So much for a "Santa Claus" rally! More like the "Grinch Who Stole Market Growth"…..lol. Since 1974, the S&P 500 has never had more than 10 consecutive days of decline. I mean, it started off fantastic, but lost steam after reaching peaks in November; the S&P500 is now trading around 5930. The index has lost about 95 points since my last writing but nonetheless, forecasts have not changed, or at least not yet (insert suspenseful music here).

Softer job numbers in the U.S. started making ripples but the tsunami came from the Fed's "summary of economic projections" that it issues once a quarter. This summary explains to market participants what the members of the Federal Open Market Committee (FOMC) think inflation, economic growth and interest rates could look like in 2025-2026.  Unexpectedly, the Chairman, Jerome Powell, delivered some coal for anxious investors for Christmas. Oh boy! And like that the market plunged 2.90% that day, the 18th to be exact.

The FOMC's latest forecast indicates a reduction in the expected number of interest rate cuts for 2025, now forecasting only two cuts compared to the previous projection of five cuts in September. This adjustment suggests that the federal funds rate could potentially range between 3.90% and 4.10% by the end of 2025, differing from the previous range of 3.13% to 3.62% last quarter.

The shift in consensus among FOMC members can be attributed to several factors. Firstly, the medium projection for U.S. gross domestic product (GDP) growth in 2025 has been revised upwards from 2.0% to 2.10%. This higher projection reflects a stronger economy that may require fewer interest rate cuts. Not so great if you're a variable rate mortgage holder.

Additionally, and probably more importantly, is the shift in the increase in the median projection for personal consumption expenditures (PCE) inflation from 2.1% to 2.5% for 2025. The expected acceleration in inflation for 2025 has most likely influenced the decision to reduce the number of anticipated rate cuts. Though, I doubt that rate hikes are possible.

Seems like all doom and gloom but hold on: when December has been a challenging month in the stock market, investors may look to historical trends such as the January Effect to gauge potential performance in the upcoming month. The January Effect is a phenomenon where the stock market tends to experience positive returns in January following a weak December.

Therefore, while past performance is not a guarantee of future results, we could potentially expect a rebound or positive performance in the stock market in January after a dismal December based on historical market behaviors and trends.

I don't want to sound overly optimistic but looking back at last December 2023, I commented on a CNBC Strategist Survey that forecasted that the S&P 500 would reach 4,881 by the end of 2024. Well, guess what, we're here and with a little room to spare. So, circling back, I take stock in what the street is saying about 2025 and it isn't all that bad. It might be a little bumpy but when is it not? The key here is going to be a well-constructed portfolio. I believe that successful portfolio management demands careful consideration of several key elements that significantly influence its overall performance. By delving into these fundamental factors, we can gain valuable insights into maximizing returns while effectively managing risk for you.

Asset allocation, or the strategic distribution of investments across various asset classes such as stocks, bonds, and alternative investments, is arguably the most influential factor determining portfolio performance. Asset allocation consistently accounts for most of a portfolio's returns over time. By diversifying across different asset classes, investors like you, aim to achieve a balance that aligns with their risk tolerance, investment goals, and time horizon. Adjusting asset allocation in response to changing market conditions is crucial for optimizing performance while mitigating risk.

Once asset allocation is established, the next significant contributor to portfolio performance is the selection of individual securities within each asset class. Robust security selection involves meticulous research and analysis to identify investments with the potential to outperform their peers. Factors such as fundamentals, industry dynamics, economic conditions, and qualitative assessments play crucial roles in the selection process. Additionally, adhering to disciplined investment strategies, such as value investing or growth investing, can influence the performance of individual securities within a portfolio.

There are many other factors but I'm going to cut it short as I believe the two factors mentioned above are most important. The message here is that we have well-constructed portfolios that should weather all types of investing environments. Looking ahead, as we bid farewell to the challenges of the past year, let's embrace the fresh opportunities and possibilities that the new year brings. May the dawn of this new year be adorned with boundless optimism and the promise of prosperity.

In the realm of investing, may the coming year be filled with promising ventures, fruitful endeavors, and opportunities for growth. Let's approach the markets with a spirit of resilience, wisdom, and unwavering optimism, knowing that each investment holds the potential for success and good fortune.

Wishing you a prosperous and joyous New Year, and cheers to a year of new beginnings and bountiful opportunities!

Stay safe, in its truest sense.