Chart of the Week
As we enter the year’s end, the 2025 outlook forecasts are coming out. While it makes for interesting conversation, we would rather look at what real money investors are doing. Is the portfolio equity at the target weight, or above, or below? That is a better indication of what an investor thinks about the future than a point in time price targets.
The first year of Presidential cycles tends to produce average market results, while the second year has a lower likelihood of being positive on average.
The positive seasonal time for stocks towards the end of the year has many looking forward to a possible “Santa Claus rally.” Sentiment is reaching the most positive levels of the past several years, so we will need to see some upside surprises against the lofty expectations.
Earnings are a key input for long-term stock returns. Note that when earnings grew in the past, stocks tended to go up. When earnings fell, prices tended to coincide with deeper price declines. Today, analysts estimate earnings will grow 11% over the next year. On the other hand, there have been less upgrades to earnings over the past six months, which warrants attention as we turn to the new year.
What We’re Reading
Thanksgiving Eye on the Market: A Whole New World – J.P. Morgan
On the Horizon for 2025: Tax Cuts Extension and SECURE Act 3.0 – Think Advisor
The Importance of Being Diversified by Design – Man Institute
Podcast of the Week
Interview with new Treasury Secretary nominee, Scott Bessent – Capital Allocators
Last Week
Economic data over the past week was mixed. Reports from holiday sales look strong as annualized sales rates jumped to 7.4% from 4.9% previously. Manufacturing contracted for the eighth straight month, although new orders expanded. Services data fell short of expectations but still showed growth. Prices and the 2nd quarter GDP data were in line with forecasts from economists.
The Week Ahead
The monthly jobs report on Friday and next week’s inflation data will get the most attention. The data is important as the Federal Reserve Open Market Committee meets in two weeks, with most expecting another 0.25% cut in interest rates.
Thank you for reading.
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