Hello Everyone,

As 2025 is in full swing, Letty and I want to send our warmest wishes to you and your families for a fantastic year ahead.

There’s nothing like the start of a new year for a bit of introspection—taking stock of our wins, blessings, and yes, those pesky shortcomings.

It’s fascinating to reflect on how much we’ve grown in just one year. Our process is not unlike how we assess the ever-changing tides of the capital markets.

Like life, the markets are fluid. Understanding our wins and mistakes helps us determine what changes are needed for the future. But, as we all know, change doesn’t happen overnight.

And yet, as each new year rolls around, predictions about the capital markets flood the airwaves—even though, in reality, nothing has fundamentally changed.

As always, the “predictions” from Wall Street vary widely.

Bullish and Bearish Predictions

The most Bullish call comes in from Oppenheimer. Estimating 7,100, or a +20% gain in the S&P 500 by year-end.

And the most Bearish call of 4,452, or a -24% decline, comes in from BCA research.

Bulls: credit the Fed with avoiding a recession. The continued reduction in inflation and interest rates, an uptick in home sales, less restrictive tariffs, higher-than-expected earnings growth, and broader market breadth are expected to drive equity prices to another record year in 2025.

A release of “animal spirits,” so to speak.

The most Bearish case, according to BCA Research, believes that there is a potential for recession due to a bond market “riot” and a “major global trade war” leading to a weaker job market and a consumer that “finally buckles”.

So…yeah, there’s that.

However, the consensus among most institutions is a roughly 10% return in the S&P 500 for 2025.

From my perspective, as with every year, predictions are just that—predictions. Calling the future of market returns, especially in the short term, is impossible without a bit of luck.

Generally, annual market forecasts are more of a gauge of current sentiment rather than having any true predictive value.

A year is a long time. As of today, not much has changed, but with aggressive policy changes, there looks to be big changes on the horizon.

Yet, I agree with Stanley Drukenmiller, a well-known American investor and philanthropist, on one thing. We are moving from the most anti-business administration to the complete opposite.

This could be a major tailwind for businesses and, in turn, for the capital markets.

However, there are also geopolitical, economic, and market headwinds to be mindful of.

Geopolitical Landscape

I am not a geopolitical forecaster, so I will not pontificate much on the topic.

That said, geopolitically, we are in a state of flux. Tensions between global powers are high and could have far-reaching effects.

As conflicts continue overseas, the new administration pursues a geopolitical and economic protectionist approach, better known as the “America First Trade Policy.”

According to the Information Technology & Innovation Foundation (ITIF), the countries with the highest to lowest risk of tariffs are mapped out below.

Tariffs, much like in 2018, will impact markets. There is uncertainty over how aggressive and broad the tariff rhetoric will become; however, we are all aware that we should take it seriously.

To recap, five tariff actions were enacted in 2018. That year, the S&P 500 ended the year -4.23% lower (dividends included).

History has shown that tariffs are a potential stumbling block both geopolitically and economically in 2025.

Economy

The economy in 2024 was more robust than many, including myself, had anticipated. Despite a plethora of recession indicators – such as the Sahm rule, a reversion of the yield curve, and a continued decline of leading economic indicators -- US GDP grew by 2.7% in Q3 of 2024.

Additionally, while unemployment ticked slightly higher, it found footing around 4.1% – 4.2% and remained range-bound for the bulk of 2024. Household incomes and consumer spending rose slightly, and inflation trended lower.

In other words, the US economy in 2024 was close to being considered in “Goldilocks” range. Not too hot, not too cold.

Many strategists and economists believe we have avoided recession and achieved the elusive “soft landing” as the S&P 500 climbed more than 23% in 2024.

Although, I am still skeptical if we have avoided a recession outright.

The Federal Reserve summary of Economic Projections, released in December, anticipates a year of slower GDP growth, slightly higher unemployment, slightly higher inflation, and a couple of small rate cuts to the Fed funds rate – roughly 4.00%- 3.75% by the end of 2025 (see below).

The above economic projections are a “base case”.

There is potential for economic strain from tariffs, tax code changes, less government spending, and immigration policies that could negatively affect economic output in 2025.

However, if done correctly, the potential changes can actually be a positive for markets, the economy, and most importantly households.

Economic growth will challenge the base-case scenario and introduce volatility to the capital markets in one way or another. To the upside or downside.

Scroll to the end to see our continued update of our economic dashboard.

Markets

Broadly speaking, the S&P 500 has traded sideways since November. No real progress has been made and short-term weakness with short-term sell signals triggered.

That said, from a medium to long-term perspective, the index is still in an up-trend.

The S&P 500 has held key resistance and support levels, with both long and medium trends still intact (see below).

Yet, moving into 2025, market valuations are high. On some levels “strongly overvalued”. (See below).

Generally speaking, the market doesn’t fall simply because of overvaluation. In fact, even in the face of overvaluation, the market can continue to climb higher.

John Maynard Keynes, is famously quoted as saying, “Markets can remain irrational longer than you can remain solvent”. I often remind myself of this quote -- no matter what I see or believe, the market does not care.

That said, it does not mean we should ignore the situation. At some point, valuations matter.

As investors experienced on January 27th.

External competition, such as the introduction of DeepSeek, put US AI and Technology company valuations at risk causing volatility in the highest capitalization segment of the US capital markets.

Especially if similar results can be accomplished cheaper with fewer inputs.

Given the current makeup of the market, much of the market’s performance can be attributed to both Technology, AI type companies, as well as high bond prices. While the market’s reaction may have been overdone, it ultimately came down to valuation – and the market spoke. Albeit short lived.

This is precisely why risk assessment, asset allocation, and diversification are key to long term investing.

As a side note, we do not know the validity of the DeepSeek claims and we should remain skeptical

Conclusion

There’s no doubt that 2025 will bring both expected and unforeseen risks. But on the flip side, there are also many promising opportunities ahead.

The current, administrations potential policies on tariffs, taxes, immigration, government spending, Business regulation, inflation, and views on interest rates do have potential positive effects.

Assuming they can all get done together and quickly.

However, if not, they can be considered foreseen risks in their own right. The unforeseen risks, however, are what we put our best foot forward to prepare for.

The key to navigating any market or economic challenges are regular risk assessments and thoughtful portfolio adjustments.

As your advisor, I want to thank you for placing your trust in me. I’ll always stay vigilant, assessing these risks and making adjustments based on your unique financial needs. I look forward to continuing to serve you in 2025 and beyond.

As always, I look forward to connecting with you all in the near future!

Thank you for reading,

James Anadon

References:

Up and to the right?

What’s in store for Q4