Delta Wealth Solutions Strategy Lab
Welcome to the Strategy Lab. The Delta Wealth Solutions Strategy Lab focuses on providing the necessary insights to help clients achieve optimal investment and planning outcomes. Please check back regularly for our quarterly market newsletter along with commentary on the stories that move markets.
January 2025
Markets are Always Right Around the Corner
Delta Strategy Lab - Quarterly Market Update
We sit here in the first week of the new year having just completed another holiday season. The hustle and bustle, the retail mania, the packed grocery stores come and go like clockwork every single year. This cycle is perpetual and never ends. Children begin by being excited for Santa Claus to visit, then transition into enjoying the food and family in their older years. Parents create the magic of the season and then transition into watching their own children carry on or create their own traditions. The point remains that no matter where one falls on this spectrum the holidays are never ending. There is always a new generation of children to be excited for Christmas morning, there are always a new group of parents stressing over toys and food, and there’s always a generation that gets to sit back and enjoy the fruits of their many years of labor. This cycle reinvents itself every single year, the same way markets continue in a perpetual nature as well. Market cycles, like the holidays, are never ending. There will be bullish rushes of prosperity and, unfortunately, bearish seasons with the shelves left lacking. Markets will continue to move forward and investors must ensure that they’re prepared for the ride. Whether young and just starting savings, or a more experienced investor in retirement, the cycle of investing will never end and investors should enjoy the euphoria of rising market values, but also prepare for the bumps along the way.
Where do I stand with my financial plan?
Sticking with the theme of perpetual markets, let’s review the past few years. In the Delta Wealth Solutions January 2022 newsletter, we discussed an economy firing on all cylinders and the beginning of the Federal Reserve removing easy money accommodations. In January 2023, just 12 months later, we wrote about how the economy was experiencing a rolling recession and attempted to quantify the highest inflation readings in over 40 years. In January 2024, we discussed a slow return to earnings growth and how higher interest rates would impact fixed income investors. It’s been a wild ride these past few years to say the least! With that said, if an investor were to overreact to any one moment in this timeline they would have ultimately been met with severe underperformance. If an investor went to cash in January 2023, they would have missed back to back 20% annual returns for the S&P 500! There are certain tools that remain in tact no matter where we stand in a market cycle. These tools include diversification, rebalancing, and asset allocation, all of which remain in our control. Delta Wealth Solutions looks forward to assisting clients manage these tools no matter where we sit an any given market cycle.
“How many millionaires do you know who have become wealthy by investing in savings accounts?.” Robert Allen
Some of These Years are Not Like the Others
After the market as measured by the S&P 500 gained north of 20% in 2023 few were predicting positive market returns in 2024, no one was predicting back to back 20% returns and yet that is exactly what happened. There is an old saying, “The market will make as many people as possible look as ignorant as possible” and 2024 was that year for many. The Fed funds rates stood at multi decade highs, the economy was slowing, stock market valuations were the highest since the dot-com burst and yet when it was all said and done the S&P 500 ended up 25% on the year making 571 new all-time highs. Years like 2024 remind investors the importance of staying invested regardless of market noise. If one would have sold their investments due to politics or valuations they would have missed out on significantly above average market returns.
For investors that participated in 2024’s ticker tape parade higher there’s certainly reason to celebrate. With that said, many of the concerns investors had going into 2024 remain in 2025. Stock market valuations are at even more elevated levels, the economy continues to slow, inflation remains above 2 percent, and bond interest rates are retesting their 2023 highs. While these items are concerning, it doesn’t necessarily mean the bull market is coming to an end. Simply we would state 20%+ return years back to back are not common, and investors shouldn’t expect these types of returns to continue in perpetuity. Similar to the concept of the next holiday being around the corner, investors should avoid getting complacent thinking the market environment will stay in the roaring 2020's forever.
Volatility is the Toll We Pay to Invest
Recently the investment research team at Carson Wealth Management (not affiliated with Delta Wealth Solutions) wrote a piece discussing what type of market volatility is historically “normal”2. After two years of virtually no volatility (down markets) it’s important to remind oneself markets do go down in the short-term and in most years it’s a fairly common phenomenon. Looking at the chart below on average the S&P 500 sees a 10% correction once a year, a 15% correction every 2 years, and a bear market about every four years. In 2023 & 2024 the S&P 500’s largest drawdowns were 9% and 8% respectively only lasting a couple weeks in each instance. After market performance in recent years it would be entirely normal to see a pullback in this range in 2025. This doesn’t mean investors should sell and go to cash, or get more conservative, simply it’s a historical data point to be aware off. As the famous portfolio manager Peter Lynch has stated, “More money has been lost trying to avoid corrections than in the actual corrections themselves.” In our view, market pullbacks are similar to a “sale” where we use the opportunity to rebalance, reposition, and deploy new cash to work as necessary.
Diversification is Uncomfortable
One of the many golden rules of investing is “don’t put all your eggs in one basket.” This is simply a metaphor for investors to avoid allocating all of one’s capital to a singular investment or theme to protect from the total loss of one’s investment portfolio. While protecting investors from a total loss and potential underperformance, there is always going to be the feeling of missing out, and 2024 was no different. JP Morgan Asset Management provided a chart of various asset classes and their calendar year returns for last year3. One may notice there is a wide disparity between US Large Cap Stocks and REITs. Similarly, fixed income returns were barely positive while every other asset class had a higher returns. For Delta Wealth Solutions portfolios the largest equity allocation is held in US Large Cap stocks which was a great positive attribution to portfolio performance. However, most clients do hold small-caps, international, and REITs too which may be viewed as detractors to portfolio performance. In any given year diversification may cause disappointment, but over the long-term diversification has been statistically proven to reduce risk and generally improve risk adjusted returns.
JP Morgan Asset Management Chart of the Week December 2024
Through All the Noise, Earnings are Still Growing
Most of the news media continues to focus on the risks throughout the market and the global economy; however, by one metric US companies are stronger than they have ever been. S&P 500 earnings are estimated to have risen 9% in 20244 (this is an estimate because Q4 24 earnings won’t be reported until 2025). Wall Street analysts are estimating earnings growth will accelerate even further in 2025 growing another 14%. Corporate profit margins are near the highest levels in history (excluding during the covid-19 pandemic). Companies like Apple, Microsoft, and Meta have hundreds of billions on their balance sheets that can be used to invest in AI, allocate to stock buybacks, or other optimal capital uses. As long as earnings continue to grow there is reason to expect the bull market to continue.
JP Morgan Asset Management Guide to the Markets January 2025
Asset Allocation Doesn't Need Clarity
Moving into 2025 clarity isn’t in the vocabulary. The Federal Reserve isn’t sure about it’s next move, the political makeup is unsure of what can be accomplished, and tax cuts are expiring at the end of 2025. If anyone says they know how 2025 is going to play out they’re likely lying. As we discuss in every newsletter it’s important for investors to focus on what can be controlled. Asset allocation, rebalancing, and goal setting are all controllable metrics. These principles have guided clients through the financial crisis, covid-19 pandemic, and the 2022 bond bear market. We continue to have a high degree of confidence these pillars of portfolio management will continue to guide clients in the right direction in the future even if we don’t know exactly what the future holds.
Added Disclosures: Indexes shown: S&P 500 Value, S&P 500 Growth, S&P Mid Cap 400, S&P SmallCap 600 Growth, S&P SmallCap 600 Value, ICE BofA High Yield Bond Index ETF, Barclay's Aggregate Bond Index, MSCI World Index ex. US, S&P 500 Real Estate, and Morgan Stanley Capital Index Emerging Markets. This is not an official representation of your asset allocation. The percentages could be subject to transcription error. Data provided by S&P Capital IQ, Morningstar Research, MSCI. Data as of 12/31/2024.
1. Jr., Francis M. Kinniry, et al. 2024 Strong Equity Returns: From Caution to Celebration to Rebalancing into Fixed Income, advisors.vanguard.com/insights/article/2024-strong-equity-returns?cmpgn=FAS%3AEM%3ASSCRBE%3A719475935531&suid=CONT0429569&crd=%25%ADvisor_CRD_Number%25%25&guid=%25%25Contact_GUID%25%25. Accessed 8 Jan. 2025.
2. Ryan Detrick “Volatility is the Toll We Pay to Invest” Carson Investment Research Accessed 21 December 2024
3. David Kelly 2024 Asset Class Returns Chart of the Week. JP Morgan Asset Management Accessed 29 December 2024
4. David Kelly S&P 500 Year over Year Earnings Growth JP Morgan Asset Management Accessed 8 Jan 2025
This commentary on this newsletter reflects the personal opinions, viewpoints and analyses of the Delta Wealth Solutions, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Delta Wealth Solutions, LLC or performance returns of any Delta Wealth Solutions, LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website/newsletter constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Delta Wealth Solutions, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Delta Wealth Solutions, LLC a Registered Investment Adviser. This newsletter is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Delta Wealth Solutions, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Delta Wealth Solutions, LLC unless a client service agreement is in place.
The hypothetical information provided is back-tested performance, was compiled after the end of the period described and does not represent decisions made by Delta Wealth Solutions, LLC.
Specific note concerning graphs, images, charts, formulas, or any other visuals: Delta Wealth Solutions, LLC provides such exhibits for informational purposes only and the data provided alone should not be considered investment advice and should not in and of itself be used to determine which securities to buy or sell, or when to buy or sell them. Any graph, image, chart, formula, or visual should be only be considered in its specific context within this newsletter and from the original source where it is derived. Any use of a graph, image, chart, formula, or other visual is not a solicitation to buy or sell securities in any manner. Any investments should be considered thoroughly and discussed with the readers Financial Advisor.
This publication has been prepared by Delta Wealth Solutions LLC and may not be reproduced or distributed without the consent of Delta Wealth Solutions LLC. This document is for informational purposes only and is not an offer, or solicitation, to buy , sell or hold any financial product or investment. The analysis contained within this publication should not be considered a recommendation and does not take into account the specific goals, objectives, or needs of any recipient. Past performance is no indication of future results and different assumptions could create results that materially alter from the information conveyed in this publication. The opinions and information conveyed within this publication were procured by sources deemed to be reliable. This report is up to date as of the date and time reported on page 1 of this publication.
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