Most likely, in 2025 there will be its percentage of obstacles, although not necessarily the same as in 2024. Can any of the effects of 2024 serve as a clue to long-term success?
The US economy proved its worth in 2024, with the S&P 500 index ending the year up 25% despite inflation, recession fears, unprecedented political unrest and foreign conflicts. In a year in which the Federal Reserve maintained its “higher for longer” interest rate policy and the housing market remained stagnant, GDP grew only about 3%, pushing the economy into recession.
Many investors have had a smart year despite so much adversity, showing how resilient markets can be and serving as a useful reminder that we need to be patient during difficult times. Time on market is longer than time on market. In other words, you can only reap the benefits of a resilient economy if you invest in it.
The U. S. unemployment rate remained low at 4. 1%, with a record 160 million people employed. In addition, wages have kept pace with inflation, thus expanding the source of disposable income. With about seventy percent of the U. S. economy driven by customer spending, it’s no surprise that high-end employment and a stable source of disposable income have kept the engine revving.
Americans appear to be saving about 2% less than they have over a 30-year average—4% rather than 6%. Whether or not that’s constructive behavior is up for discussion, but it does seem to reflect the notion that a gainfully employed public tends to spend. Few factors juice the economy more than a consumer with a job looking to purchase goods and services with their hard-earned wages. This trend has the potential to continue through 2025.
Productivity is a key enabler of economic expansion. Thanks to large investments in synthetic intelligence and the speed of cutting-edge technologies, productivity expansion in the United States has skyrocketed from an annual rate of more than 1% to more than 2% over the past two years. .
This renewed momentum is reminiscent of the late 1990s when the internet revolutionized efficiency and output. With AI applications and automation enabling businesses to accomplish more with less, it appears the groundwork is being laid for another productivity-driven boom—an essential indicator of sustained economic vitality.
Politics does not align with the fiscal ecosystem and vice versa, but history shows many examples of really extensive market gains in the first 365 days of a new presidential term.
There are already rumors surrounding two market-friendly topics in 2025: tax cuts and deregulation. Both have the potential to spark investor optimism. Now that the executive and legislative branches are controlled through the same party, the political landscape may create less friction in the immediate implementation of policies that support trade and focus on the personal sector, creating favorable situations for market expansion.
A tariff is often associated with inflation by virtue of its function as a government-imposed tax or duty on imported or exported goods. If the price of an item increases 20% overnight, somebody has to pay for it. Typically, the consumer is the one stuck with the bill, although at times, the company or companies involved can absorb the cost.
The markets will be very attentive to the new administration’s pricing strategy.
Markets will be closely watching the incoming administration’s specific tariff strategy. A more targeted approach vs. blanket, across-the-board increases could cause vastly different reactions, retaliations, and countermeasures. For example, focusing on Chinese products to bolster national security and shift supply chains back to the U.S. may lead to repercussions that are distinct from those resulting from tariffs imposed on the European Union or Mexico. The impact of the former could be more bark than bite, given that the U.S. has significantly reduced its dependence on Chinese imports over the past decade. The latter scenarios appear less likely but could be wielded as bargaining chips to gain leverage in trade and immigration negotiations among allies.
The most widespread analyzes and assessments demonstrate continued strength and allow for optimism. However, it would perhaps be unwise to expect the high stability of the last two years to be commonplace. Historically, peak-to-trough declines are a feature of the annual life cycle. On average, the S&P 500 reports annual declines of more than 16%. For comparison, 2023 and 2024 saw maximum declines of only 10% and 8. 5%, respectively.
Market setbacks or corrections are not a cause for panic, they are a reality.
Market pullbacks or corrections aren’t cause for panic but are a reality. Over the last 50 years, the S&P 500 has experienced approximately two 5% pullbacks annually, one 10% correction every two years, and a decline of 15% or higher about once every four years. Such a cycle suggests investors are overdue for more typical market swings than they saw in the past two years.
Only twenty-six months old, the existing bull market is young by old standards. Over the past 50 years, the duration of bull markets has ranged from two to 11 years, with an average duration of about five years. Just because the market “has done well” doesn’t mean it can’t continue to do so. In other words, market history suggests that this bull still has work to do before the end of the rodeo.
Market history suggests this bull has work to do before the end of the rodeo.
In the 2010s and so far in the 2020s, dividends accounted for only 17% and 12% of total returns. To simplify, in general regress = replacement value + dividends. Aside from the tech boom of the 1990s, this is the least significant era on record in terms of dividends. In part, this dynamic has created a void favoring quality dividend-oriented stocks, which can now account for a larger percentage of overall returns.
Understanding dividend contribution provides valuable insight into long-term investing. A “reversion to the mean” could result in dividends again becoming a major player in investment performance. As income-focused strategies gain traction, dividends might play a more prominent role in shaping future portfolio returns.
Bonds are coming back into the game, offering a true source of income and diversification in today’s market. As the 10-year US Treasury yield climbs back above 4. 5%, rates are approaching levels not seen since the mid-2000s (almost 20 years ago). This move marks a notable recovery after the incredibly low interest rate environment of the last decade. Remember that with bonds, “yield is destiny” and returns in this diversity have traditionally provided investors with a steady source of income with decent returns while balancing portfolio risk. For investors, a source of income and stability, it is more essential than ever to understand the historical context of these rates and how they could be compatible in a comprehensive investment strategy.
Few factors drive U.S. equity markets over time as consistently as earnings growth. Seen as the bedrock on which all market growth is built, the significance of earnings-to-market performance is hard to overestimate. The 2025 forecast looks robust. Some project S&P 500 earnings per share (EPS) to grow by 13%, and others anticipate profit margins to expand to a record 13.7%, signaling improved efficiency across sectors.
Few factors influence U. S. stock markets as consistently over time as earnings growth.
High-margin industries like generation and communications could lead the charge, but what matters most is the effect of overall market functionality on profits and, in turn, Americans’ 401(k)s .
Almost each and every variation of stock market strategies (price expansion, boost, or reversal) has produced inflation-outpacing effects over the years. Income derived from an investment can be added to this list, with the advantage of allowing investors to receive a payment for waiting for expansion. In addition, although growth is inconsistent over shorter periods, the source of income from stock dividends, bond interest, or real estate investments such as distributions (REITs) can provide a constant hedge against ongoing shocks. road. This cushion can be especially valuable for retirees looking for a reliable cash flow. In 2025, those sources of income streams may be key to helping investors weather volatility while also staying on track to achieve their monetary goals.
The 2024 sessions and expectations for 2025 highlight the need for investors to be patient amid inflation and recession fears. When anxiety-provoking points arise, that field can be challenging. However, by weathering the panic, many investors have reaped the benefits of a resilient U. S. market. Future projections recommend that deregulation, capital spending on cutting-edge technologies, and customer strength and resilience can lead to greater economic vigor and strength. However, the culmination of such a dynamic will only be within the reach of those who participate in it.
Future projections recommend that deregulation, capital spending on cutting-edge technologies, and customer strength and resilience can lead to greater economic vigor and strength.
The new highs the market has reached in recent years could have some fearing pullbacks or corrections in the market, but there is an explanation why that strength in the US markets could be in its early stages rather than in later stages. struggle.
It is never easy to practice the ups and downs of the market. Incorporating an income stream to make an investment into a broader plan can cushion the blow and allow for a less painful edition of the waiting game necessary as investors navigate the natural and cyclical volatility of the markets. America’s Productivity Army is not perfect, but it is resilient and productive. History shows that those who stay the course and walk with it rarely gain more advantages than those who don’t.
The U. S. Productivity Army is perfect, but resilient and productive.
Capital Investment Advisors, LLC is an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or training. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Actual results could differ materially from the estimates and opinions provided here. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. “Peak-to-trough” refers to the measurement of the decline from the highest point (peak) of a market or asset price to its lowest point (trough) during a specific period. All investments involve risks, including possible loss of principal. Stock prices fluctuate, sometimes rapidly and dramatically, due to factors affecting individual companies, particular industries or sectors, or general market conditions. For stocks paying dividends, dividends are not guaranteed, and can increase, decrease or be totally eliminated without notice. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed-income securities falls. Risks of the REITs are similar to those associated with direct ownership of real estate, such as changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer. Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets. Past performance does not guarantee future results.
Capital Investment Advisors, an Atlanta-based RIA with $5 billion in assets under control (as of 12/31/23). In addition, I am the host of the nationally acclaimed Retire Sooner podcast and the longtime host of Money Matters, a weekly money showcase on 95. 5 WSB – Atlanta’s News and Talk. I’m the author of 4 books, adding the bestsellers You Can Retire Sooner Than You Think and What the Happiest Retirees Know. Barron’s has named me one of America’s Top 1200 Financial Advisors every year since 2014, and I’ve been listed among Barron’s Top Hundred Independent Advisors every year since 2016. My project is to help other people retire older and happier. than they ever imagined possible, providing objective and transparent advice.
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