Here at The Price Group, we do not make short-term stock market predictions. Why? Because even the ‘best’ are wrong most of the time. Warren Buffett famously continues to say “neither I nor you are smart enough to predict where the stock market will be within a year from now.” However, we do like to share our thoughts as it pertains to the trends that will influence The Price Group’s decision making over the next 12 months.
Below are the primary trends we believe could have the greatest impact on the economy and the financial markets in 2025.
Optimism Overload
Heading into 2025, consumer, business, and investor confidence has moved higher, particularly since the election. However, this confidence masks some underlying risks. Volatility, currently at historically low levels, will likely increase in the upcoming year. We caution investors from becoming overly complacent as the market is set up for disappointments. With that being said, we think that optimism is highest for the ‘Magnificent 7’ (largest 7 companies in the S&P 500). Because of this, we have increased our exposure in companies not found in the ‘Magnificent 7’. Do not be surprised if the average stock in the S&P 500 outperforms the S&P 500 index over the next 12 months. We are of the opinion that the next 12 months could be a great environment for actively managed stock portfolios.
US Economy
We expect moderate growth of the US economy in 2025 in the range of 2% - 3% when using the Gross Domestic Product (GDP) as our barometer. The consumer continues to be resilient, job growth still looks healthy, and corporate spending support the economic expansion. Assuming the Federal Reserve does not drastically change their interest rate policy, the US economy should standout compared to other developed countries around the globe.
Monetary Policy
We believe that disinflation (inflation at a slower pace) will continue. We expect the Federal Reserve to reduce interest rates twice in 2025. As the ‘soft landing’ (i.e. no recession) remains intact, the economy and stock market should do well regardless of the number of times that the Fed cuts interest rates.
Fixed Income
We expect interest rates to be ‘range bound’ for 2025. We do not foresee interest rates moving much lower or much higher over the next 12 months. In addition, we continue to favor higher investment grade bonds (opposed to junk bonds) due to the minimal additional interest that junk bonds are currently paying investors. The municipal tax-free bond market remains healthy with opportunity to be had for families in higher tax brackets.
Equities
After two great years in the stock market, fundamentals continue to remain solid; however, we see limited price/earnings (p/e) expansion in 2025. The price/earnings expansion was the primary driver of higher markets over the past two years. We think that investors should dial back their return expectation in 2025. While we continue to believe that the bull market remains intact, we think that volatility will also be more prevalent over the next 12 months. We are of the opinion that the stock market should move higher in 2025 if companies can continue to increase earnings.
International Equities
US stocks have been the ‘cleanest shirt in the dirty laundry’ for 10+ years and we think that trend continues into 2025. The primary reason for this prolonged trend is that US companies continue to grow their earnings faster than their international counterparts.
Be Selective
With the current investing landscape, we are cautiously optimistic moving into 2025. Because of this, we are gravitating more towards high quality bonds (investment grade bonds) and high quality stocks (dividend paying stocks). Most all of our high quality stocks pay dividends and carry a lower ‘risk tolerance’ than the overall stock market. We do not like the idea of ‘owning the entire market’ nearly as much as we have in years past.
Your Live Well Plan Matters
We think 2025 will be an important year to remember your personal goals with investing. Sticking to your long-term gameplan will be critical to deal with the unpredictability of the market. Asset allocation, rebalancing, cashflow management, and producing income with your portfolio all play a critical role as families walk through the complexities of retirement.
Conclusion
Overall, we think there are some subtle headwinds for stocks and tailwinds for bonds in 2025. We continue to strongly believe that every family approaching and walking through retirement needs to prioritizes holistic wealth planning.
Would you like to review your Live Well Plan? Perhaps you would like our team to help you create a personalized Live Well Plan? The Price Group is here to help.
About the Author
Matt Price serves as a Partner and Managing Director for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their four children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 12 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!
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The views expressed herein are those of the author and do not necessarily reflect the views of Steward Partners or its affiliates. All opinions are subject to change without notice. Neither the information provided, nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Past performance is no guarantee of future results.
The Standard & Poor's (S&P) 500 Index tracks the performance of 500 widely held, large-capitalization US stocks. An investment cannot be made directly in a market index.
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Interest on municipal bonds is generally exempt from federal income tax. However, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax-exemption applies if securities are issued within one’s state of residence and, local tax-exemption typically applies if securities are issued within one’s city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.
International investing may not be appropriate for every investor and is subject to additional risks, including currency fluctuations, political factors, withholding, lack of liquidity, the absence of adequate financial information, and exchange control restrictions impacting foreign issuers. These risks may be magnified in emerging markets.
Equity securities may fluctuate in response to news on companies, industries, market conditions and the general economic environment. Companies cannot assure or guarantee a certain rate of return or dividend yield; they can increase, decrease or totally eliminate their dividends without notice.
Asset Allocation does not assure a profit or protect against loss in declining financial markets.
Rebalancing may cause investors to incur transaction costs and, when rebalancing a non-retirement account, taxable events may be created that may increase your tax liability.
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