Month in Review

• After a positive start to 2025, equity markets were choppy in February following mixed economic data and increasing uncertainty.
• In February, large cap stocks (S&P 500 TR Index) fell -1.30%, dragged slightly lower by large cap growth stocks (-3.59%, Russell 1000 Growth TR Index). Small cap stocks in the US also fell, with the Russell 2000 TR Index declining -5.35% in February.
• Stock and bond markets were led by core bonds (+2.20%, Bloomberg US Aggregate Bond TR Index), developed international stocks (+1.94%, MSCI EAFE NR Index), and large cap value (+0.41%, Russell 1000 Value TR Index) during the month.

Broadening Participation in the Bull Market

With two months in the books, early in 2025 investors have seen signs of broadening participation in the bull market that started in October 2022. From an asset class lens, developed international stocks (MSCI EAFE NR Index) are off to a strong start this year, rising +7.30%, compared to +1.44% for the S&P 500 TR Index. Value stocks are also leading growth stocks in 2025, with the Russell 1000 Value TR Index rising +5.05% versus large cap growth (Russell 1000 Growth TR Index) falling -1.69%.

Early in the year, investors can also see a shift within the S&P 500 Index itself. After being responsible for over 50% of the calendar year returns in 2024, 2023, and 2022, the so-called “Magnificent 7” stocks are trailing the rest of the index. In 2025, the S&P 500 excluding the Magnificent 7 stocks is up +3.2% YTD, and the average stock in the index is up +2.87% (S&P 500 Equal Weight TR Index), ahead of the overall index. One reason for this shift is the trade-off between the high valuations of the Magnificent 7 and the leveling-off of their earnings growth.

Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each quarter. As of 2/28/2025, the top 10 companies in the index were AAPL (7.2%), NVDA (6.1%), MSFT (5.9%), AMZN (3.9%), GOOGL/GOOG (3.6%), META (2.9%), BRK.B (1.9%), AVGO (1.8%), TSLA (1.6%), and JPM (1.5%). The remaining stocks represent the rest of the 492 companies in the S&P 500.

The largest companies in the S&P 500 are still expensive relative to their history at 27.3x forward earnings, even after seeing their valuations fall in 2025. Investors have started the year favoring opportunities with cheaper valuations, a trend that has helped diversified investors. 

What’s on Deck for January?

• As of February 28^th, 97% of the S&P 500 had reported earnings for 4Q2024. Roughly 75% of the companies beat their earnings estimate and 63% exceeded their revenue estimates. Earnings growth for the quarter was a strong +18.2% year-over-year.
• Investors will be watching for more certainty around the new trade policies being rolled out by the Trump administration.

When it comes to financial planning and investment management, selecting the right advisor is one of the most critical decisions you can make. One term you may frequently encounter is “RIA,” which stands for Registered Investment Advisor. But what does that really mean, and why is it important for those seeking professional financial guidance?

Understanding an RIA

An RIA is a firm or individual registered with the Securities and Exchange Commission (SEC) or a state regulatory agency, depending on the assets under management. RIAs provide financial advice and investment management services while adhering to strict regulatory requirements designed to protect investors.

At Confluence Financial Partners, being a Registered Investment Advisory means that we are committed to transparency, personalized service, and, most importantly, acting in our clients’ best interests.

The Fiduciary Standard: Acting in Your Best Interest

One of the most significant distinctions of an RIA is the fiduciary duty it upholds. As fiduciaries, RIAs are legally and ethically required to prioritize their clients’ financial well-being above all else. This obligation includes:

We are excited to share the inaugural version of Confluence Financial Partner’s Market Pulse: A Quarterly Review of Investment Trends and Insights. We aim to succinctly recap key investment trends and events on a quarterly basis, while providing insightful and actionable outlooks for the coming months. 

Q4 2024 Insights: Three Key Takeaways

Policy Shift: 2024 saw the Federal Reserve shift gears and lower interest rates, ending the rate hiking cycle that began in June 2022 and featured 9 rate hikes.

Mega Leadership: Mega cap stocks, the largest companies in the US, pulled the S&P 500 to a second consecutive +25% annual gain, outpacing smaller stocks, international stocks, and bonds.

High Concentration: The mega cap leadership resulted in a very narrow market by historical standards: the top 10 stocks in the S&P 500 represent over 38% of the index (highest in over 40 years).

As we enter the new year, don’t wait to implement tax strategies that could improve your financial situation. For investors, smart tax strategies can mean keeping more of what you earn and maximizing the value of your portfolio. Here are some key approaches to consider as you plan for 2025:

1. Maximize Tax-Advantaged Accounts*

Contributing to tax-advantaged accounts like 401(k)s, IRAs, and Health Savings Accounts (HSAs) can reduce your taxable income. For 2025, the 401(k) contribution limit is $23,500 for those under 50, with an additional $7,500 catch-up contribution for those 50 and older. A new provision allows individuals aged 60 to 63 to make an enhanced catch-up contribution of $3,750 in addition to the traditional catch-up contribution, providing a significant opportunity to boost retirement savings during those critical pre-retirement years.

Traditional IRAs also allow for tax-deferred growth, and contributions may be deductible depending on your income and retirement plan coverage.

Roth accounts, while funded with after-tax dollars, offer tax-free withdrawals in retirement—a great option if you expect to be in a higher tax bracket later.

2. Utilize Qualified Charitable Distributions (QCDs)**

If you’re 70½ or older, a Qualified Charitable Distribution (QCD) allows you to donate up to $108,000 directly from your IRA to a qualified charity. This strategy not only satisfies your Required Minimum Distribution (RMD) but also reduces your taxable income. By directing funds straight to the charity, you avoid having the distribution counted as part of your Adjusted Gross Income (AGI), which can help minimize taxes on Social Security benefits or Medicare premiums. This approach is particularly advantageous for retirees who wish to support charitable causes while managing their tax liabilities efficiently.

3. Gift Appreciated Securities

Instead of donating cash or selling investments to give proceeds, consider gifting appreciated stocks or mutual fund shares directly to family members or charities. By gifting to family members in lower tax brackets, they may pay significantly lower taxes on the capital gains, or possibly none at all, depending on their income level. For charitable donations, you can deduct the fair market value of the securities while avoiding the capital gains tax you’d incur if you sold them. This dual benefit maximizes the impact of your gift while offering meaningful tax savings. It’s a smart way to reduce the tax burden on highly appreciated assets.

4. Be Strategic with Municipal Bonds

Municipal bonds, often referred to as “munis,” offer a reliable source of tax-free interest income at the federal level. If you purchase bonds issued by your home state, you may also avoid state and local taxes. For high-income earners, the tax-equivalent yield of municipal bonds can be more attractive than taxable bonds, especially if you’re in the highest federal income tax brackets. Additionally, municipal bonds are generally considered lower-risk investments, providing steady income without increasing your taxable income—a win-win for those seeking both stability and tax efficiency. Whether you should own taxable or tax-free bonds, however, is unique to each individual and should be analyzed as such.

5. Stay Informed on Tax Law Changes*

Tax laws are dynamic, and staying informed helps ensures you’re prepared to adapt your strategy to new opportunities or avoid pitfalls. The individual tax cuts introduced under the 2017 Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025 unless new legislation extends them. This includes potential increases in individual income tax rates, a reduction in the standard deduction, and a lower threshold for estate tax exemptions, which may revert to pre-2018 levels—around $7 million per individual instead of the current $14 million. By monitoring legislation, you can adjust your portfolio and tax strategies proactively.

Take Action Now

The key to effective tax planning is proactive management. By leveraging these strategies, you may be able to reduce your tax bill and keep more of your income in 2025. Don’t wait until the end of the year to start planning! Schedule a consultation with one of our experienced wealth managers today to discuss personalized strategies that align with your financial goals.

Sources:

*https://www.morningstar.com/personal-finance/your-tax-fact-sheet-calendar

**https://www.schwab.com/learn/story/reducing-rmds-with-qcds#:~:text=What%20are%20the%20QCD%20limits,charitable%20gift%20annuity%20(CGA).

Confluence Financial Partners does not provide tax advice. You should consult your own tax advisors before engaging in any transaction.

When it comes to estate planning, your beneficiary designations are one of the most critical yet often overlooked components. These designations determine how your assets—such as retirement accounts, life insurance policies, and annuities—are distributed upon your passing. Beneficiary designations often supersede other estate documents, making it essential to ensure they are accurate and up to date.

Understanding the Key Difference: Per Capita vs. Per Stirpes
When naming individual beneficiaries, two terms that frequently come up in this context are “per stirpes” and “per capita”. While these terms may seem similar, they represent very different ways of dividing an inheritance among your heirs.

What is “Per Stirpes”?
The term per stirpes translates to “by branch” and refers to dividing an estate among the branches of a family. This method ensures that if an heir predeceases you, their share will be passed on to their descendants. In other words, per stirpes keeps the inheritance within a specific family line.

Example: If you have three children, but one of them passes away before you, the deceased child’s share would be divided equally among their children (your grandchildren). The remaining two children would each receive their full share, and the deceased child’s share would be inherited by their descendants.

Many companies offer equity compensation programs to attract, motivate, and retain top talent while conserving cash and aligning the interests of the employees and shareholders. While these incentive programs provide a great benefit, they must be carefully managed to avoid upsetting your financial strategy or posing a significant tax burden. Below we discuss two of the most common stock option plans that we help our clients understand and maximize.

RSU – Restricted Stock Units

As an employee, you may receive a Restricted Stock Unit (RSU) grant as part of your annual performance assessment or generally as part of your overall compensation package. The majority of RSUs have a vesting schedule, so you don’t receive the full value from the outset (Your employer wants to schedule vesting over a period, rather than all at once, to retain your services!). For example, if your company grants you 400 RSUs, you’ll probably get 100 shares to vest each year (typically on a quarterly schedule) until you vest all 400 shares, at which time you may receive a new grant.

RSUs give you an interest in the company but no actual value until they are vested. Upon vesting, the Fair Market Value (FMV) of the shares is considered income. You will then have the right to sell the vested shares and receive the cash proceeds or hold the shares for a longer period.

Regarding Taxes

Your income will include the FMV of the shares as they vest. You can sell your vested shares and convert them to cash. Alternatively, you may keep the shares, but any gains made after the vesting date would be taxed as capital gains when you sell. If you hold shares and they drop in value, you might be faced with selling those shares at a loss, while paying tax on vesting date FMV you never actually received.

Your employer typically handles your tax withholding at the vesting date by selling enough shares on your behalf to cover the estimated tax liability and distributing the remainder to you. The IRS requires a statutory 22% withholding rate. Because your vested RSUs influence your taxable income, and effective tax bracket, your employer’s tax withholding rate may not be enough.

Strategy

RSUs accrue over time and, if held, can lead to a significantly consolidated position in one firm. An experienced executive might start with 100 shares vested, then 200, then 300, and so on. Suddenly, they discover that a sizable chunk of their holdings, perhaps also a significant percentage of their net worth, consists of company stock.

Accumulation of company stock can lead to more than just lack of portfolio diversification. Generally, having a sizable stock position in the same company that also pays your salary isn’t advisable. If that organization, for a myriad of reasons, experiences a downturn this could have a double-whammy effect.

As a result, it may be advisable to sell all RSUs as they vest. There should be no additional taxes owed, because your costs basis will be the FMV at which you received the stock. In fact, keeping RSUs as they vest is the exact same thing as taking each cash bonus and investing it 100% in your company stock. If you wouldn’t do that, you shouldn’t hold all of your RSUs. By converting the shares to cash you will be better able to manage taxes due and invest proceeds in a more diverse manner. This should provide you with greater and more predictable long-term success.

March is National Nutrition Month!

This dedicated span of time encourages us to spotlight the significance of nutrition and healthy eating, recognizing this as a core pillar to both mental and physical well-being. I’m excited to dive into a topic that holds a special place in my heart – metabolic health. See below an introduction, as we explore how choices we make in dietary habits play a crucial role in shaping metabolic well-being – and what that even means!

The human body is intricately detailed and complex, similar to a car. While many of us don’t comprehend a car’s inner workings, we can sense when something is “off” and impacting optimal functionality. Similarly to a check engine light flipped on, there are many cues the body gives that it’s utilizing food for fuel less than optimally, such as the following: cravings, weight struggles, energy slumps, relentless fatigue, etc. Sadly, many of us have ignored these signals for too long.

The engine of the car is likened to the body’s metabolism. Just as the engine converts fuel into usable energy so the car can operate, being in good metabolic health ensures our body is able to generate and process energy efficiently to sustain life.

What factors determine metabolic health, you may wonder?

Clinically, it hinges on five specific and measurable factors¹:

1. Abdominal obesity (>40” around waist in men, >35” around waist in women)
2. Impaired fasted blood sugar (100 mg/dL or higher)
3. High blood pressure (130/85 mm/Hg or higher on multiple occasions or on medication for high levels)
4. High triglycerides (type of fat; 150 mg/dL or greater or on medication for high levels)
5. Low “helpful” cholesterol (HDL) levels (<40 mg/dL for men, <50 mg/dL for women)

According to the recent study published in the Journal of American College of Cardiology in July 2022, it’s estimated that only ~7% of adult Americans adults have optimal metabolic health, leaving 93% with markers in unhealthy ranges².

Each marker out of range increases the risk for development of complications like heart disease, Type 2 Diabetes, or stroke. Three or more out of range is considered metabolic syndrome. Getting an annual physical exam and bloodwork empowers your healthcare provider to evaluate your risk for metabolic syndrome. The good news is that lifestyle choices highly influence the health of these markers – namely eating a balanced diet and shunning a sedentary existence as two very practical realms to target.

Balanced Diet

Nutritionally, a balanced diet revolves around diverse, nutrient-rich whole foods while limiting processed items. A simple example of this would be choosing an apple (whole form) as opposed to apple sauce or apple juice, as often as is doable. This is due to the quality of nutrients the whole form contains as opposed to added processing.

When it comes to energy, the body’s preferred fuel source is glucose (think of this like gasoline), which comes from eating carbohydrates (carbs). In simplest terms, when we eat foods containing carbs, our blood sugars rise (as we expect). In those with good metabolic health, the body efficiently takes that glucose and converts it into usable energy and blood sugar levels are returned to normal through a process of hormonal “checks and balances”.

Conversely, poor metabolic health impedes glucose being used for energy efficiently, but rather leaves it in the blood stream, hence the term “high blood sugar”. When levels are high in the moment, you may experience the check engine symptoms listed above. Over time, chronically elevated blood sugar levels can lead to conditions like Type 2 Diabetes. When it comes to managing blood sugar levels – a quick tip you can implement today is the principle of “no naked carbs”.

No Naked Carbs

Clothing your carbs so they’re not “naked” means simply to pair a carb food with a protein or fat source to promote a steadier blood sugar response and limit a “spike” which may result from eating a carb only. Some examples would be peanut butter with a banana, cheese with crackers, or a hard boiled egg with grapes. This is just one simple tip to promote keeping your “engine” in tip-top shape, which will keep your body operating more efficiently in the moment and the long haul.

Sedentary Lifestyle

A sedentary lifestyle can be described as one marked by excessive sitting, lying down, and not engaging intentionally in physical activities that would increase heart rate or test muscle tone. For many Americans, especially depending on time of year and where one lives, this can include commute time to work, working from home sitting in front of a computer for most of the day, television watching, video game playing, etc.

Lack of movement, especially after eating food, can be disadvantageous for metabolic health as it can promote an “insulin resistant” state. Movement, like exercise (as simple as walking at a brisk pace or weight lifting) can promote “insulin sensitivity” which allows the body to utilize the incoming sources of foods more efficiently. The U.S. Department of Health and Human Services recommends the American adult to engage in physical activity categorized as moderate-intensity of 150 minutes per week and optimally 2 days of muscle strengthening, also³. This helps not only with metabolic health, but weight maintenance, mood, increasing “helpful” cholesterol (HDL), increasing creativity and promoting longevity, among many other benefits.

No matter where your starting point is, it’s time to get moving!

Let’s get your engine in check!

This introductory overview offers a flyover look into the intricacies of metabolic health, distinguishing between manifestations and potential risks. I hope you are encouraged that lifestyle factors like what you eat (good nutrition) and how much you move (exercise) can greatly reduce your risk for chronic disease, keeping your “engine” operating efficiently. By fostering awareness of the importance of metabolic health, we can be proactive in our approach to reducing risk factors. Time to take a look “under the hood” of your car!