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A lot has been happening since election day. Tech stocks are up, value stocks are down, and crypto has been on a tear (we’ve had an allocation to Bitcoin for years—yes, we’re bragging a bit). So, basically, your cousin, who considers himself a professional day trader on Robinhood, has been doing well the past month. Good for him.
Meanwhile, the rest of the world, except for Argentina, is down. A quick note on Argentina—since electing Milei last year, Argentina has been drastically turning its economy around. This has been quite the story and worth a read.
The markets are signaling that 2025 is going to be a transitory year. It is wise to pay attention and shift accordingly.
New Economic Policies
The capital markets are trying to price in what President-elect Trump intends to do when he takes office.
As a recap, President-elect Trump is basically going to cut taxes, tariff the crap out of other countries, tighten immigration, and establish a national Bitcoin reserve. All of this will probably be inflationary (despite his team saying it won’t be) and devastating to other countries, but we should be fine here in the U.S. You can read my take on Trump’s proposed policies here.
Europe and Japan, on the other hand, are both experiencing sluggish growth and are at risk of an economic contraction in 2025. China, while still moderately growing, is finally starting to feel the pinch of its multidecade debt-fueled growth and its aging population. They are at risk of a severe contraction if they don’t manage this well.
In short, while the U.S. might have its fiscal and domestic problems, the rest of the world looks worse. It’s sort of like having the cleanest dirty shirt in the laundry. We have a record level of debt ($36T) and a divided country, but at least we still have innovative companies and a decent demographic profile. The same can’t really be said for most other countries.
So, as a result, we have been and continue to be overweight U.S. stocks despite its rich valuation. If you want quality, you have to pay for it.
Do more with what you’ve earned.
You’ve worked hard to get here. We build financial plans around your actual life so you can make the most of it.
Wall Street’s Predictions
Wall Street analysts and economists have started publishing their 2025 S&P 500 price targets, which are notoriously wrong. Wall St is expecting a 5%-16% gain (Wells Fargo is the most bullish while UBS is the most bearish).
What is interesting is that while the stock market averages an 8%-10% return over time, it rarely gives you this return in any given year. In fact, this has happened only between 5%-8% of the time. It is far more likely for the stock market return to fall out of this range than to fall within it.
When the stock market is up, it averages 21%. During a down year, it averages -13%.
The point of all of this is that predicting market returns is really hard. There are way too many variables, and Wall St is likely to get it wrong again in 2025.
Nonetheless, it pays to stay invested (especially here in the U.S.) and to let compounding interest do its thing.
Thank you for an outstanding year! 2024 has been one of the best years on record for Bull Oak, and we’re truly grateful for where we are today.
Wishing you all a wonderful holiday season and a happy New Year! As always, please let us know how we can assist with your personal financial needs.
