Welcome to 2025! We’re looking forward to a year of great investment opportunities; however, after two straight years of a more than 20% rise in the S&P 500, there’s sure to be some ups and significant downs on the way. We hope you enjoy the full market review, but for the TLDR crowd, here are some of the summary points.
Some key takeaways from 2024:
- The tech sector led the charge, with AI-related companies and mega-caps driving significant market gains
- Inflation moderated from its peak but remained sticky, ending the year at 2.7% — still above the Federal Reserve’s 2% target
- Housing markets showed surprising resilience despite elevated mortgage rates, with both new and existing home sales rising
As we look ahead to 2025, we’re watching three critical factors that will shape markets:
Federal Reserve’s Terminal Rate: While we saw rate cuts begin in 2024, the ultimate “neutral rate” remains uncertain. The Fed’s more cautious tone about 2025 rate cuts suggests they’re carefully balancing inflation risks against economic growth. This “higher for longer” stance could impact both market dynamics and economic activity.
New Administration Policies: The return of the Trump administration brings potential shifts in economic policy. Proposed changes to taxes, tariffs and regulatory frameworks could significantly impact corporate profits and market sectors differently. Watch for early signals on policy priorities and their implementation timeline.
Inflation’s Trajectory: While we’ve seen meaningful progress on inflation, the last mile to reach the Fed’s 2% target may prove challenging. The interplay between wage growth, housing costs and potential new tariffs will be crucial in determining whether inflation continues its downward path or proves more persistent.
2024’s performance reminds us that market timing is challenging, and maintaining a disciplined, long-term investment approach serves investors well. While we remain optimistic about 2025’s opportunities, we’re staying vigilant about these key variables that could influence market direction. Please reach out with any questions you have, and I hope to see you at one of our outlook events soon.
