How Will the Financial Markets Perform?

To All Who Are Part of the Journey with 369 Financial,

The Last 12 Years

When I entered the financial industry in 2013, it marked the beginning of a transformative journey. My initial role was motivated by the opportunity to work within an organization aligned with my academic background. Early on, I encountered challenges, including navigating a work environment that tested my resilience. Reflecting on those experiences, I recognize they played a pivotal role in steering me toward a path of continuous learning and professional growth in the financial world.

As I reflect on my 12th year in the financial industry, I’ve witnessed both rewarding highs and challenging lows. This perspective is especially relevant today, as the market is navigating a unique phase—hovering near or at lifetime highs. It reminds me of the early years of my career when the markets were also performing strongly. While a market at its peak can feel exhilarating, it’s important to approach such moments with a balanced perspective. History has shown that market trends, whether positive or negative, require careful planning and strategy to achieve long-term financial goals.

Conversely, periods of market uncertainty can sometimes lead to impulsive financial decisions. Since 2013, we’ve navigated significant economic and geopolitical events that have shaped the financial landscape. From the Federal Reserve concluding quantitative easing programs to support market growth, to trade disputes, geopolitical conflicts, a global pandemic, and rapid interest rate hikes; these events underscore the importance of maintaining a disciplined and informed approach to financial planning.

The Markets Over Time

Despite the various challenges our economy has faced over the years, the S&P 500 has demonstrated resilience, experiencing below-average growth in only 2015, 2018, and 2022 since 2013. Even during 2020, a year marked by unprecedented global disruptions, the stock market closed with returns exceeding the long-term average. This highlights the importance of maintaining a long-term perspective when navigating the ups and downs of market performance.

Investing offers valuable lessons about the journey of life. Just as life includes both joyful and challenging moments, investing involves periods of growth and periods of uncertainty. It’s important to recognize that neither success nor adversity defines who we are; rather, they are integral parts of a broader journey. Similarly, in investing, the challenges we face can make the rewarding moments even more meaningful. Understanding that good and bad times are interconnected allows us to maintain perspective and stay focused on long-term goals.

It’s important to remember that progress often requires overcoming challenges—just as climbing a mountain involves navigating its rough terrain. Similarly, the financial markets, like the natural world, operate independently of our preferences. The sun shines, and the rain falls, without needing approval. Concerns about the global market’s performance are a constant in society. Yet, despite uncertainties and significant events, one principle remains steady: over time, the stock market reflects the underlying value of the economy, rewarding those who take a patient and measured approach.

Yes, the stock market has been very exciting in 2023 and 2024. In 2022 the market's total return was negative due to skyrocketing inflation, a potential Recession, and when interest rates dramatically rose, it unilaterally decreased the value of Companies. Fast forward just 2 years later and now investors are as thrilled as a teenager who scored front-row seats to Taylor Swift’s “Eras Tour”, The RollingStones “Tour of America, Elton John’s “Goodbye Yellow Brick Road” or NSYNC's “No Strings Attached.” I hope one of those examples resonated with you.

Psychology of Investing

As attending a concert the euphoria of endorphins and a dopamine release is no different than what investors feel when the stock market is rising in value. Warren Buffett would classify this as the Disease of Greed which could be taking over the markets as we know it. Concerts come to an end and so do positive runs in the stock market. Nobody knows when this will happen, that’s what makes investing challenging. Yet, what we can do is to have a strategy where we create a “Heads I Win” and “Tails I Don’t Lose Much” scenario.

Because not if, but when the markets decide to get diagnosed with a bad case of fear, there are opportunities to take advantage of. This fear can turn market dips into cliffs and make investors leap when they should be standing firm. That’s where we help at 369 Financial. To ensure we are not jumping when we should be standing tall. It’s during the dark times when we strive to perform our best.

This is due to the fact that when the market is on an upward trend, you want to participate in it as much as possible, and on a downtrend, you want to participate as little as possible. Unfortunately, you cannot participate in the good times if you don’t participate in the bad times as well. A lot of novice investors will ask me “Are you going to Sell and Re-Enter the Market once the bad days are over with?” Well, if it were only that easy…

Can’t Have the Good Without the Bad

We cannot predict when the bad times will happen and buying/selling during these times in terms of taking advantage of opportunities is crucial. Yet, day trading to get in and out of the market works against investors. Missing just the 5 best days could cut your return by 20-30%. Missing the best 15-20 days could reduce your overall return by 70-80%.

Whether you’re just starting out investing or have been in the game for quite some time, it’s important to keep accelerating not to a hypothetical finish line, but to keep accelerating to set yourself up to see results that will make you happy. If you’re just coasting on cruise control in your car, you are going at a constant speed. At a constant speed, you have zero acceleration. And without acceleration, you won’t be able to see the results you want with investing. Even a lottery winner who wins $500 million if they are not participating in the markets during the happy times and the sad times, they too will find themselves falling behind due to inflation lurking like a spider in its web, patient and deliberate in its movements.

Even though inflation has been coming down which is a positive for everyone, it is still present ever so slowly causing prices to consistently rise. At 369 Financial, we cannot promise results, but we can promise to keep our efforts on our goals. Some are out of our control such as how will the stock market will perform. Others are inside our control such as always looking for opportunities, focusing on providing a positive client experience, and always remembering that we manage your money and it belongs to you. Our job at 369 Financial is to treat it with the utmost respect and care. You can know this to be true because myself and my family’s future success is 99% tied up in the performance of 369 Financial. I have everything to lose or gain depending on how we perform for our clients. Your success is my success and your pain is my pain. That’s how you know that we’re all in this together.

Looking forward to the future, a few items to be aware of are interest rates, tax cuts, deregulation, and tariffs. An extension of the 2017 tax cuts in theory should reward companies that will lead to higher profits which in a result would help investors. With fewer regulations, this would be good for the markets, but we don’t want to get too loose. Some of you may remember a term called “Reaganomics.”

***

It was under President Ronald Reagan that the concept was to have fewer rules. They thought this would encourage the economy to spend and invest which would help everyone regardless of their social class. The economy grew a lot, but it also made some people worry because not everyone got the same benefits in the end. Some of those who benefitted are those who participate in the stock market. Every year except 1981 had a positive gain under Reagan, even with an event on Monday, October 19th, 1987 (Black Monday) when the number of sellers outweighed buyers causing a panic with the Dow Jones Industrial Average dropping over 20%. In a single day…And the stock market overall still finished positive for the year. Sound familiar? (think back to 2020)

Headwinds to Consider

Tariffs also may have taken the main stage during this last presidential cycle. What you may or may not see in the news is that in 2024 there were tariffs imposed on $18 billion worth of Chinese imports and significant tariff hikes were confirmed on electric vehicles, solar cells, steel, aluminum, and other key minerals. The impact of tariffs is mixed. They can protect domestic industries and generate revenue. They can also lead to higher prices for consumers, slower economic growth, and cause supply chain issues.

Politics aside…in the book “The Accidental Super Power” by Peter Zeihan, he says that America doesn’t need the world as much as other countries need it. The United States can make its own food, has plenty of energy, and doesn’t rely heavily on imports as other countries do. So, when the US uses tariffs it’s like saying “We can take care of ourselves, but we’ll trade with you if it helps us.”

This is where balance comes into play, just like it’s important to teach children how to share. By keeping global trade it will allow people to continue to get better products, at lower prices, and encourage innovation. Without it, life could get more expensive, and as we all know inflation doesn’t need any help to drive prices higher at a faster rate.

If the economy begins the struggle, you could see faster cuts in interest rates which those who are looking to purchase real estate with a mortgage would love to see. As an investor in the economy, we don’t want to rely on interest rate cuts because that would signal that our economy is slowing down. Despite those wanting to buy a home “complaining” that interest rates need to be cut. Historically speaking it’s in a moderate range. Compared to the early 1980s, when interest rates peaked at 20% in June of 1981, we’re in a peak of contentment.

Heading into 2025, we feel we are well positioned to take advantage of whatever outcome comes our way regardless of whether we are experiencing an ascension of the markets or going through a turbulent period. Both are necessary. And a good investor accepts the low cycles because you have to let things go and positive growth doesn’t happen forever. It’s remaining present during those down cycles and knowing that good days are ahead which allows you to know the difference between good and bad. Which you cannot have one without the other.

To Growth, Family, and Philanthropy,

Joshua Krafchick | 369 Financial