January Newsletter

July 2024 “It was the best of times, it was the worst of times...”. You might recognize that as the opening line in Charles Dicken’s classic A Tale of Two Cities. That phrase might well apply to the U.S. economy. Despite relatively strong economic numbers, polling in the U.S. consistently shows consumers are dissatisfied with the American economy. Only one in five Americans feels that the economy is doing well. There are likely several contributing factors to this. First, some media outlets consistently paint a dismal economic picture. If we heard it on the news, it must be true, right? Second, a major factor in dissatisfaction is the inflation shock we experienced the last couple of years. From the Great Recession year of 2008 through 2020 (the onset of Covid), U.S. inflation averaged just 1.7 percent per year. In 2021, prices shot up by 7.0 percent, more than triple the previous 13-year average. That inflation continued in 2022 at 6.5%. Inflation certainly has slowed, currently running just over three percent. Consumers may misinterpret this as prices should start falling. For example, assume a $5 jar of peanut butter pre-pandemic now costs $8. A lower inflation rate doesn’t mean peanut butter is going back to $5. It’s likely stuck at $8! The relatively long period of mild inflation, combined with a shorter period of rapid price increases, has led to consumer frustration. Real wages (wage increases over and above the inflation rate) have actually increased the last few years. But they haven’t increased for everyone, and many families feel left behind. Hence, the high level of consumer dissatisfaction regularly being measured in polls. The facts on three key measures of the American economy are as follows: GDP: GDP grew at a rate of 2.5% for 2023 and continued growing in first quarter of 2024 at a rate of 1.4%. Inflation rate: as mentioned, currently at around three percent. The Federal Reserve’s targeted rate is in the two percent range. Unemployment rate: currently at 4.0 percent, near an all-time historical low. Jobs are readily available in many areas. If we had to pick perfect economic numbers, we’d suggest GDP back to 2.5, inflation at 2.0, and we’re fine with unemployment at 4.0. The actual numbers aren’t that far off! In his book The Psychology of Money, financial writer Morgan Housel sums it up: Nothing is ever as bad or as good as it seems! Please feel free to contact us for any questions you may have concerning the enclosed reports or other financial matters. We appreciate the opportunity to serve you!

April 2025 Given the business headlines for the first quarter, you may be hesitant to review the enclosed reports on your portfolio. Certain segments of the U.S. stock market experienced significant declines for sure. But those declines were offset to some extent by gains in other markets. Chief among them were gains in foreign stock markets. This includes foreign developed markets as well as emerging markets. Most fixed income segments had positive returns as well. As we write this letter, markets are digesting the news of the tariffs announced by the Trump administration on April 2. The announcement regarding new tariffs on U.S. imports has understandably stirred some waves in the markets, with a notable sell-off reflecting initial uncertainty. This move, aimed at giving American manufacturing a shot in the arm and bringing jobs back home, is a big step. It’s not surprising for volatility to follow as the world adjusts. Despite the uncertainty, markets have a way of riding out storms like these, whether it’s a new policy, a global event, or something else entirely. We’ve seen this before, and markets tend to settle down and adjust with time. Rest assured, we’re here to guide you through this stretch with care and confidence.

October 2024 The long-awaited and much debated interest rate cut finally happened. The Federal Reserve had announced earlier this year the aggressive rate increases of 2022 and 2023 had done their job in slowing inflation. (The latest inflation numbers came in at 2.5 percent, close to the Fed target of two percent.) The Fed had further indicated rate cuts were now on the horizon. Perhaps the only surprise in the September announcement was the size of the rate cut at 50 basis points, or one-half of a percent. We’re already seeing the results of this rate cuƫng environment. A 30-year home mortgage is now around six percent, down from 7.8 percent a year ago. Good news for home buyers. But one person’s gain is another person’s loss. Savers who recently collected a 5.5 percent interest rate on short-term Treasury bills now see that rate down to four percent. On balance, however, a declining rate environment should be positive for the economy overall. No doubt the election is on the minds of many. How could it not be given the barrage of coverage! We briefly addressed this in our April newsletter. But a quick reminder: Over the last 100 years, we’ve had 27 presidential administrations, 14 Democrat and 13 Republican. Stock market returns have been positive in 23 of 27 periods. Of the four losing periods, two were Democrat and two Republican. Your takeaway: the market has historically fared well regardless of what party is in the White House! Don’t adjust your long-term financial game plan because of an impending election. Texting with Mustard Seed It is crucial for us to stay connected with our clients. If you receive a text from (870) 626-0038, it means that a Mustard Seed associate is reaching out to you. In order to initiate a chat with them, please respond with a YES. Please be aware that all written communications must be archived according to our compliance regulations. Therefore, our associates are not allowed to send business-related information through their personal cell phones. To text your advisor, please use (870) 626-0038. Please contact us for any questions concerning the enclosed reports or other financial matters. We appreciate the opportunity to serve you! Your Mustard Seed Team

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