After several days of profit-taking, stocks tried to stage a recovery in the first two days of the new year with varying success. Traders are cautious and fear that there may be more downside to come.

 

While Santa made at best a brief appearance this year as far as the expected rally was concerned, the damage was not all that great. The S&P 500 Index suffered a loss of less than 3 percent from its all-time high while NASDAQ was hit harder.

 

The dollar and bond yields continued to climb as foreign currencies fell against the dollar in preparation for the incoming administration's expected new tariff regime. Most overseas markets vastly underperformed the U.S. equity market last year. This year, analysts are calling for more of the same as Europe, Asia, and emerging market economies decline.

 

The U.S. economy continues to perform. The latest employment data, this week's jobless claims, unexpectedly fell to the lowest since March. The overall number receiving unemployment benefits fell by 52,000 to 1.84 million workers, the lowest since September.

 

These results build the Fed's case that further interest rate cuts should be approached cautiously in 2025. As it stands, they are projecting only two rate cuts for the entire year. Part of that caution stems from a wait-and-see approach to how the new administration's economic policies will impact the markets.

 

While investors tend to be optimistic heading into the new year, the same old issues have not disappeared. Concerns over the back-up in inflation, what a tariff war will do to the economy and heightened geo-political risks have not gone away. The end of the week saw US equities bounce but the move lacked enough strength to convince me that the profit-taking that occurred last week is quite over.  The lack of a widening out of the market continues to trouble me.  Breathe needs to improve and that is not happening as of this week.

 

Right now, the algo traders and options markets are programmed to react violently when certain levels are breached on the upside and downside of the markets. This happens in periods like this when volumes are muted, and many traders are still on holiday. When these levels are hit on the downside, selling intensifies pushing stocks even lower. The same occurs on the upside. This creates a chop fest for those who are actively trading. It is not for the faint of heart.

 

It would not surprise me if we pulled back in the next week or two by another 4-5 percent on the S&P 500 before this period of consolidation is over. Given that the S&P 500 was up 23 percent for the year and the NASDAQ close to 30 percent a little more profit-taking would be normal.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Saving for retirement will get a little more attractive next year. Given the dire state of savings in this country, anything that convinces workers they need to save more will be beneficial.

 

The Secure Act 2.0, enacted in 2022, ushered in several additional improvements in retirement savings, including even higher 401(k) plan catch-up contributions. The object was to make it easier for older American workers facing a retirement savings shortfall to set aside more money quickly. 

 

The facts are that there is a widespread retirement savings shortfall in the U.S. that spans generations. Sixty-five percent of Baby Boomers (age 55-64) have less than $25,000 to $100,000 saved toward retirement. If we use $500,000 as a marker, less than 7 percent of boomers saved that much and only 5 percent of the GenX generation (45-54).

 

Younger generations like older millennials (35-43) are not much better off and 10 percent lack a 401(k) entirely. However, 65 percent of Gen Z and younger millennials (21-34) do have $25,000 to $100,000 saved but doubt whether they will ever reach $1 million by retirement. Overall, if one believes the benchmark total of $1 million is needed to retire, only 2 percent of 401(k) holders have achieved that. And over one-third of Americans today believe they will never reach that benchmark.

 

In 2025, the government will provide a few more incentives to bolster savings. Contributions for 401(k), 403(b), governmental 457 plans, and the federal government's Thrift Plan will inch higher. The new limit for all the above plans will increase by $500 to $23,500.That is not much, but every little bit helps. For older workers, aged 50 and up, additional savings are allowed under a catch-up plan. 

 

While the catch-up contribution limit for those 50 or older remains the same, bringing their total contribution to $31,000, those workers between 60 and 63 years old can save even more in the coming year. The catch-up limit for those in their early sixties increases by $11,250 annually. That is substantially higher than the $7,500 allowable now.

 

The contribution limits for Individual Retirement Accounts (IRAs) will remain $7,000. The catch-up limit for individuals over 50 stays the same as well at $1,000.

 

For those who favor contributing to Roth IRAs, there is some good news. The income limit range for workers will increase to between $150,000 to $161,000. If you are married and file jointly, the range increases to between $236,000 and $246,000, which is up from $230,000 to $240,000. 

 

There are some additional incentives to at least jump-start savings for the 32 percent of working-age Americans (about 58 million people) without a retirement savings plan. The income limit for the Retirement Savings Contributions Credit, also known as the Saver's Credit, was increased. The Saver's Credit, available since 2001, is a tax credit worth up to $1,000 ($2,000 if married and filing jointly) for mid- and low-income taxpayers who contribute to a retirement account.

 

To qualify, you need to be over 18, not a full-time student, or a dependent on someone's tax return. Your adjusted gross income in 2025 needs to be below $79,000 for married couples and $59,250 if you head a household. If you are single or married but filing separately your income cannot exceed $39,500.

 

It baffles me why Americans aren't saving more in retirement accounts. Many say they just can't afford to max out their savings plans even when their companies offer to match some portion of their contributions. That may be true in many cases. Thus far, there is no other way to force Americans to save for retirement other than through the Social Security tax on income.

 

Given the worries over the deficit, funding, and continuing threats by some to cut Social Security benefits, why hasn't it happened already? The simple answer is if you cut Social Security, millions of people with no savings will end up destitute and on government life support in retirement. That would be an even more expensive proposition than the Social Security system.

 

Yet changes to the Social Security program seem inevitable at some point. If so, why not require the government to match retirement plan contributions while reducing Social Security benefits simultaneously for those under retirement age?

 

In the short term, it might be moving the chips from one side of the table to the other, but it need not be forever. The trick would be to incentivize workers to establish a savings habit. That wouldn't take too long. Once accomplished, especially with savings withdrawn from paychecks automatically (just like Social Security taxes), the match could be raised or lowered depending on circumstances.  

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

It is a time when financial strategists and economic experts forecast what will happen in the coming year. Since most of Wall Street is trying to sell you something, prepare for a positive outlook from most firms.

 

On practically the same date last year, I wrote that strategists were predicting the 2024 S&P 500 Index targets ranged from 4,200 to 5,500. Given that over a long period, the S&P 500 has delivered around 10.13 percent yearly returns since 1957, and 9.19 percent over the last 150 years, forecasts that mimic those returns should be ignored.

 

Those forecasts told me the authors had no idea where the market was going.  As such, they just took the historical average gain as their forecast, and very few were bearish for 2024. 

 

Overall, Wall Street did get the direction right, but the S&P 500 Index gained more than double their best forecasts. Most forecasters also expected the dollar to continue to decline, and interest rates as well. Neither happened. Given the track record, I would also take 2025's forecasts with a grain of salt. 

 

This year, the target range for the S&P 500 ranges from 6,400 to 7,007. This implies a return between plus-5 percent and plus-15 percent. The average of those two extremes is of course 10 percent. Need I say more? Unlike others, I usually refrain from forecasting where the S&P 500 will end up 12 months from now. There are just too many factors that can change my outlook along the way. So instead, I will focus on the risks and rewards I see for the markets.

 

Inflation is one of my chief concerns. I expect the inflation rate to hit 2.9 percent next month and climb higher into the summer. That means to me that the markets should not expect the Fed to cut interest rates again for quite some time. That removes one major support for the markets.

 

I do expect the economy to continue to grow but at a slower pace. As such, corporate earnings should grow along with the economy. In that environment, I do think that small-cap stocks will finally have their day in the sun. That is not a unique position. Most analysts in the financial community are recommending small-cap outperformance as well.

 

On the political front, Donald Trump will be inheriting a strong economy, a robust employment picture, a strong dollar, reasonable interest rates, and a flattening inflation rate from the Biden Administration. It is his to build upon or to squander. He will also face a historical debt burden that he will be forced to confront at some point.

 

The prevailing sentiment among investors is that the incoming president will benefit the economy due to his stance on deregulation, efficiency, lower taxes, and lower interest rates. Despite his promise to levy blanket tariffs on the world, most U.S. traders believe that his threats are at most a negotiating tactic.

 

I hope so. The rest of the world doesn't think that will be the case. Going into 2025, several major nations have already watched their currencies fall 8-9 percent against the dollar. That indicates to me that they think the tariff threats will be real and will bite, at least in the short term.

 

I would expect that if the dollar does continue its climb in a tariff war, then Bitcoin, and possibly gold and other precious metals, will do so as well.  That does not mean that cryptocurrencies will go straight up from here. I am looking for a deep Bitcoin pullback to the $86,000 to $74,000 range first.

 

As for the market's overall performance, it would be rare to have another year like the last two years. That doesn't necessarily mean markets would be down, but a less robust performance would not surprise me. Equities usually have a period of consolidation beginning in the last part of January.  I would watch out for that.

 

In addition, in populist periods in the past, stock market performance between presidential election years has been dismal at least in the Sixties into the Eighties. However, right now, the Santa Claus rally is once again in play.

 

The end-of-year flow of funds into equities is alive and well and should continue to support the market at least into January. During this period, Santa has delivered to the market a 1.3 percent gain on average since 1950. Happy New Year.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

Last week, billionaire Stephen Feinberg of the private equity firm Cerberus Capital Management was selected to fill the No. 2 spot at the Defense Department. That brings the number of billionaires who have agreed to join Donald Trump's second term to an even dozen. Should you be worried?

 

The wealth and business background of these individuals have sparked concerns that the next four years will favor business interests and those of the wealthy above all else. If we include Trump, Elon Musk, and Vivek Ramaswamy, the total thus far would be 15. At last count, U.S. News and World Report estimated that the total net worth of these billionaires as of Dec. 10 was more than $382 billion. That would be equivalent to the Gross Domestic Product of 172 different countries.

 

The Departments of Treasury, Commerce, Education, Interior, and Defense will be run by these wealthy individuals as will the Small Business Administration and NASA. In the $100 million to megabillion-dollar net worth range, are another group of ambassadors, advisors, the energy secretary, and the head of the Social Security Commission.

 

The facts are that American politicians have always been wealthier than most Americans. That is true in other countries as well. For wealthy individuals serving one's country may truly be altruistic since government jobs are thankless and underpaid for the work required. Service is also a massive step down from what these people can and do make in the private sector. However, it is also true that wealthy lawmakers usually favor pro-business policies.

 

In the recent election, 150 billionaire families spent a total of $1.9 billion supporting both presidential and congressional candidates, according to a study by Americans for Tax Fairness. That was a 58 percent increase over what was spent in 2020. The lion's share of that money went to the Trump campaign ($568 million), compared to $127 million to Kamela Harris. Those figures underestimate the real totals since many donors conceal their identity when funding political causes. Elon Musk alone is thought to have contributed as much as $277 million to the Trump effort in 2024.

 

Some critics believe that the entire trend in political spending by the one percent is an effort to shape the terms and future of American democracy in their favor. They point to Trump's running mate, Senator and now Vice President-elect JD Vance, a protégé of billionaire Peter Thiel, as an example.

 

Last week's controversy over Musk, the head of the proposed Department of Government Efficiency (DOGE) is a case in point. Musk, who holds no elected office, mounted an 11th-hour protest over the bipartisan congressional deal designed to fund the government for a few more months.

 

What had begun as a clean and simple piece of legislation two weeks ago, became a free-for-all by legislators on both sides to attach additional spending for pet projects. Musk pointed that out on social media and demanded the agreement be revised.

 

The political blowback from House members was immediate. Both Republicans and Democrats called press conferences. Some (mostly Democrats) accused "President Musk" of sticking his nose where it doesn't belong. The criticism continued, despite Trump's backing of Musk's arguments. How dare a civilian interfere with the work of elected officials! 

 

In any case, a compromise was put together quickly and the legislation passed, but much of the pork in the bill was dropped. The politicians claimed victory. Musk and Trump lost, according to the media but I have a different take. It seems to me that we, the people, won. Why?

 

We all know that this kind of wasteful spending happens all the time in Washington. It is hidden from the public and usually attached (and buried) in a bill of something important that both sides can defend such as disaster relief. Over time, this or that boondoggle or bridge to nowhere is revealed, and we shake our heads over the duplicity of it all. "Something must be done," we mutter in outrage, but nothing ever is. We shrug our shoulders and over time go on about our business. The politicians are counting on this. And yet, over the last few decades, we became increasingly less happy, than angry until today the entire political system is in doubt.

 

The difference this time was that one of these billionaires not only blew the whistle on the practice but had at his fingertips a vast avenue of communication called X to announce it to the world. Was it unorthodox? Absolutely. It may take similar actions and/or out-of-the-box thinking to change a fossilized system where we all talk about a good show but take no action.

 

I would counsel readers to avoid  jumping to conclusions because many of these appointees are wealthy and not from "acceptable" backgrounds in government. That does not mean I approve of all the former president's appointees no matter how much money they may have. Far from it. Nor did I approve of all of Biden's appointments.

 

But nothing says that a team of billionaires will automatically promote a business-as-usual attitude toward the problems facing this country. Franklin D. Roosevelt was a man from a wealthy family. He gave us the New Deal, shepherded us through the Great Depression, and led our country to victory through a World War.

 

To many, Michael Bloomberg, another billionaire Wall Streeter, did the impossible. He changed the face of New York City, straightened out its finances, and served three terms as mayor. Yes, some said he was arrogant and insensitive to the poor but there has never been a mayor like him to this day.

 

Many argue that these rich people lack experience in government service. That may be a good thing. They will make plenty of mistakes, but billionaires learn fast. In comparison, those public/private/ lobbyists/politicians who have spent their careers moving in and out of government service are the people who have brought the country to where it is today. These politicians often seem to have only one remedy for what ails us as a nation — more of the same.

 

 We face a crisis today and it doesn't take a rocket scientist to figure that out. Voters in this populist era are angry. They are demanding major changes in both our political and economic systems. A return to a time when robber barons exploited the government for their ends will last as long as an ice cream cone in July. The rank-and-file of Americans will not take kindly to getting shafted once again.

 

Remember that most of those billionaires boot-strapped their way to where and what they are today. They know what it takes to succeed in the private sector. Can they apply their tools to the public sector? That remains to be seen, but I will at least give them the benefit of the doubt.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.

The Federal Open Market Committee cut interest rates again on Wednesday and reduced the number of interest rate cuts next year. That decision dismayed investors and triggered a run for the exits in the stock market. Will this government Grinch decision ruin the chances of a Santa Claus rally?

 

Wall Street labeled the central bank move a "hawkish cut." Prior to the meeting, most investors were expecting that the Fed would pause after this month's rate cut of 25 basis points. Given that events unfolded as expected, why did the Dow lose over 1,000 points in two hours?

 

Inflation is the short answer. You may recall in last week's column I commented that stock traders were choosing to ignore the back up in the  rate of inflation over the last three months. It is something that has concerned me for months as readers know. I remarked that others were so focused on the wonderful promise of a second Trump administration that inflation just didn't seem to be a problem.

 

That changed this week. The Fed finally admitted that their inflation forecasts for this year were not coming through. Several members of the committee began to back away from easing further.

 

In the Q&A session after the Fed meeting, Chairman Jerome Powell made it clear that their inflation target of 2 percent may not happen for another year or two. Until it does, he warned we should expect further declines in interest rates to occur at a slower pace. As a result, the FOMC has halved the number of rate cuts they expected to approve in 2025 from four to two and maybe not even that many.

 

His decidedly negative remarks immediately took the wind out of the market's sails. The Dow was not alone in its fall. Both the S&P 500 and NASDAQ declined  2-3 percent as well. Thursday saw what I would call an anemic dead cat bounce and on Friday the markets rebounded.

 

Friday was another one of those triple witching days in the options markets which occur four times a year. Given the sheer dollar value of these occurrences, markets can be unusually volatile. A total of $6 trillion in options of all kinds expire Friday. In addition, the S&P 500 Index and other indexes will be rebalanced as well. This rebalancing can cause significant shifts in trading volumes and volatility as well.

 

 All of this is occurring in a week when the Fed triggers an overdue pullback in the averages. One of the clearest signals that something was amiss was breathe. Breathe is the number of stocks going up versus the number going down. Negative breathe had been increasing for the last 14 sessions as just a handful of stocks were keeping the markets positive. It is usually a sign that a pullback is coming and sure enough we are in one now.

 

My mistake was failing to take action and instead counting on the seasonal factors to win out over breathe. Does that mean the Santa rally will be skipping the U.S. market this year? Not necessarily. Although I now believe we could fall further, it does not have to happen next week. We could bounce next week into the New Year before heading lower again.

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.