MARKET WATCH
“How do you spell Relief?” is the question asked in a classic commercial advertising Rolaids, and now after the first four days of April I’ve concluded I may need a few. While the bull market we had been experiencing was providing much better than average returns, the correction we are now enduring has erased many of those gains and set off alarm bells. It is amazing how fast opinions and prognostications can change, despite the well understood fact that corrections are necessary to control animal spirits in the markets; sort of “the pause that refreshes”.
For more on corrections and bear markets see the article on page two of this newsletter, but suffice it to say, the S&P 500* peaked on February 19, 2025 and closed on March 13, 2025 in correction territory. This marked the second one day correction for the S&P 500* since the beginning of this bull market, until the beginning of April. Now, the news media has plenty on which to focus with tariff mania, DOGE, consumer sentiment, inflation, recession, global trade and bear markets all being discussed.
For perspective, let’s look at where we closed the first quarter of the year. The NASDAQ* finished in correction territory at 17,299.29 which was a 10.42 percent decline year to date (YTD). However, the index was 14.25 percent lower than its record high set on 12/16/2024. The Russell 2000* which is the index of smaller companies has been a roller coaster ride through much of this bull market. It ended the quarter at 2,011.91 for a 9.79 percent decline YTD, but it has shed 17.45 percent since its record high 2,442.03 on November 25, 2024. Both the NASDAQ* and Russell 2000* are more volatile indexes due to the nature of their investments which are in technology and small capitalization stocks respectively.
As I mentioned the S&P 500* charged ahead in the first quarter, corrected and then closed at 5,611.85 for a negative 4.58 percent return YTD. The DJIA* finished the first quarter at 42,001.76, down 1.28 percent YTD and 6.70 percent lower than its record high 45,014.04 set on 12/4/2024. The Dow had yet to enter correction territory until the tariffs were levied.
In the first four days of April, the markets reacted to the news of the tariff announcement by falling precipitously. The Russell 2000* is now down 25 percent from its record high and the NASDAQ* is down 23 percent from its highest level. This means these two indexes are in a bear market. Meanwhile, the S&P 500* has reentered correction territory and shed 17 percent YTD quite close to a bear market. The DJIA* is now firmly in a correction, losing 14.8 percent from its all-time high. So, rather than the markets experiencing a correction, which was certainly overdue, we are now on the verge of a 20 or more percent downturn, indicating a possible full blown bear market.
Otherwise, much of the economic situation which has been prevalent is still somewhat applicable. Inflation, regardless of whether discussing CPI, PPI or PCE is still elevated and a bit sticky. Therefore, the Federal Reserve has been on hold regarding short-term interest rates. The economy, according to the most recent Gross Domestic Product (GDP) report, increased by 2.8 percent annually year over year in 2024, and the unemployment rate is now at 4.2 percent.
Talk of reciprocal tariffs, and if they are truly reciprocal, unduly onerous, inflationary, helpful or devastating depends on who is presenting the information, and this debate will continue for some time as these policies are implemented. Their risk to the economy and the markets, as well as the multitude of other perceived risks, such as the abandonment of our allies, more Russian aggression towards Europe and the end of global trade are a bit overblown in my opinion. After some feigned attempts at retaliation, there will be negotiation and compromise on the tariffs.
Unfortunately, during times of uncertainty, markets tend to overreact. Whether you are just starting to save, or retired and drawing from your nest egg, putting in or taking out funds regularly, dollar cost averaging*, tends to ease the market’s rough edges.
IRA & ROTH IRA CONTRIBUTIONS AND HAVE A HAPPY EASTER!
The Individual Retirement Account (IRA) contribution limits for 2024, which you have until April 15, 2025 to satisfy, have increased to $7,000 for individuals under 50. For those who are over 50, the catch-up contribution will allow an additional $1,000 for a total IRA contribution limit of $8,000 which will also be in effect for the 2025 tax year. It is important to realize these limits apply to both the IRA and ROTH IRA combined. Insofar as the tax deductibility of contributions to an IRA is concerned, if you or your spouse don’t have a workplace retirement plan, then the entire contribution to the IRA is tax deductible, up to the contribution limit.
If you and/or your spouse are covered by a workplace plan, your eligible deduction limit may be decreased based on your tax-filing status and modified adjusted gross income (MAGI). This is your adjusted gross income (gross income minus tax credits, adjustments, and deductions), with some of those credits, adjustments, and deductions added back in. It's a smart idea in this case to consult a tax professional concerning any questions regarding the amount of your IRA contributions which are tax deductible.
Remember, if you can’t deduct any of your contributions to your IRA, you can still contribute to a ROTH IRA, if you are within the income limits, or lastly you can even contribute to your IRA, not take the tax deduction, and then you wouldn’t be taxed on the non-deducted amount contributed to your IRA when you withdraw it. Is there any wonder so many of us would like a simpler and fairer tax code? Happy Easter, and if you have any questions about IRA’s or your other accounts, just call me.
Happy Easter, a Blessed Passover and welcome to spring with all it has to offer!
UNDERSTANDING THE CORRECTION THAT IS HERE AND WHAT IF IT’S A BEAR?
As I mentioned earlier, the stock market was in and out of correction territory for most of the month of March. While it can be painful when a correction strikes, it is important to realize they are usually short lived and healthy for the overall market. While each of the various indexes can correct at different times throughout a bull market, the S&P 500* index is usually the one associated with the broad market and prioritized.
In 2023 the S&P 500* did close in correction territory for one day on 10/27/2023 when it closed at 4,117.37 dropping 10.28 percent from its previous high of 4,588.96 set on 07/31/2023. Conversely, the Dow Jones Industrial Average* had not closed in correction territory as of the end of the first quarter of 2025. Meanwhile, the NASDAQ* and the Russell 2000* indexes tracking more speculative and/or smaller companies have corrected several times since the beginning of this bull market in October 2022.
A stock market correction is a phenomenon that occurs when the value of a stock market index declines by 10 percent or more from its recent peak. It’s a natural part of the market cycle, and while it can be unsettling, it's important to understand that corrections are distinct from bear markets, which involve a decline of 20% or more, last longer and end bull markets.
Several factors can trigger a stock market correction or a bear market. Economic data, like disappointing jobs numbers, rising inflation, or declining consumer confidence, can create uncertainty and lead investors to sell holdings. Geopolitical events, like international conflicts or political instability, can also contribute to market volatility. Furthermore, company earnings reports can play a significant role. If companies report lower than expected earnings, or if their outlook for future earnings is negative, it can trigger a sell-off. Investor sentiment is another key driver. Fear and panic can spread quickly, leading to more stock selling exacerbating the decline.
Historically, stock market corrections have been relatively common. They are a normal part of the market’s natural fluctuation. Trying to time the market during a correction can be risky and lead to subpar investment performance.
During a correction or a bear market, having a well-diversified portfolio can help to lessen the impact of market gyrations. Also, reviewing your own risk tolerance is very important. Understanding how much risk you are willing to take can help you to make better choices during volatile times.
It's also important to distinguish between a correction and a bear market. A correction is a temporary dip, while a bear market signals a more prolonged decline ending a bull market. Understanding this difference can help decision making during periods of market volatility, such as not selling low, after the market has already dropped.
In essence, a stock market correction is a normal, albeit unnerving, part of investing that dampens animal spirits. A bear market, on the other hand, is a normal, deeper, more prolonged market drop ending a bull market. While the reasons for a correction or bear market can vary, and the timing is unpredictable, understanding their nature can help investors navigate these periods with greater confidence.
Company Information
Jersey Benefits Advisors is the trade name used by John H. Kaighn to offer various products and services.
34 Doe Dr.
Woodbine, NJ 08270
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Osaic Wealth, Inc. Securities and Advisory Services are offered through Osaic Wealth, Inc. Member FINRA & SIPC.
Osaic Wealth, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth, Inc.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Osaic Wealth, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Jersey Benefits Group, Inc., is a licensed Insurance Agency in the State of New Jersey & offers Insurance and Third Party Administration Services
14 Atlantic Ave. Unit B
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
All opinions expressed in this newsletter are independent of Osaic Wealth, Inc. and are solely those of John H. Kaighn and Jersey Benefits Advisors.
John H. Kaighn
