Stock Talk - 2025: First Half Market Outlook

Starting point is 00:00:00 Investors, first off, happy New Year and welcome to 2025, because this is the first stock talk of the new year. Over the last eight weeks, our investment team has answered a myriad of questions into and out of the presidential election in November. We laid out multiple scenarios for how 2025 could play out in the financial markets and in our economy. If you've been following along closely, you should already understand our outlook for the first half of 2025. Investors, in this brief video, we're here to know. neatly summarize and tie it all together with a nice neat bow. And if this is your first time here, we're coming back often to enjoy our content

Starting point is 00:00:37 but haven't subscribed yet, please take a moment and click on the subscribe button below and click on the notification bell so you'll be notified when we upload our newest content. Team has been discussing since well before the election why this bull market could remain alive in 2025, regardless of who was elected back then. Without preempting all of our presentation

Starting point is 00:00:59 for our 2025 Market Outlook Summit that O'Carbust will host for our clients and prospects on January 23rd, 2025, the Hotel Zaza here in Houston. I'll be talking a little bit about that in today's video. We believe the first half of 2025 will continue to look like 2004's economic soft landing that we had been experienced in the US. However, the first half of 2025 may usher in a bit more

Starting point is 00:01:23 of volatility than the first half of 2024 did, while the stock market stays on its general generally upward trajectory. We covered three potential paths last week in our video, The Great, the Good, and the Ugly. I drop a link to last week's video in the description below. Our most likely pass for 2025? Well, that's the good. What's the good in our work? It's about 6660 on the S&P 500 during 2025, which would be about 12 to 13 percent from our current 5900 on cash S&P 500. The good is a continued soft landing in our economy, higher earnings, flatish-long bond yields, and a peaking-destable dollar.

Starting point is 00:02:02 The good scenario anticipates a range of normal volatility that we've experienced over the last 10 to 15 years, leaving out the COVID collapse. Unfortunately, for investors, we currently don't see a return to the low-volatility, no-volatility markets of 2017 under Trump 1.0. But even without a collapse in volatility like 2017, the overall S&P 500 can have quite a good year in 2025.

Starting point is 00:02:27 If one wants a historical model for a good path, the Greenspan led 1995-97 soft landing seems to be the path that we're mirroring. Yes, it's rare and very few investment professionals outside of our Oak Carvis investment team. We're anticipating a soft landing for 2024 way back in the fourth quarter of 2003. However, here we sit now near 6,000 in the S&P 500, above our optimistic 5,800 projection back in late fourth quarter of 2023, and already at our optimistic inaugural ball late January mark, we referenced over nine months ago. After almost 2,000 S&P 500 points and 14 months of a rally, most on the south side of Wall Street

Starting point is 00:03:10 have thrown in the bearish towel and played catch-up to our outlooks for the market. In fact, many previously bearish and wrong strategists are now forecasting higher S&P 500 targets than our team. The best historical precedent for the good outcome in 2025 is probably 1994 through 97, with 1995 being what we just experienced this year in 2024. We actually discussed this 95 through 96 period in early 2024, as many Dumer's called for crashes and economic calamity. Why did we reference this one? Well, this is one of the few times in

Starting point is 00:03:45 stock market history that the Federal Reserve back then, it was under Allen Greenspan, was actually able to engineer just an economic slowdown without causing a dramatic economic downturn or recession or a financial collapse in the markets. Back then in the summer of 1995 in the fourth quarter, Allen Greenspan and the Fed cut interest rates to five and a quarter percent from six percent over about six months, cooling the economy without tanking it. Investors, does this sound familiar? As much hysteria as there is about the current financial press, about rising long-term treasury yields, even back then, U.S. Treasury yields ended higher in a 12-month period following the first FOMC interest rate cut. Why? Because the economy was okay with the slowed pace of interest rate

Starting point is 00:04:31 cuts and saw an extended economic cycle. Back then, the overall bond total returns trailed cash returns and stock returns. Okay, what does that mean? It means you wanted to stay in shorter term maturity treasuries in your fixed income holdings for the soft landing in the economy. You wanted to own cash in two to five year treasuries, not 10 to 30 year maturing fixed income instruments. As for stocks in the S&P 500, take a look at the chart of the S&P 500 from 95-96, overlaid with 2024-25. Soft-Landing and stocks for soft landing in 2024. Ninety-six continued soft-landing for the economy, but the market volatility ratcheted higher throughout the first half of the year in 96. Right now, the forward volatility markets suggest a decent likelihood of this happening again

Starting point is 00:05:20 in the first half of 2025. The bold market would run on in the first half of 2025. The bold market would run on in the first half of 2025 and the year-end, the much higher, but the bulls might be subjected to more volatility month-to-month in the first half of 2025 than last year in 2024. To remind investors who weren't investing in 95-96, the S&P 500 started 96 on a bit of a sour note, selling off for the first few weeks down, about minus three and a half percent, but then found its footings into earnings and rallied strongly to put the index up about six and a half to seven and a half percent into April around tax day. However, looking at month-to-month returns of 96, post-mid-February, the S&P 500 did net for almost six months, trading in a really wide range through late July. During the summer of

Starting point is 00:06:07 96, the S&P 500 rose about 10% year-to-date, but then it's sold off again, down minus 9.5 to 10% in a summer swoon before regaining its footing and ending the year on a very, very strong note, with the S&P 500 up about 20% on the year. For all you stock market historians and dady junkies with good eyesight, take a look at the table with the monthly returns of the S&P 500 dating back to 1995. You can follow along throughout 2025 to see before following any similar pattern throughout the year. Here's a list of things our team feels will be most important to extending the stock market, full market for another year.

Starting point is 00:06:46 And investors, these are listed generally in order of importance. First off, S&P 500 earnings growth and growth rates continue to be strong, stocks follow earnings and marginal cash returns over periods measured in years. Second, interest rates, whether nominal or real interest rates and inflation expectations. Investors lower trending rates at the long end of the Treasury curve, which are generally market-based, are better for equities than higher trending rates. Why? Because the terminal value for equities is based on discounting their free cash flow over years back to present value, and when you make that calculation with lower interest rates, your terminal value goes up.

Starting point is 00:07:22 When that calculation is done with a higher interest rate, your present value for equity goes down. Okay, the third thing, keep a watchful eye on the U.S. dollar. I mean, I think this is the key chart for 2025. There is no de-dollarization of note in global markets. Currencies are a relative game. No one wants its own communist or socialist currencies over capitalist-oriented country currencies. The S&P 500 and its returns would be best served by a gradually weakening dollar in 2020. much the same way it weakened in 2017 under Trump 1.0. A weaker U.S. dollar would broadly help

Starting point is 00:07:59 the earnings of large-cap multinational companies which lagged the markets in 2024. Fourth on the list, Goldilocks for equities are stable to lower long-term interest rates, lower trending inflation, and stable to lower real rates. That's what happened in general in 1996 and in 2017. Fifth, China truly stimulating its economy, would be a huge deal for the global stock markets. No Band-Aid announcements like the last two years, but real monetary stimulation that gets their consumer spending. Investors, let's be frank, China's domestic economy is currently a disaster. There's no chance they're growing at the rates the government says. It's one of the largest markets in the world for products and services

Starting point is 00:08:42 and global stock markets and investors worldwide would be served best if they actually put in place some programs to stimulate consumption by their population for 2025 and 2006. Whether they're waiting to see President Trump's hand and game plan, I don't know, but they did stimulate in 2017 and their markets were one of the best-performing asset classes that year, even with the Trump tariffs and geopolitical tensions. Six on the list tax rates for both corporations and individuals. Lower corporate tax rates for businesses means more cash for shareholders, and hopefully higher-ending investment returns as well. Lower to stable taxes for individual means more cash in your wallet to spend on consumption or invest as an investor. It also takes

Starting point is 00:09:27 the pressure off many investors who feel the need to sell stocks now, or maybe in 2025, to beat the rush to higher tax rates in 2006. Seventh on the list, fiscal restraint. Investors, you need to remember that whether you liked Bidomics IRA economic plan or not, many public companies in shareholders benefited from the spending in 2023 and 24, and it makes those companies comps more difficult to achieve growth next year in 2025 and 26, particularly if those programs get cut back in a material way under Trump 2.0. What's good for the taxpayer and lower deficits on the surface might not be good for the investor. This is one of my own biggest fears that can lead to a slower growth in 2025 and 26 in the U.S. and lower earnings than most are thinking.

Starting point is 00:10:15 Eighth on the list, tariffs. There's a great deal of discussion, debate, and hysteria in many circles on this subject. Tariffs are taxes. Frankly, most politicians don't know much about the real world economics. Tariffs are friction between consumers and manufacturers, and friction is bad for investors. Investors hate friction that separates them from their money and their desired investment. Tariffs should not affect the service component of the U.S. very much, leaving consumption. Overall, necessary goods that we import here in the U.S.

Starting point is 00:10:45 possible tariffed countries to survive are relatively low. Additionally, since the initial Trump tariffs were enacted during its first term, most international companies have diversified their manufacturing supply chains away from China and other countries that might be tariffed. Autos would be hurt due to their Mexican production and some others like electronics, however, were energy independent and now a large exporter of BTOs in the energy field. Ninth on the list, immigration policies. Yes, investors, mass deportation of illegal immigrants would likely initially cause not only an economic slowdown, but also an increase in service inflation. Our team sees a softer policy once implementation

Starting point is 00:11:26 begins as a weaker economy is not in this administration's best interest. Tenth on the list, geopolitical uncertainties. Investors, these get talked about all the time by economists and strategists on TV and throughout social media. There's an entire consulting field around this topic, but I rarely, if ever, hear the most successful long-term investors talking about this subject. Traders, sure, long-term investors, Warren Buffett, no. Technology and venture capital investors, almost never. Generally, it's theorists trying to predict the unpredictable. You hear black swan zealots preaching about these risks all the time, and how many rich pessimists do you know? Investors, S&P 5007,000 in 2025. It's doable in the next year.

Starting point is 00:12:13 12 to 14 months, like many strategists are now saying. Many strategists who are much too pessimistic and negative about the 2023 and 24 seem to now want to play catch up. The simple answer is, yes, it's doable. It would be near the exact same replay of Trump 1.0. But is it easy? No, of course not. The unforecastable can play out. Maybe it is different this time. For now, the math I follow says 6660 would be a likely topping place for the S&P 500 in 2025. Investors, my suggestion to you if you didn't already in late 2024, if you are at or near retirement, give your financial advisor a call in early 2025 to walk through your financial plan and determine if you and your money are taking the right amount of risk given your

Starting point is 00:13:01 current and future spending. Walk through your budget and goals with them and determine with the substantial stock gains of 2024 if you're taking more risk than you need to. If you're years away from retirement, meet with them and discuss if perhaps you're not taking enough risk to meet your longer-term financial goals. And of course, investors, I suggest you take an hour or two out of your busy new year and tune in to our market outlook that will be live streamed on January 23rd at 630 to keep abreast of our investment team's current thoughts and perhaps directly answer and address a few of your

Starting point is 00:13:34 lingering economic and investment questions. And with that, the O'Carvis team and Eric behind the camera wishes you. you and your family a blessed and happy new year ahead in 2025. All content contained with an Oak Harvest podcast expresses the views of the speaker and is for informational purposes only. It is based on information believed to be reliable when created, but any cited data, indicators, statistics, or other sources are not guaranteed. The views and opinions expressed herein may change without notice. Strategies and ideas discussed may not be right for you, and nothing in this podcast should be considered as personalized investment, tax or legal advice,

Starting point is 00:14:15 or an offer or solicitation to buy or sell securities. Indexes such as the S&P 500 are not available for direct investment, and your investment results may differ when compared to an index. Specific portfolio actions or strategies discussed will not apply to all client portfolios. Investing involves the risk of loss, and past performance is not indicative of future results.

Stock Talk - 2025: First Half Market Outlook

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.