Markets Resume Their Advance

The markets resumed their upward march last week, recouping much of the previous week’s losses and closing in on record highs. It appeared markets shrugged off comments from Federal Reserve Chair Jerome Powell regarding the potential slowing or decreasing of rate cuts and returned to optimism about where businesses and the economy may head in 2025.

Only time will tell if the optimism pans out, but right now, there’s a lot of enthusiasm. Markets have downgraded the all-but-certain 25-basis-point (.25%) cut in December to a 50/50 toss-up. That initial realization is what sent markets scurrying in mid-November, but the enthusiasm is hard to hold back — whether it’s from Bitcoin pushing $100,000 or great earnings dispelling fears. Even disappointing earnings from NVIDIA didn’t cause the market to stumble last week.

This week will include Black Friday, and it will be interesting to see how strong the consumer will be and if the market’s enthusiasm will carry into the holiday shopping season. But the recent market action isn’t something investors should get accustomed to; in fact, it may be a good idea to adjust allocations to make sure you don’t get overextended. We’re not saying to do anything drastic, but rebalancing back to your natural risk levels might make sense from a tax perspective. You could do that before 2024 is over if you have losses to offset gains or in early 2025 so you have the rest of the year to help manage your tax situation. We’ve enjoyed a prolonged market rally, but we will have a correction sooner or later — that’s just how markets work.

Things are Heating up Globally — and Likely not in a Good Way

If anything will spoil the market’s mood, it’s geopolitics. The ante has gone up in the Russia-Ukraine conflict, as the Biden administration has authorized the use of missiles against targets in Russia.6 Why is this significant? Because Ukrainians are not trained on the system and the missiles need to be fired by NATO personnel, which brings NATO one step closer to direct conflict with Russia.

The Russians view this as an act of war by NATO, so they may decide to escalate. If the conflict expands, the markets will likely feel it literally overnight — and with where levels are right now, it probably wouldn't take much to spook the herd and send the markets downward. As mentioned earlier, it may be time to take advantage of what the markets have given us and not be complacent.