Time Will Tell
Welcome to 2025!
Unfortunately, 2025 has not started off as smoothly as we all would have liked. From two tragic terrorist attacks in New Orleans and Las Vegas and the threats of potentially more, the country is a bit on edge. If these terrorist attacks continue or have larger impacts, the markets and our economy could be impacted. Time will tell.
December returns were also as rough as I feared. Staying in the F Fund would not have benefitted me much as all Funds were down for the month. The markets saw some of their worst performances since 2020 - a scary occurrence. Given 2024 was such a strong year in the S&P 500, I'm not surprised the last month saw profit taking. Other factors of concern that impacted returns in December were hits to technology stocks (this was much of the profit taking) and energy and material stocks due to concerns about weakening overseas demand, especially in China.
The Federal Reserve's statement on rate cuts was also concerning to investors. The Fed announced a 25 bps rate cut, but when the expected number of 2025 rate cuts was slashed from four to two, investors got concerned. There are two reasons for this. First, does the Fed see higher inflation pressure in 2025 due to potential tariffs? Second, with a new administration coming in, there are potentially other economic concerns the Fed is thinking about and may want to keep their powder dry.
I see the reduction in Fed rate cuts as a positive sign, as they likely see the economy as stronger than they expected earlier in 2024. While I am concerned about what it says about inflation expectations, growing too fast with low interest rates is a recipe for a bubble.
At this moment, I think we are all in a bit of a wait and see moment for just about everything in the world right now. We have 2 majors conflicts, a new administration, renewed terrorist attacks at home, potential conflict with China, the beginning of a major space developments, and DOGE, and many other unknown disruptors all set to be resolved, started, or otherwise occur in the next 12-24 months. I think this is really what the Fed is doing, and it's what I'm going to be doing.
I think our economy is strong, the major threats to our country are fairly low, and the new administration will probably be very additive to our GDP and trade agreements. I'm remaining 100% in the C Fund as any alternative right now is too much risk or too low reward. Enjoy the new year, and keep investing!
