January 2025 – By Dan Zalipski CFA^®

They say the market climbs a wall of worry, and 2024 was quite the climb. The S&P 500 returned +20% for a second consecutive year, a feat last seen in the late 90’s.  As we entered 2024, the list of worries included high valuations, narrow leadership by the largest technology stocks, rising long-term interest rates, election/policy uncertainty, deficit spending, geopolitical unrest, and more.  Despite these worries, stocks rallied without so much as one garden variety, normal, 10% correction.

When looking back at the expectation-defying year there are some important lessons for Investors to consider:

• The herd is often wrong. Wall Street underestimated the S&P 500’s price at year-end by about 15%. Remember, positive years for stocks are about three times more likely than declines.
• The trend is your friend. Employing technical analysis can help investors avoid mistakes. In an upward trending market, don’t take a detour because of some bearish narrative the market may not care about.
• Bull markets typically run for a while. They last more than five years on average and rarely end when the U.S. economy is growing, especially when the Federal Reserve (Fed) is cutting interest rates. The current bull market is about 27 months old.
• Earnings drive stock prices. The fundamental value of stocks comes from a company’s earnings. S&P 500 companies will likely grow earnings ~10% in aggregate in 2024 and may do so again in 2025.
• Focus on the long term. Don’t get scared out of the market by the headlines if you’re a long-term investor. “Time in the market” beats “timing the market.” Waiting it out through down periods is the best approach for nearly all investors. Since 1980, the annualized return for the S&P 500 is 12.1%.

These are great lessons with 2025 underway as the list of worries remains strikingly similar.  Valuations are still high and narrow market leadership persists.  Increasing interest rate volatility has the potential to spill over into equity markets sitting on lofty valuations.  Inflation pressures may re-emerge, and geopolitical threats could upend rallies. Even in non-recessionary periods, it is commonplace for equity bull markets to undergo 10% corrections, and the lack of one in 2024 increases the probability for one in 2025.         

After two remarkably strong years, it’s natural and prudent to temper expectations given the uncertainty and how much good news is being priced into the market. But, with steady economic growth, a healthy job market, and growing corporate profits, the ingredients for another profitable year are in place.         

Investment advice offered through HighPoint Advisor Group, LLC, a registered investment advisor. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendation for any individual. Although general strategies and / or opinions are revealed, this post is not intended to, nor does it represent or reflect, transactions or activity specific to any one account. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All data and information are gathered from sources believed to be reliable and is not warranted to be correct, complete, or accurate.

Investments carry the risk of loss including loss of principal. Past performance is never a guarantee of future results. Vantage Financial Partners Limited is not a tax advisor. Please consult a tax professional for any specific questions regarding your tax situation.