Dear Clients:
I hope this letter finds you well: my warmest wishes as we enter the closing months of 2025 and the holiday season!
As we approach year-end, financial markets continue to balance strong economic momentum with persistent macro uncertainty. Despite geopolitical risks and above average interest rates, U.S. growth has remained resilient — supported by steady employment, consumer spending, and accelerating innovation in technology and artificial intelligence.
Market returns, thus far in 2025, have kept the momentum from 2023-2024 going with the S&P 500 up just over 15% year to date. A key difference in what is happening in 2025 compared to the previous two years lies with The Federal Reserve. Beginning in September 2024, The Federal Reserve began cutting its benchmark interest rate and has continued that into 2025. We have seen five cuts totaling 1.5% thus far. This all in the face of the aforementioned macro uncertainty and some initial cracks in a robust labor market. They have been walking that fine line between their dual mandate, assigned by Congress, of maintaining maximum employment while keeping inflation in check.
Equity investors have continued to ride the wave of an accommodative Federal Reserve combined with persistently strong corporate earnings. As interest rates have been declining however from lofty levels, fixed income investors have seen the stable bond portions of their portfolios carry more weight. Again, bond prices move inversely to interest rates. Investors here may see lower coupon rates on their bond investments but there is some upside appreciation to these holdings. This recent move in tandem isn’t usually the case. The relationship between stocks and bonds is complex and changes based on economic conditions, but they have historically moved in opposite directions creating a hedge for portfolios.
Recent waffling between these major asset classes has also complicated the theory of active versus passing portfolio management. You may recall from my last correspondence the discussion around the ongoing debate between the two theories. I still do not adopt either as a primary focus of managing assets and likely never will. I do see more and more use of a combined approach. There is a need for indexing and passive management along with strategic use of an active component to wealth management.
As I think about my outlook heading into year end and into 2026, I reflect back on a piece I wrote about financial headline risk. I expect continued geopolitical events, inflation and higher costs of living are not going away, the Artificial Intelligence boom as still in the beginning stages, The Federal Reserve (and all the events surrounding it) will still be at the forefront of financial news), Global economic growth will moderate, more softening in labor markets (both AI driven and companies seeking cost efficiencies), rising deficits and our national debt expansion, and likely greater volatility than we have seen in 2025. This year has been far more subdued than I had expected despite having all the ingredients for wide market swings.
Since I began in this business I’ve always used the relationship between financial markets and the underlying economy as a cornerstone for investment decisions. Do the two seem to be in sync or is there a disparity between the path of financial markets and the economy? As I write this letter, I continue to struggle with that very question. I can make the case for and against the two being in sync and a variance between them. Although that alone makes portfolio strategy more difficult at this moment in time, I feel more than confident in being able to navigate through it.
As always, I want to stress my availability to discuss this newsletter or any other questions/thoughts you may have. No questions or conversation is too small. Feel free to telephone (508-405-0065), email (jhartman@accessfits.com), or reach out to schedule a meeting in person. I also want to make myself available, at your discretion through any of the means I just mentioned, to anyone (family, friend, work associate, etc.) who you feel may find value in my services.
While you are here on my website, I invite you to see a new “About” page that has been recently updated.
Kind Regards,
Jeremy M. Hartman
President, Access Financial & Income Tax Services
