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03.8.2024 by Gerrit Petersons

Now (2024) and Then (1933) a Very Different Time:

Living in a 150-year-old farmhouse, we’ve come to say, “We don’t choose the projects, the projects choose us.” This saying brought us into the crawl space above our kitchen this weekend, where we uncovered a calendar page from 1933:

FAI 3.8.(1)

I got to thinking about what the economy and markets were like back in 1933 with the country in a severe economic depression. U.S. unemployment was over 25%, banks were closed for a week to limit deposit outflows, and at one point the New York Stock Exchange closed for 11 days. The Dow Jones Industrial Average price level began 1933 at 60.90, today it stands at over 38,000. In 2024, U.S. unemployment is near historic lows, and inflation is declining after a bout of high inflation, contrasted with the 1930’s period of deflation DJIA | MacroTrends This Day In Market History |

With all the positive and trending data in the U.S. economy, the S&P 500 Index is now at all-time highs and got there in a hurry rising over 20% since October. This is making some analysts and economists cautious:

Siegel Commentary |

A Golden Age for Stock Markets is Drawing to a Close |

Price to earnings ratios of the S&P 500, although an imperfect valuation measure since it is based on average company earnings, are at elevated levels. However, the chart below shows we are not near all-time exuberant levels:

FAI 3.8.(2)

Other analysts are still bullish with Goldman Sachs pointing to strong earnings and earnings growth supporting current levels and Bank of America strategists raising their S&P 500 forecast to 5,400 from 5,000. Big Tech-Led S&P 500 Rally | Bloomberg

Some analysts are bullish on stocks based on history. In years when the S&P 500 had positive returns in January and February, the next twelve months the S&P 500 was higher 27 out of 28 times. Returns averaged 19.9% in years January and February had positive returns: Stocks Up In Both January And February Is Bullish - Carson Group

Timing the market based on trends and averages in the short run is not typically a successful investment strategy, we merely want to point out there are two sides to every coin and the market can go up, down, or sideways from here. Even with the economic gloom of 1933, the Dow Jones Industrial Average rose over 100% by July.

Financial Planning/Investment Strategy Corner:

College 529 to Roth IRA Conversions:  We’ve mentioned before that in the Secure Act 2.0, Congress now allows excess savings in 529 accounts to be rolled over into ROTH IRAs. Some conditions need to be met to be eligible: the 529 needs to be open for at least 15 years and contributions made in the past 5 years are not eligible. Once these are met the maximum lifetime benefit that can be rolled over is $35,000, per beneficiary. Rollovers are subject to annual ROTH IRA limits, which in 2024 is $7,000. Guidance was recently announced that rollovers for 2023 (annual limit of $6,500) can be completed up to April 15th, 2024, allowing the possibility of two ROTH rollovers totaling $13,500 in 2024. We like the flexibility these changes offer, particularly since IRAs are not factored into a parent’s assets when determining a student’s financial aid considerations, while 529s are. An Unexpected Double Tax Break for 529-to-Roth Rollovers | How Assets Can Affect Your Financial Aid Eligibility |

Quick Hits:

Quote: “Punctuality is the theft of time” – Oscar Wilde

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