Here’s hoping 2025 is a great year for you!
MARKET WATCH
It is sad starting the new year off reflecting on the terrible events of New Year’s Day in New Orleans and Las Vegas, but my heart goes out to the families of the victims. It’s troubling that such a small number of people determined to wreak havoc in our world mainly just want to cause fear. It was reinforcing to see New Orleans reopen the French Quarter and show the city’s resilience in the face of such adversity.
As we review the market events of 2024, probably one of the most interesting is the two years of back-to-back gains of more than 20 percent for the S&P 500*. Historically, as you can read in a subsequent article later in this newsletter, that is bullish for the markets about 75 percent of the time. If removing some of the shackles from the economy and adhering to an energy policy which utilizes all forms energy at our disposal are objectives which are achieved, then we could have another strong year for the markets in 2025.
Had it not been for a bit of a pullback in equities, rather than a “Santa Claus Rally” after Christmas, the performance of the major indexes would have been even higher. As it turned out, the DJIA* ended the year at 42,544.22, an increase of 12.88 percent and 5.61 percent off its record of 45,073.63. The S&P 500* closed at 5,881.63 up 23.31 percent for the year and lower than its record of 6,099.97 by 3.58 percent. The NASDAQ* finished the year at 19,310.79 which was up 28.64 percent and 4.43 percent off its record of 20,204.58. The Russell 2000* reached a record of 2,449.86 before succumbing to a downdraft of 8.97 percent and finished the year at 2,230.16, which was still an increase of 9.97 percent.
So, why was there no Santa Claus rally this year? There are many possible explanations, all of which are valid, including the simple answer the market doesn’t always go up and every good year doesn’t always have a Santa Claus rally. Also, markets were somewhat confused by the Fed decision to lower the federal funds interest rate by 25 basis points to a range of between 4.25 percent to 4.5 percent. There was much speculation the Fed should have held rates steady because all three measures of inflation released before Christmas showed core inflation for the twelve months ended in November to be elevated.
The Consumer Price Index (CPI) for all-items less food and energy rose 3.3 percent over the last 12 months. The all-items CPI for the 12 months ended in November was up 2.7 percent and was higher than October’s 2.6 percent increase. The Producer Price Index (PPI) advanced 3.0 percent for the 12 months ended in November, the largest rise since moving up 4.7 percent for the 12 months ended February 2023. For the 12 months ended in November, the PPI for final demand less foods, energy, and trade services advanced 3.5 percent. The Personal Consumption Expenditures (PCE) price index for November increased 2.4 percent for all-items and the PCE core index minus food and energy increased 2.8 percent from one year ago. Since total nonfarm payroll employment rose by 227,000 in November, and the unemployment rate remained at 4.2 percent, the case for not lowering rates was palpable. This view was supported even further by Gross Domestic Product (GDP) in the third quarter increasing to 3.1 percent.
As we move further into 2025 a few of the things to be watching for in the weeks ahead would be the next employment report, which will be released on January 10, the CPI and the PPI which will be released mid-month. Of course, company earnings reports begin in early January, with most tech companies reporting at the end of the month or in early February. GDP & PCE will be released at the end of January and will give the first glimpse of fourth quarter performance and a look at inflation by the Fed’s preferred measure.
Meanwhile, whether this pullback results in a correction remains to be seen. The first two trading days of 2025 were one up and one down. Most importantly, a correction is good for a bull market, short and hard to time. I rebalance to desired asset allocation on a quarterly basis.
AS MILLENIALS PROGRESS INTO MIDDLE AGE SAVING IS A PRIORITY
In 2025, the oldest members of the millennial generation will turn 44 and the youngest members will turn 29, launching this generation into middle age. At this point in time, the millennials are also the largest living generation in the country. As Elizabeth O’Brien stated in her recent article in Barrons, “This stage of life might look different than it did for your parents. That’s OK. You make the rules now”.
A sobering statistic O’Brien cites is the fact 66 percent of working millennials have nothing saved for their retirement, according to the National Institute on Retirement Security. Luckily, it is not too late to start saving, and this leaves plenty of opportunities for advisors to help millennials with IRA’s and other retirement plans.
While eliminating high interest credit card debt should be a high priority when assessing one’s finances, student loan debt on the other hand should not be paid at more than your monthly payment, because the interest rates on student loans are usually lower, so returns from the stock market over time should be higher than the interest paid on the student loans.
Another great point made by O’Brien in her article was regarding Social Security. She states, “Nearly four in ten millennials don’t expect to receive a dime of the Social Security benefits they’ve earned. While it’s true that Social Security is in some trouble, it isn’t going away”. O’Brien finishes positively with, “While the future is uncertain, millennials are arguably the most adaptable generation. After all, you straddled the internet era. You also weathered the financial crisis of ’08 -’09 during your formative years. You’ve got this.”
OVER TWENTY PERCENT TWO YEARS IN A ROW! WHAT’S NEXT FOR AN ENCORE?
After experiencing two years of the S&P 500* achieving returns above 20 percent, it may seem like it could be difficult for the markets as we head into 2025. However, Carson Group chief market strategist Ryan Detrick says the odds are high that another year of big gains is ahead for investors. Of course, it should be noted past performance is not a guarantee of future results.
In a December client note, Detrick highlighted that history suggests stocks could extend their bull rally into next year. They could even deliver returns higher than their average annual return of about 10 percent. "The bears might be disappointed to find that strong returns after two 20 percent years is perfectly normal," Detrick said.
There have been eight times since 1950 that the S&P 500* gained 20 percent or more two years in a row. In six of those eight times, the third year saw positive gains, with an overall average return of 12 percent. Those odds bode well for the equity markets in 2025.
"The bottom line is up 20 percent two years in a row actually suggests the potential for better than average returns in 2025, something we are on record in expecting next year," Detrick said. The fundamental reasons behind Detrick's bullish view on the stock market next year include an overall solid economy and rising corporate profits.
"When you have an economy that continues to surprise to the upside, you tend to have solid earnings," Detrick said, adding that “the S&P 500's earnings per share is expected to hit $269 next year, up 19 percent from early in 2023”. Of course, Detrick continued, “There is no holy grail when it comes to investing, but when we saw earnings estimates making new highs, we took it as a big reason to be overweight equities and still do".
Finally, Detrick noted "bull markets last longer than you think, with the average age of a bull market being 5 ½ years. The current bull market just turned two years old in October. That suggests there is plenty of runway ahead for the stock market, even after the last two years we’ve experienced during this stellar bull rally”.
As we’ve often discussed over the years, except for the post pandemic bull market and the bull market from 2002 – 2007, since the 1980’s, bull markets have lasted longer than the average 5 years. In fact, some have even lasted as long as 10 years. In the 1990’s the S&P 500* advanced 34.11 percent in 1995, gained 20.26 percent in 1996, then added 31.01 percent in 1997. As if those 3 years of 20 percent plus gains weren’t enough, the S&P 500* jumped 26.67 percent in 1998 and then added a mere 19.53 percent in 1999. Unfortunately, then came the dotcom bust and 9/11 which brought us back to reality.
Economic policies fostering the growth of our Gross Domestic Product help businesses large and small in our country to thrive. The beauty of capitalism is that anyone can save money and use it to buy stocks, mutual funds or ETF’s in order to be a shareholder in one or many of the public companies in the US and around the world. While every year can’t be one in which the markets gain 20 percent or more, it is encouraging to know the markets do go up more often than they go down. If you have any questions or concerns, please give me a call.
Company Information
Jersey Benefits Advisors is the trade name used by John H. Kaighn to offer various products and services.
34 Doe Dr.
Woodbine, NJ 08270
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
John H. Kaighn is an Investment Advisor Representative & Registered Representative of Osaic Wealth, Inc. Securities and Advisory Services are offered through Osaic Wealth, Inc. Member FINRA & SIPC.
Osaic Wealth, Inc. is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth, Inc.
10 Exchange Place
Suite 1410
Jersey City, NJ 07302
Osaic Wealth, Inc. is not affiliated with Jersey Benefits Advisors or Jersey Benefits Group, Inc.
Jersey Benefits Group, Inc., is a licensed Insurance Agency in the State of New Jersey & offers Insurance and Third Party Administration Services
PO Box 1406
Ocean City, NJ 08226
Phone: (609) 827-0194
Fax: (866) 637-2479
Email: kaighn@jerseybenefits.com
http://jerseybenefits.com
*All opinions expressed in this newsletter are independent of Osaic Wealth, Inc. and are solely those of John H. Kaighn and Jersey Benefits Advisors.
*The S&P 500, the DJIA, the NASDAQ and others referenced are unmanaged indices that are widely used as indicators of Market Trends. Past Performance does not guarantee future results and the performance of these indices does not reflect the fees and charges associated with investing. It is not possible to invest directly in an index.
*Dollar Cost Averaging through a systematic savings plan is an excellent way to build an account without a sizeable initial investment. Saving a portion of our pay each month is very important. Company sponsored pension plans are one method to save and should be used for retirement. Other systematic investment accounts, such as ROTH IRA’s, Traditional IRA’s, Coverdell Accounts, 529 Plans, Brokerage Accounts and Annuities can also be opened, and debited directly from checking or savings accounts. For more information, just call to set up an appointment. Referrals are always welcome.
John H. Kaighn
