January 8, 2025 Update: Great Expectations
Submitted by Bond & Devick Wealth Partners on January 10th, 2025Great Expectations
The analysis by Bloomberg's Lu Wang highlights a cautious yet optimistic outlook for 2025, with Wall Street strategists predicting a 12% return for the S&P 500. The stock market is near all-time highs, valuations in certain segments of the market seem stretched and uncertainty abounds around the direction of inflation, interest rates, and potential tariffs. The old investing adage that the markets climb a wall of worry is certainly being put to the test in 2025.
For context, while 2024 was a strong year for the S&P 500, returns were driven by a small number of sectors. According to Charles Schwab, only 19% of stocks outperformed the index, which means plenty of stocks underperformed. Notably, the Energy (+2.3%), Real Estate (+1.7%), Healthcare (+0.9%), and Materials (-1.8%) sectors all dramatically trailed the market in 2024. Although last year diversified portfolios underperformed growth stocks, should volatility pick up we believe diversification will help moderate any potential downside movements in the market.
The stock market could certainly return 12% this year, but we believe that would be dependent on interest rates continuing their downward path. If inflation turns higher, interest rates would follow which would likely be a strong headwind for many stocks and long-term bonds.
Investors will know the extent of Trump’s tariff plans by the end of January, which could add clarity to short-term inflation and interest rate expectations. As policy becomes clearer the markets will surely adjust and we will continue to monitor those policies and their potential impact on portfolios. Ultimately, while Wall Street strategists have Great Expectations for 2025, only time will tell whether those expectations will be met.
The Bond&Devick Team
