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The Santa Clause rally made one last push during this Holiday shortened week.
Major Index Performances (as of Thursday):
- S&P 500: The benchmark index increased 1.8%
- Dow Jones Industrial Average: The Dow rose 1.13%
- Nasdaq Composite: The index is up 2.28%
- Gold: The Precious metal is up 0.34%
What is in store for 2025: We are approaching the last trading days of the year, and what a year it has been. The Markets rallied most of the year, setting new highs along the way. Donald J. Trump became the second person to be elected President in non-sequential terms and won by both the popular vote and the electoral college. Regardless of your political bend, the majority wanted change. The rate of inflation dropped, and unemployment remained relatively low. Can the euphoria continue in 2025?
My father started his stock market career in 1967. Of the many lessons he taught me, one that stands out today is “don’t fight the tape”. In other words, despite what you think should happen to stock prices, market momentum can continue for long periods. As long as buyers keep buying, stocks can continue their rally. Even so, let’s explore some of the concern that we believe should be top of mind.
Sticky inflation was 3.87 in November which is making it tough for many Americans to makes ends meet, much less get ahead. The S&P 500 is trading at 27.2 Price to Earnings Ratio, well above the 10yr average of 21.5. For this overpriced phenomenon to continue, earnings need to grow at a rapid pace, or prices will need to drop. Despite the Federal Reserve lowering interest rates, the 10yr Treasury yields have risen to 4.59%. If yields reach 5%, money will likely flow away from stocks and into treasuries.
Another major concern, perhaps a little further down the road, is the US Debt Crisis: The US national debt is currently $36.2 Trillion, and our debt-to- GDP ratio is 124%. The interest payments alone on our debt has already surpassed $1 trillion per year and is expected to reach $1.7 trillion by 2034. That is equal to 3.4% of GDP in 2025 and 4.1% in 2034. We are spending more on our debt than we spend on our national defence. In our opinion, this is a ticking time bomb that is right beneath our feet. Neither presidential candidate addressed it during their campaigns, and congress seems to have no problem continuing to spend with reckless abandon. In our opinion, this could be a major roadblock for the economy if left unaddressed.
As we mentioned in last week’s recap, the market continues to show momentum. Per our investment policy, we are positioned to participate as the trend remains intact. Should fundamentals and technical indicators show more weakness, our strategies will be adjusted.
Have a wonderful weekend and a safe, successful, and prosperous New Year!
Your OmniStar investment team
