Atlas Note – Q1 2025 Newsletter
January 2nd, 2025
All Atlas Clients –
Want to wish everyone a happy, healthy and prosperous New Year! Hope everyone tried to find some downtime for themselves and enjoy the festive time with their friends and families. It would be impossible in a two-page newsletter to recap 2024 events in both the markets and in general, but the main event to address is the election results. As you know I’m not political and it is never a part of our newsletters and market reports. The enthusiasm in the corporate and business communities for future business growth, greater earnings and less regulation has propelled the market to new highs towards the end of 2024 and based upon market strategist’s forecasts, they are looking for an 8% to a 15%+ upside market move in 2025. The new administration hasn’t even taken office yet, nor have any specific policies become enforced, or laws passed that would pave the way for the prosperous road that should lay ahead, but that doesn’t matter at the moment.
We watch and read a tremendous amount of market commentary, both the positive, negative and neutral, to make sure we are hearing all sides, opinions and strong arguments. One strategist stated as a possible short-term outcome, “Buy the Election, Sell the Inauguration”. This means the rumors that may be abound would be worth Buying in the short-term, but by Selling post-Inauguration it would be more of a “wait-and-see” what the administration could potentially pass. Now, if you have followed anything that goes on in Congress over your lifetime, you know one thing; nothing happens quickly, no matter how the new administration wants it to go. What this means for the markets is possible range bound trading and flattish action in the first six months until Presidential authority and/or Congress enacts the policies or laws that make the rumors realized for the business growth and expansion of corporate earnings.
Despite the potential good fortune of higher portfolio values, we still have a lot of economic headwinds domestically. Many are the ones we have mentioned in newsletters over the last 18-24 months, but bears repeating;
1 – Credit Card carry-over debt (from month-to-month) is now over $1.17T (as of the end of Q3 2024).
2 – If everyone was so Bullish, why is there over $6T in Cash and Cash equivalents and Warren Buffet (Berkshire) has over $325B.
3 – Credit Card Delinquencies that are Past Due over 30, 60, 90 days has been spiking since the end of Q2 2024. At an average of over 22%!
4 – LEI (Leading Economic Indicators) has been Trending down for 32 straight months, longest in history of the indicator (as of November 2024).
5 – Hiring has slowed down and Unemployment has ticked up, but not precipitously.
6 – Inflation appears to have bottomed out but has shown some signs of elevating recently. Need to watch this trend.
7 – Tariffs would increase inflation as countries would add that cost into cost of goods that we (Americans) would pay from imports.
8 – Fed Rate Cuts may be slowing. This means that the cost of borrowing remains high: Business, House & Car purchases, etc.
9 – Several European countries are in or teetering on a Recession.
10 – China has gone double barrel with stimulus to encourage citizens to borrow and spend and increase business output.
11 – All Geo-Political hot spots reaching fever pitch!
There are positives in the economy and several top performing companies:
1 – Corporate Earnings are strong, especially among Technology companies and other sectors are seeing low/mid-single digit growth.
2 – Employment is still strong. People have jobs and are still spending money, even if many of them are spending on their credit cards and not paying off the balance at the end of each month.
3 – Sentiment of a more prosperous economy is breeding “Animal Spirits” for consumer spending and investments.
4 – The anticipation of easing industry regulation has increased enthusiasm for business investment.
5 – Prospects of significant M&A (Mergers and Acquisitions). The new administration and Congress are encouraging more commerce and efficiencies with less roadblocks and several companies desire with M&A. Hopefully not at the cost of the consumer in some cases.
Top 15 Stocks in the S&P 500 and their weighting on the Index– (as of December 17, 2024)
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Remember, the S&P 500, NASDAQ and the Dow Industrial Average Index is “NOT YOUR PORTFOLIO nor is it your Benchmark”. Everyone is different when it comes to the following: Risk Tolerance, Timeline for a Retirement Date, Size of Portfolio, Household Income, family size (married, kids, grandkids, etc.) and lifestyle. I’ve always said the following, there are two things’ people don’t like to be told, “What to eat and how to spend and invest their money”. If your neighbor brags about his/her investments or how much their portfolio went up, do you have the same lifestyle, household income and other factors we discussed above? Of course not. Also, they may brag about one investment but had losses in others they wouldn’t share with you.
Of course, if you have a longer-term horizon, you should always have a percentage of your portfolio (especially the risk areas/accounts) in an Index that follows the top performers in the market. This could be an S&P 500 Index, perhaps a Growth-focused Index of the S&P 500, a Dividend and Low Volatility-focused Index of the S&P 500 or just the top 50-100 momentum stocks in the S&P 500. Whatever you choose, make sure it is within your Risk Tolerance also as part of your overall portfolio. |
Most of the top Market Strategists were expecting a significant pullback in the market or a mild/moderate Recession at the end of 2023 or by mid-2024 the latest. Despite the core economic numbers trending lower, there was no catalyst, and you need one for a Recession to trigger, but Unemployment stayed low, consumers continued to spend, and the top companies grew their earnings. One of the factors that went into many of the Market Strategists thinking was the Fed Rate Cuts which were anticipated that 6+ for 2024 would happen, didn’t see more than three. If that were the case and truly happened, that would mean the economy was slowing too much, banks weren’t lending as much, and a Recession may have triggered. We had a Fed Rate Cut in September of .50bps and .25bps in November. December also had a .25bps Rate Cut, for a total of 1.00bps Fed Rate Cut in 2024.
In 2025, if you see consistent Rate Cuts throughout the year that means the Fed sees economic growth slowing too much in the data. We are looking for an end of year Fed Rate around 3.25% – 3.50% but that is purely a guess, and no Magic 8-Ball or Crystal Ball knows for sure. The Fed always says they are data dependent and if there is no catalyst within our economy or geo-political, we should see a rise in the markets of 8%-15%+ as we indicated earlier in this writing. If you are within 3-5 years of retiring, 2025 and parts of 2026 may be good for your overall portfolio, but if we are up 10% or more in 2025, that would be three(3) straight years of double-digit growth, which is a bit ominous for late 2026 and 2027 based upon market history. As we have stated before, the market doesn’t grow to the sky and on average the market does have pullbacks; 5% Pullback 3x per year, 10% Pullback every 16 months on average, 15% Pullback every 3 years on average and 20%+ Pullback every 5 ½ years on average.
In Summary
Many people use the beginning of the New Year as a reset or to try and have a clearer focus on what is important and goals they would like to try and achieve. Our goal is to talk/meet with you twice per year if possible. We realize life gets in the way, but it is important to review your investments no matter what is going on in the market or the world at that time. Of course, we always want to have a conversation about the market and portfolio going up, but we don’t want to have a short-term focus (monthly or quarterly). This is another reason why talking every six months at the minimum is important or when there are significant and material changes in your life.
As always, please reach out to share your thoughts. Be safe and healthy!
With Best Wishes,
Ronald E. Lang, Principal and Chief Investment Officer
Atlas Wealth Management, LLC