Hello, this is James Mayer, Branch Manager, from the Huffman Mayer Wealth Management Group of Wells Fargo Advisors. Tax season is here, the first month is over, and the team here is still going strong on our resolutions! We are excited for you to join us for another edition of “The Market Recap.”
Let’s see what Phil has to say about January.
Thanks James!
1. According to FactSet, with 10% of earnings results in for 4Q23, margins for the quarter are expected to finish lower. The Net margin (net income divided by revenue) is expected to come in at 10.7% for the quarter, in line with the second half of 2020, but lower than all other quarters 2021-2023. The Financial and Health Care sectors in particular are expected to be less profitable, with margins 4.0% and 2.9% below their five-year average, respectively. It is worth noting that net margins are expected to rebound to 11.7% in 1Q24 and 12.1% in 2Q24.
2. The Federal Reserve Bank’s “dot plot” showing forward looking rate expectations showed declines for the first time in a while, with the projected Fed Funds rate for 2024 decreasing by 0.50% to 4.6% and by 0.30% to 3.6% for 2025. PCE Inflation estimates for this year and next also decreased by 0.1% each, to 2.4% for 2024 and 2.1% for 2025.
3. While the higher rates we are experiencing right now have obvious drawbacks, making it more expensive to buy vehicles and homes, and increasing the payments on any variable rate borrowing, low rates also have a downside for many households, although it may be harder to see. According to a recent report from the McKinsey Global Institute, the Fed’s “low rate” policies from 2007-2012 created a benefit from corporate borrowers of $310 billion, while punishing household savers to the tune of $360 billion.1
1The Era of Easy Money is Over, The Atlantic, December 11, 2023
In summary 4Q23 net margins are expected to be the weakest in two years, declining to 10.7% before rebounding to 11.7% in 1Q24 and 12.1% in 2Q24. The Fed’s December “dot plot” shows lower expectations for inflation and rates in 2024 and 2025, the first such decrease after many quarters of higher expectations. The negative aspect of high rates is obvious, and many households have been contending with them the past two years. However, low rates have a downside too, as a recent McKinsey & Co. study Showed that low rates from 2007-2012 punished U.S. savers by $360 billion.
Now let’s see what James & Ryan have to say.
JAMES: Thanks Phil. We all know it is hard to keep up with the ever-changing rules and laws in our industry. So, we wanted to share a common question we’ve had recently about IRA contribution limits.
RYAN: That’s right James. In 2024 if you are under age 50 you will be able to contribute $7000 and if you are 50 and older you may contribute 8,000. This an increase of $500 from 2023’s limits.
JAMES: On another note, we want to encourage if you are curious when you should expect your tax documents from us or if you should be expecting any, to please give us a call. We would be happy to assist.
We always want to talk with you. If you feel you know someone who would enjoy this video, please feel free to send them the link.
As always stay happy, safe, and healthy and hopefully we will see you very soon.