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The Nasdaq crossed 20,000 for the first time but was not able to sustain above the threshold.
Major Index Performances (as of Thursday):
- S&P 500: The benchmark index dropped (-.64%)
- Dow Jones Industrial Average: The Dow decreased (-1.63%)
- Nasdaq Composite: The index is up .31%
- Gold: The Precious metal is up 1.72%
History of Record Highs:
The S&P 500 set record highs 54 times this year. Investors have been riding the wave of Federal Rate cuts, enthusiasm for artificial intelligence, and the promise of Trump’s pro-market policies, like tax cuts and deregulation. Can the market continue this run? Let’s take a look at the market history following record-breaking years.
Since 1928, in years in which the S&P 500 has hit more than 35 record highs, the median gain for the benchmark index was just 5.8% the following year, well below the long-running average of 8%. In years the S&P 500 hit at least 50 record highs, as it did this year, the median return was -6% the following year.
Are we living in a time of exuberance:
When I started in this business in 1995, I went to work with my father, who had been in the business since 1967. He taught me three lessons that still hold true today. First, “The only way to get rich quickly, is to do it slowly.” Second, when everyone is bullish and buying, it is time to get defensive.
Exuberance is all around us. A conceptual artwork comprising of a banana stuck to a wall with duct tape, sold for $6.24 million at Sotheby’s. Think about that for a moment, $6.24 million for a banana. Invested in just a 5% return, that money would be worth over $10 million in 10 years. We believe there is too much confidence in the economy and the market, and too many people ignoring warning signs, like extreme valuations, sticky inflation, and the possibility of inflation returning and unemployment rising.
Analyst expectations for 2025 have been released, with many firms pivoting from prior bear calls and turning optimistic after this year’s rally. The average 2025 year-end price target for the S&P 500 is 6,539, representing an 8% return.
Only two firms that were polled expect a market decline next year. Stifel expects a 10-15% correction, while BCA research sees a 27% decline. We don’t try to predict where the market will end the year, instead, we put an emphasis on managing risk. We prefer to be cautious in a euphoric market, and then aggressive in a volatile one. This brings me to lesson number three, “It’s not what you make, it’s what you keep, that matters”.
Have a wonderful weekend
Your investment team
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