security benefits for about three million individuals who receive government pensions from jobs not covered by Social Security.

Two parts of the law governing Social Security payments have been eliminated: the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO). The new law eliminates the reduction of Social Security benefits that resulted from WEP and GPO.

Upon signing the legislation into law, President Biden said those affected will receive lump sum payments from 2024 in 2025. President-elect Trump also supported the legislation.

Additional details of the Social Security Fairness Act relating to WEP and GPO are:

The new law repeals the Windfall Elimination Provision (WEP) which reduced Social Security or disability benefits for certain public sector workers such as teachers, nurses, police officers, and firefighters who receive pensions from jobs where they didn’t pay Social Security payroll taxes.
WEP applied to 2.1 million beneficiaries, or 3.1% of the total in 2022, according to the Social Security Administration. Most retirees affected by the WEP have pensions that are higher than average Social Security benefits, the Center on Budget and Policy Priorities said.
The law also eliminates the Government Pension Offset (GPO) which reduces Social Security benefits for about 750,000 spouses, widows, and widowers who receive pensions from jobs not covered by Social Security taxes.

Most state and local government workers (and all federal workers hired in 1984 or later) are in jobs covered by Social Security. Pensioners who worked in Social Security-covered employment in their government jobs will not receive increased Social Security benefits from the law.

According to the non-partisan news source TheHill.com, which focuses on US politics and government policy, actually making the new benefit structure a reality will be a challenge for the Social Security Administration (SSA).

An example of the additional administrative burden on the SSA: prior to the new law, individuals affected by the Government Pension Offset may not have been eligible to receive any Social Security spouse or survivor payments, so a number of these individuals likely did not file for Social Security and, as a result, are not in the SSA’s computer systems.

The Congression Budget Office expects the SSA will have to process new applications as a result of the legislation, and the new applications will lead to an extra 70,000 people coming onto the rolls for payments.

The Hill comments that SSA’s administrative budget has been in sharp decline over several years, and the SSA recently testified that it now has “one of the lowest staffing levels in 50 years.”

In their most recent communication from January 6, the SSA said: “The Social Security Administration is evaluating how to implement the Act. We will provide more information as soon as available.”

Keep in mind that the Social Security Fairness Act is retroactive to January 2024, so beneficiaries affected by the repealed provisions should receive lump-sum payments for benefits lost during 2024.

If you have been affected by WEP and GPO, what can you do to ensure that you receive your benefits?

If you previously have filed for Social Security, the SSA is not recommending that you take action at this time (though you may wish to verify that your contact and banking information with the SSA are up-to-date)
If you are receiving a public pension and are interested in filing for Social Security benefits, you may file online at ssa.gov/apply
Keep an eye on the SSA website for further announcements at: ssa.gov/benefits/retirement/social-security-fairness.act
Watch your email for communication from your former employer on this topic
Check your bank statements closely on a regular basis during 2025 to see if / when your payment has been adjusted and to verify that you’ve received a lump sum payment related to 2024

Donna Cournoyer In Financial Planning

Retirement Plan Super Catch Ups

Savers age 50 and older who are participants in retirement plans are permitted to do “catch-up” contributions of $7,500 in 2025. Add this to the annual elective deferral limit of $23,500, and over-50s can put up to $31,000 into their retirement plans.

This applies to most 401(k) participants, as well as those with 403(b)s, governmental 457 plans, and the federal government’s Thrift Savings Plan.

A subset of older 401(k) plan participants can make even higher catch-up contributions, starting in 2025. SECURE Act 2.0 increases the catch-up contribution limit for those participants who are age 60, 61, 62, or 63.

For these savers, the deferral limit is the greater of $5,000 or 150% of the normal “age 50” catch-up contribution limit ($7,500 in 2025). The 2025 super catch up equals $11,250, which means the total eligible for deferral for this subset is $34,750. This limit will be indexed for inflation starting in 2026.

Workplace plans need to offer this “super catch up” option for workers to be able to make a super catch-up contribution. Not all plans have this feature. Plan participants age 60-63 should check with their retirement plan administrator to see if this option is available.

Once a retirement plan participant reaches age 64, they revert to the age 50 catch-up contribution in effect for that year.

Altogether, the availability of “super catch-up” contributions could be attractive for many folks within the applicable age range and who have the funds available to do so. Consider that a couple where each partner is eligible would be able to contribute nearly $70,000 in total!

-RK

Donna Cournoyer In Economy

What Comes Next?

The question I’ve been wrestling with since Thanksgiving (when it became fairly certain that 2024 would end up being another stellar year for stocks) is: “What comes next?”

To recap recent history: large company US stocks, as measured by the S&P 500 index, gained nearly 25% in 2024, which followed a 26% gain in 2023. Back-to-back stock market gains of such magnitude are unusual.

Researcher Michael Cembalest at JP Morgan Asset Management looked at US stock returns going back to 1879. In the past 145 years, there have been ten instances where stocks have climbed more than 20% for two consecutive years.

The table below shows what came after two years of 20%+ returns in the past.

Underneath each year, the corresponding return of the stock market for that year is shown. The two consecutive “20%+ return years” are shown on the left in the regular font, and what happened in the subsequent two years follows on the right in bold font.

Source: JP Morgan

What does history tell us about what comes after two fabulous years of 20%+ consecutive returns?

In eight of the nine historical instances, cumulative returns in the following two years were lower
In five instances, cumulative returns, while lower, were still positive
The three instances where cumulative returns were negative coincided with either recession (1957) or the Great Depression (1929-30 and 1937-38)
In one instance (1995-1998) returns following the two years of 20%+ consecutive returns were higher

This data suggests that if the US economy avoids recession for the next two years, then there is a good chance that US stock returns will be positive in the 2025-2026 period.

The JP Morgan researcher Michael Cembalest (who compiled the data) has this to say about 2025:

Expect a 10% – 15% correction at some point in 2025
In 60 of the past 100 years there has been at least a 10% correction
In 40 of the past 100 years there has been at least a 15% correction
US equity markets should end the year higher than they began
Be sure to have plenty of liquidity to take advantage of what might be a volatile year

Other Voices: four researchers that I respect and follow closely from three firms have made the following comments in their 2025 outlooks:

Torsten Slok, Chief Economist at Apollo: “Incomes are high, stock prices are high, home prices are high, debt levels are low, interest rate sensitivity is low, and banks are more willing to lend to households. There is significant upside risk to US growth, inflation, and interest rates.”
Howard Marks, co-founder of Oaktree Capital: “The markets, while high-priced and perhaps frothy, don’t seem nutty to me.”
Nick Colas & Jessica Rabe co-founders of DataTrek: “We’re sure 2025 will have its share of concerns, but, in the end, we see little that could derail the ongoing move to higher stock prices.”

As we move into the next year, my take on 2025 is:

Stocks continue to be an important part of the investment portfolio and a good bet for long-term investors
Return prospects for intermediate-term bond funds have improved as Treasury bond yields have moved up toward 5%
Inflation resurgence and surprise economic policies from the incoming Trump administration pose the biggest potential risks for financial markets
While we’re likely to see episodes of stock selling and lower prices in 2025, conditions are not present for the onset of the next bear market
Portfolio returns are likely to be satisfactory for many investors this year, though probably not as strong as in 2023 and 2024

-RK

Donna Cournoyer In Market Updates

December 2024 Market Recap: It’s a Wrap: 2024 Review

In most instances, from Christmas through year end, investors are treated to a “Santa Claus rally”, where stock prices rise. But 2024 had an atypical end, with stocks falling flat.

The closing drop last year marks only the 12th time the benchmark S&P 500 index fell by more than 1% over that span since 1952.

So, does a “Santa Slump” mean poor returns going forward? Not quite, according to Bespoke Investment Group.

The research outfit found that, in the twelve months following a year-end decline of more than 1%, stocks tended to do better.

In fact, Bespoke found that large company stocks’ median performance after those eleven down years has seen a roughly 12% gain.

For 2024 as a whole, it was another banner performance for U.S. stocks.

In 2024, the S&P 500 index of large-company stocks rose nearly 25% and hit 57 new all-time highs along the way – the most since 1928. This stellar performance follows a 26% return for US stocks in 2023.

Once again, we have the technology sector, and the excitement around Artificial Intelligence (AI) to thank for these more-than-satisfactory gains. The seven largest tech companies, often referred to as the “Magnificent 7”, rallied 48% in 2024.

Stock gains were slightly less concentrated last year. The “Mag 7” contributed 55% of the return of large-company stocks, compared to 63% in 2023.

Outside of the US, stock returns were positive, but much less impressive. The MSCI EAFE (Europe, Australasia, and the Far East) index of foreign stocks rose by a pedestrian 3.5%.

One reason why foreign stock returns trailed far behind US stocks is that the US dollar strengthened by about 7% compared to other major foreign currencies.

Dollar strength acts as a drag on foreign stock returns, when those returns are measured in US dollars.

Another reason is that the Mag 7 is unique to the US.

While successful technology firms do exist outside US borders, no other country or region has an equivalent group of dominant, AI-focused companies like Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.

Bond returns also lagged far behind those of US stocks. Through September, intermediate bonds registered pretty good performance, returning about 5%.

But as the odds of a Republican victory at the polls went up in the fall, so too did interest rates (the concern being resurgent inflation), which had a negative effect on bond prices.

By the end of 2024, intermediate-term bonds, measured by the benchmark Bloomberg US Aggregate Bond index, returned 1.3%.

Short-term bond funds, where prices are much less influenced by changes in interest rates, did better, posting returns ranging from 4 – 5%.

Here’s a snapshot of quarterly US stock and bond performance in 2024:

Note: US Stocks = S&P 500 Index; US Bonds = Bloomberg US Aggregate Bond Index

-RK

Donna Cournoyer In Reading Recommendations

Super Communicators

The journalist Charles Duhigg currently writes for the New Yorker Magazine; has written three books on habits and productivity; and was the recipient of the Pulitzer Prize for Explanatory Reporting for a series of articles on the business practices of technology companies.

Duhigg is probably best known for The Power of Habit, which posited that behavior, whether of individuals or groups, can be changed by disrupting the “habit loop” of trigger, routine, and reward.

His follow up Smarter, Faster, Better focused on productivity.

In Supercommunicators: How to Unlock the Secret Language of Connection, Duhigg explores the art and science of effective communication, offering insights into how individuals can foster deeper connections and navigate complex conversations.

Duhigg puts forth a framework for understanding the type of conversation an interlocutor is trying to have (Practical, Emotional, or Social), and then explains ways that individuals can align with the type of conversation at hand to promote meaningful engagement.

I found that a lot of the material in the book boils down to the application of common sense.

But I also find it helpful to have a new lens for looking at recurring situations, and practical tools for improving vital skillsets that foster productive communication.

The mid-20th century sociologist Willam H. Whyte said: “The greatest problem with communication is the illusion that it has been accomplished.”

Readers of Duhigg’s book may be better positioned to avoid this “greatest problem”, and instead benefit from clearer communication and, subsequently, deeper human connection.

-RK

Donna Cournoyer In College Planning

College Applications Are In – What’s Next?

Your student has submitted the Common App. Congratulations – it’s a big step! So, what’s next?

While it may feel like you have crossed the finish line, college planning is not over yet. In fact, some of the most important steps begin now.

Some of the decisions you’ll make in the months ahead will have a great impact on not just the next four years, but for years after your college student receives that well-earned diploma.

Below are key areas of focus for staying on track financially.

If You Have Not Started a Plan to Pay, Begin Now

Make a list of your “likely schools” and their Cost of Attendance
Use college cost online calculators to give you an idea of how much each school will cost after financial aid and merit scholarships. Schools are required to have a Net Price Calculator on their website.
Use salary calculators to get an idea of what kind of salary you will make after graduation
If you are going to use loans for any part of payment, do your research now and definitely consider the Federal Student Loansthat each student is eligible for
Review parent college savings and assets intended to cover college costs and make a four-year cost estimate (remember costs increase an average of 5% per year)

Submit Your Financial Aid Forms

You likely have submitted the CSS Profile for your schools who require it by now (not all schools require this form).

Be sure to complete the FAFSA form (Free Application for Federal Student Aid) which is now open for the 2025-2026 academic year.

Plan Your Private Scholarship Search

There are many private scholarships available for students. A good place to begin this search is with your high school guidance office.

Search for local scholarships and use online tools. Be sure to never pay a fee, because legitimate scholarship websites do not charge a fee for application.

Here are a few websites to begin your private scholarship search:

Maintain Grades and Academic Focus

Colleges will be requesting final transcripts for review, so students should stay focused and keep grades up. Significant drops in grades could put college acceptance in jeopardy.

Consider Visiting or Revisiting Top Choice Schools

Since there are many factors that make a school the right fit (including if a student feels like they are at home on campus and with other students), make another visit, or be sure to visit if you haven’t already done so to decide if the college campus is right for your student.

Check out school resources, student activities, and even the geography and area of the school.

Take any opportunities to speak with students, faculty, advisors and department chairs.

Prepare for Acceptance Letters (and Possibly Rejection Letters)

In the coming weeks you will start to receive decision letters.

This is exciting! However, it can be stressful.

It is good to remember for your peace of mind that even if there are rejections, there is a school out there for your student where they will have a place to connect with peers and have the resources to succeed and enjoy the next four-year chapter of college life.

And Finally, Celebrate!

Over the coming weeks and months, especially during the holidays, you will likely have the opportunity to celebrate some acceptance decisions from your college list.

Be proud of this accomplishment and share with your family and friends. You (students and parents) have earned it!

-DC

Donna Cournoyer In Economy

The Red Sweep and Taxes

The incoming Republican Administration has floated a range of ideas related to taxes – some are more likely to be implemented, others less so.

Changes to tax law must go through the legislative process, and since Republicans will control both houses in the 119^th Congress, substantive change to tax law is likely in 2025.

Also, there are several adjustments to the tax law relating to retirement plans that will go into effect on January 1, 2025.

Possible changes to tax law, and upcoming tax-related changes for retirement plans are discussed below.

Tax Policy Under a New Administration

Many of the provisions from the 2017 Tax Cuts & Jobs Act which lowered taxes for individuals are set to expire at the end of 2025, including: lower individual income tax rates, a larger child credit, higher standard deductions, and the bigger lifetime estate and gift tax exemption.

Tax policy ideas floated by Republicans during the presidential campaign include:

Make the 2017 tax cuts permanent
Raise the child tax credit
Drop the corporate tax rate
Impose across-the-board tariffs
End green energy breaks
Tax-free overtime pay
Exempt Social Security from taxes

The tax experts at The Kiplinger Tax Letter believe that the last two bullet points (tax free overtime pay and exempting Social Security from taxes) are unlikely to gain enough support to pass Congress.

Current expectations are that Congress will pass a big tax bill in the fall or winter of 2025, with most tax changes starting in 2026.

One potential hurdle to enacting all the proposed tax breaks is cost: if all the changes are implemented, the revenue loss for the federal government is estimated to be about $9 trillion, according to financial magazine Barron’s.

We expect to be sifting through a lot of new information in the months ahead and reporting back to you as we get clarity on changes to the tax situation – especially changes related to individual income taxes and exemptions.

Retirement Plans: Upcoming Changes for 2025

The following key dollar limits on retirement plans are set to increase in 2025.

401(k) Plans

Contribution limit rises to $23,500
People aged 50 and older can contribute an extra $7,500
People aged 60 – 63 can contribute a larger “catch up” of $11,250

SIMPLE IRAs

Contribution cap rises to $16,500
People aged 50 and older can contribute an extra $3,500
People aged 60 – 63 can contribute a larger “catch up” of $5,250

Traditional IRAs

Contribution cap remains $7,000
Catch-up for people aged 50 and older is an additional $1,000
Couples deduction phaseout: Adjusted Gross Income (AGI) of $126-000 – $146,000
Singles deduction phaseout: AGI of $79,000 – $89,000
Note that phaseouts apply to people covered by a workplace retirement plan
If only one spouse is covered by a plan, phaseout for the uncovered spouse is: AGI of $236,000 – $246,000

Roth IRAs

Contribution cap remains $7,000
Catch-up for people aged 50 and older is an additional $1,000
Couples contributions phase out at AGI of $236,000 – $246,000
Singles contributions phase out at AGI of $150,000 – $165,000

Qualified Charitable Distributions (QCDs)

People aged 70.5 and older can transfer up to $108,000 from an IRA directly to charity
QCDs can count as Required Minimum Distributions (RMDs), but they are not taxable and are not added to AGI

-RK

Donna Cournoyer