· Stocks notched their eighth consecutive week of gains as investors have begun to deploy some of the hoard of cash that is sitting on the sidelines. The last month of the year can be especially tricky to decipher as both retail as well as professional investors alike realign their respective portfolios for a variety reasons, to include tax purposes, to catch up with their benchmarks or to prepare for the new year. Given the narrow breadth of leadership during 2023 within the equity market as well as the volatility in the bond market, this year has been especially tricky. That said, regardless of the direction of the indexes as we come out of the gate in 2024 keep in mind that over the long-term the direction of the financial markets has been relatively predictable.

As we have noted over the past few weeks, given the intensity and magnitude of the rally in stocks and bonds recently, we believe that both could use a breather and we are hoping that breather will be one retrospectively measured in time rather than value.

· The Personal Consumption Expenditures Index (PCE), one of the Fed’s favorite gauges of inflation, fell by 0.1% during November, its first month-over-month drop since April 2020, according to the Bureau of Economic Analysis (see below). The 2.6% y/y rise in the PCE is down from a cycle high of 7.1% registered in June 2022. This drop in conjunction with the 0.4% rise in Personal Incomes helped pushed Real Disposable Income (inflation adjusted) up 0.4% during November, a tailwind to households’ capacity to spend.

· We have highlighted the strength of Russell 2000 recently, an index of the second and third thousand largest stocks domiciled in the U.S. (small cap) and we will do so again as they were the only major index to close the week above their highs set on Tuesday, December 19. We would consider this a sign of relative strength, especially as we look into 2024.

· Despite the fact that the S&P 500 has risen more than 20% thus far in 2023, four of the eleven sectors of that index as represented by the Select SPDR ETFs (see below) have severely underperformed (see below). They include Health Care (XLV), Energy (XLE), Consumer Staples (XLP) and Utilities (XLU). We would expect the relative performance of Health Care, Energy and Utilities to pick up the relative pace next year as Consumer Staples continue to lag.

· We all pursue financial independence along with the peace of mind that usually accompanies that and we certainly do not want to ever give that back. However, as investors, we have to be careful not to become a prisoner of that wealth as it prevents us from being sound stewards of it.

· According to the Federal Home Loan Mortgage Corporation (Freddie Mac), “the 30-year fixed-rate mortgage remained below seven percent for the second week in a row, a welcome downward trend after 17 consecutive weeks above seven percent. Lower rates are bringing potential homebuyers who were previously waiting on the sideline back into the market and builders already are starting to feel the positive effects. A rise in homebuilder confidence, followed by new home construction reaching its highest level since May, signals a response to meet heightened demand as current inventory remains low.”

· Shares of China’s Tencent Holdings (TCEHY), the world’s largest video game vendor came under pressure Friday after China’s National Press and Publication Administration, the body that provides oversight to that industry, surprisingly announced additional regulations. Our take – unlike here in the United States, the decision from Chinese regulators are levied seemingly arbitrarily and without recourse. Investors should be very wary when investing meaningful percentages of their portfolio in China or any other authoritarian country.

· After dropping double digits during 2022, the 60/40 Portfolio has righted itself. After dropping 16.90% during 2022, a proxy for this asset allocation, the Vanguard Balanced Index Admiral Shares (VBIAX) has risen 17.21% thus far in 2023 and looks poised to provide more consistent performance in the future as interest rates appear to have peaked.

· The U.S. Economy has become more insensitive to inflation as approximately fifty-eight percent of American homeowners that have a mortgage have one that is under four percent, this according to the Federal Housing Finance Agency (FHFA) and Apollo Global Management.

· Corporate news – Shares of US Steel (X) surged after Japan’s Nippon Steel offered to buy the steelmaker for $14.9 billion or $55 per share. The proposed deal will come under close scrutiny from the Biden Administration. If approved, the combined entity will have the capacity to produce 86 million tons of steel annually, making it the largest in the world. Shares of FedEx (FDX) slipped after earnings fell short of estimates. In addition, the company projected a slight decline in revenue in 2024. Despite beating earnings, shares of Nike (NKE) fell as it provided weaker than expected forward guidance and announced plans to cut $2 billion in costs over the next three years.

· Upcoming Economic Reports scheduled to be released this week include the following, on Tuesday, M2 Money Supply; and on Thursday, the Weekly Report of Initial Claims for Unemployment Insurance and November Wholesale Inventories.

· The current earnings cycle has begun to wind down. However, several companies that may change market sentiment are scheduled to report this coming week. These include – None of note during this holiday shortened week.

This presentation is not an offer or solicitation to buy or sell securities. The information contained in this presentation has been compiled from third party sources and is believed to be reliable, but its accuracy is not guaranteed and should not be relied upon in any way, whatsoever. Fagan portfolio characteristics and holdings are subject to change at any time and are based on a representative portfolio. Holdings and portfolio characteristics of individual client portfolios may differ, sometimes significantly, from those shown. This information does not constitute, and should not be construed as, investment advice or recommendations with respect to the securities listed.

Additional information including management fees and expenses is provided on our Form ADV Part 2. The actual return and value of an account fluctuate and, at any time, the account may be worth more or less than the amount invested. Bond Investments are affected by interest rate changes and the credit-worthiness of the issues held in the portfolio. A rise in interest rates will cause a decrease in the value of fixed income positions. Past performance results are not indicative of future results.”

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