Market Update 2025

Times they are a changing! I understand the new Bob Dylan bio movie is awesome. His signature song is relevant as we go into the new year. Yet again the only constant is change. 

The market and the economy have been more resilient then expected for some time. 

Quite a few signs show that this resilience is strong and can be expected to continue into 2025. Unemployment is low, customer confidence is increasing, and fundamentals are strong in the equity market, along with the growth in the market becoming broader.

Returns-wise, I was surprised that we experienced two years in a row of high double-digit growth in equities. Most of this growth has been driven by the top of the large cap market share.  As mentioned above, the last part of 2024 saw a broadening of the growth, i.e. more of the market large cap and other asset class firms were participating in increasing their market share. 

I will be really surprised if that happens in 2025. I anticipate that we may see high single-digit growth, the economy on good footing and the surge in technology and efficiency in cost management/productivity move in the right direction. 

Politics, I fear, will be the driver for volatility. Fact: the stock market does not like uncertainty, and we have more than normal uncertainty with the new administration and party disparity in D.C. Global actions and posturing are also adding to the rumblings. Tariffs and supply challenges, whether real or perceived, have an impact on growth of our economy, and in turn stock values. Inflation reduction tends not to happen in times of tariffs. I do not expect inflation to get to the Feds goal of 2% any time soon. 

Our strength, as it has been in the past, is the diversification of our economy and our ongoing innovation and entrepreneurship. Money is no longer easy; interest rates are higher than we have gotten use to for some time. Historically, mortgage, car loans, loans for capital improvements are not outrageous. They seem that way because it has been our recent norm. The impact has been felt by the reduction in home sales and willingness for businesses and individuals to borrow. This transition to the “new interest rate” reality is being resisted; we want our low interest rates back again. I do not think that is realistically going to happen. Getting back into the 5-7% range may be what we see, and as a nation, we are going to need to get back to borrowing for the fundamentals. When I say fundamentals, I am not referring to credit card debt, but things like car loans, home expenses, or to buy a home perhaps. This is what I consider to be fundamental borrowing. And do keep in mind that home buying is not wise for all of us. 

Short-term, we are going to deal with some discomfort. I suspect more than we want. Long-term the rational of stable governance and of an economy not in turmoil should balance us out again. Do remember that balancing is not static, it is a range of movement. 

P.S.: I encourage you to review Brad McMillian’s Market Commentary that we post on our website and try to avoid the talking heads in the media. 

I like this summary that Fidelity put together. 

Key Takeaways

• The two-year drop in U.S. inflation rates might not continue in 2025 due to persistent inflation pressures and the potential for new ones.
• The fiscal debate in Washington might create volatility in bond and asset markets, as legislative proposals create anxiety about exacerbating an already challenging debt outlook.
• Despite a Fed easing cycle, longer-term market interest rates may not fall as expected.
• Emerging-market equities might give U.S. stocks a run for their money, as discounted relative valuations make the positive surprise hurdle easier to clear.
• Investors might face below-average asset returns, as so much good news is already baked into consensus expectations.