December 30, 2024

“Successful investing is about managing risk, not avoiding it.”

Ben Bernanke

Santa Claus came to Wall Street this year, and equity markets rose on the last two trading days before the holiday, then fizzled a bit after Christmas but overall, a good week, here are the numbers. The S&P 500 finished up 2.21%, the Dow Jones Industrial Average gained 1.65%, Nasdaq chose not to participate in the sell off last Friday and ended up 2.77%. Internationally, last week, the FTSE 100 was off .60%, and the MSCI-EAFE finished the week up slightly at .16%, the 2-Year Treasury paid 4.33% and the 10-Year yield was 4.631%.

The action was light, but it lifted the S&P 500 to near its all-time high and set it up for new highs by the end of the year or early in 2025. In this scenario, the index will likely trend higher in 2025 and could reach 7,100 or higher by year’s end. Drivers of this rally include economic growth, healthy labor markets, and resilient consumers with potential tailwinds from lower rates and Trump’s policies appearing by year’s end.

The next big hurdle for the S&P 500 is the earnings reporting season. The analysts expect earnings growth to accelerate in Q4 and next year, so guidance is crucial. The market will want a favorable outlook and will likely get one, which may accelerate the rally. The risk is that inflation, which has been accelerating, will lead the FOMC back into tightening, raising the risk of economic stalling and recession.

Economic news…The U.S. trade deficit in goods rose nearly 5% in November and clung near an all-time high — and there’s no reason to expect the gap to shrink much early in the new term of President-elect Donald Trump. The trade gap widened to $102.9 billion in November from $98.3 billion in the prior month, the government said Friday. The trade deficit might take center stage again during the Trump White House after getting little notice during the Biden presidency.

According to Market Watch, Initial U.S. jobless claims drop 1,000 to 219,000 in week ended Dec. 21. Below forecast. Continuing jobless claims rise 46,000 to 1.91 million. Highest since 2018 if the pandemic period is excluded.

So, what is happening after New Year? The calendar Q1 2025 earnings reporting cycle is about to shift into high gear, with reports from CQ4 coming from nearly 100% of the S&P 500. The cycle begins on January 15th when JPMorgan Chase & Company issues its report, which will likely be strong. The financials are more important than ever this quarter because the sector is expected to lead with growth of over 40%, and the estimates are rising. Much more in our final performance report for 2024 to our clients.

Now that 2024 is coming to an end, it is easy to sit back and look over the past 12 months and the gains we have made. However, getting too comfortable in the stock market typically leads to losing track of the game just when investors need to be the most focused. Starting 2025 on the right foot is essential, as having a profitable first quarter can give investors the confidence to stay the course.

For this reason, investors need to become aware of the main themes that could dominate the entire market during 2025 to align their portfolios in the right direction. These themes comprise fundamental and technical trends, all leading investors to three market areas that might deliver outsized returns.

Starting with value stocks, I know I sound like a broken record, but value still looks good in 2025, my conservative nature seems to always win. We added some Large Cap value in the (HULIX) Huber Large Cap value fund and (TMFC) Motley Fool index. This is where the relationship comes into play between growth and value, we are looking for a rally in value stocks soon. Then, as the economy heats back up on interest rate cuts, the energy sector will be one to benefit, so we are sticking with our natural gas position. Finally, I am seriously looking at sticking our toe in the water in Crypto, the incoming president seems to support the notion and most of the major naysayers are now quietly reversing their opposition to the investment possibilities.  Lastly, when all of these themes play out, I’m evaluating overseas Chinese stocks like Alibaba Group, NYSE: BABA, and the iShares MSCI China ETF, NASDAQ: MCHI. This by far seems the most speculative as geo-political tensions might shut this down quickly. But having said that, the logical play is to follow value stocks as we believe they will take over market dominance with small caps in 2025.

Have a great New Years Holiday and we will see you all in 2025.

Mike