December 2023 Market Update

12 · 01 · 23

Dear Clients and Friends,

To the surprise of many, the month of November had one of the largest increases in both the stock and bond market since 2022. The S&P 500 closed up 8.9%, the Nasdaq 10.7%, and more notably the Dow Jones and Russell 2000 both coincidentally up 8.8%. The Dow Jones (larger/more stable industrial companies) and Russell 2000 (smaller more speculative companies) have lagged behind this year, so this late rally added breadth to an already robust rebound from the drop in value in 2022. 

Much of this performance was driven by better-than-expected consumer and producer inflation numbers, but also interest rates falling at the same time. The yield on the U.S. 10-Year Treasury fell by 56 bps or 0.56% which buoyed bond prices back to their July levels. The equity indices mentioned prior are also sitting at highs for the year and only about 4% off from all-time-highs set in 2021 in the case of the S&P 500. Right now the Fed Funds Rate futures are pricing about a 60% probability that rates will be cut at the May meeting in 2024. We are optimistic that if this consensus is correct and these trends continue, we will continue to see bond prices move higher and equity valuations improve.

Outside of these positive market developments, I also wanted to take a moment to revisit a strategy that we implement throughout the year but mostly before year-end, tax loss harvesting.

Tax Loss Harvesting

Tax loss harvesting is a strategy where we can sell a holding that has an unrealized capital loss, and immediately swap the proceeds for an equivalent holding. This takes advantage of a downturn in that specific position by generating a capital loss that can be used to offset up to $3,000 of earned income in the year of the sale, and any amount over $3k be carried forward into future years to offset capital gains in the future. For example, if you own the iShares Total Stock Market index (itot) which gives broad exposure to the entire U.S. stock market, and it has pulled back in value (like it did in 2022), it can be swapped with the Vanguard Total U.S. stock market etf (vti), therefore taking advantage of the tax situation but avoid getting out of the market and risking a miss of the rebound.

As you can see from the chart below, these two holdings capture the same market performance and because of this equivalence, are great candidates for tax loss harvesting.

That said, since the vast majority of our holdings do not have any unrealized losses, we are very limited in any harvesting opportunities this year, but if something is down due to unlucky timing of the purchase, we will look to swap to an equivalent position before year-end.

We at the firm are blessed by all of you and wish everyone Happy Holidays.

All the best,

Stephen, Dan, and Chris

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