My 2025 outlook; If you're in a bull market, ride it!; Don't bet against America; Sit tight
Today, I'll share my outlook for 2025 – but it might not be the fully satisfying answer that many of my readers are looking for...
For some context, in my e-mail exactly a year ago, I discussed many reasons why markets might do poorly during 2024: high valuations, bullish sentiment, rising national debt, the upcoming election later in the year, two major wars around the world, etc.
That's why, for the first time in decades, Wall Street strategists were predicting that the S&P 500 Index would be down in 2024. Here's the chart from Bloomberg (courtesy of this Week in Charts blog post from Creative Planning's Charlie Bilello) that I shared in that e-mail:
However, I said that "I view [this] as a contrarian indicator" and outlined many reasons why "I remain cautiously optimistic – I like the word 'constructive' – on stocks." I was proven more right than I could have imagined – as I continued in that e-mail:
Most important, the U.S. economy is doing extraordinary well. GDP growth was an exceptional 4.9% last quarter, unemployment remains near all-time lows, inflation has been beaten, wage growth is outpacing inflation so consumers are spending strongly, and corporate profits are robust.
And just because the market had a good year doesn't mean it will be followed by a bad one. In fact, just the opposite has been true historically. Going back nearly a century, the S&P 500 has risen 73% of the time overall...
And the Dow is currently on an 11-year run in which it has hit an all-time high each year.
As for our debt, I wrote:
Speaking of all-time highs, our national debt has been hitting one seemingly every month, which is causing some investors to predict a calamity for stocks. But, in fact, the opposite has been true historically: Our national debt keeps rising, and so do stocks.
And regarding the election, I pointed out that:
Lastly, presidential election years have been particularly good for stocks. I don't think this is a spurious correlation but instead due to politicians taking measures like increasing spending to boost the economy.
Regardless of the reason, the fact is that in the 24 election years since 1928, the S&P 500 has risen 20 times – an extraordinary 83% of the time – with an average gain of 11.6%, well above the 9.8% average over the entire period.
And here's even better news for those hoping a Republican will be elected: When a Democrat was the incumbent and a Democrat wins, the average return is 11.0%, but when the White House switches parties, the average return is 12.9%.
Sure enough, Americans booted out the incumbent president... and the S&P 500 rose 23% in 2024 – almost double the historical average when this happens.
But I know my readers aren't interested in a victory dance, but rather another accurate prediction of what to expect in 2025...
Alas, it's a lot harder today because, after the two best years for the S&P 500 in more than a quarter century (since 1997 and 1998), bullishness is even more pervasive, valuations are even higher, yet the economy has definitely slowed somewhat.
All of this makes an old-school value guy like me nervous.
So, does that mean it's time to dump all your stocks and hunker down in the world's safest investment – short-dated U.S. Treasurys – and collect a healthy yield (currently about 4.3% and 4.2% for six- and 12-month bills, respectively)?
No.
My "spidey sense" isn't telling me to batten down the hatches, as it was in early 2000 and early 2008 before those big crashes.
There are two main differences: Valuations today, while high, are not in bubble territory... and I don't anticipate a big macro shock like the U.S. economy going into a big recession or a debt bubble bursting.
So while I'm not eagerly putting my cash to work – I'm quite happy finally earning a nice, guaranteed return on it – I recommend holding on to high-quality stocks and index funds you own (and likely have big gains on).
There are some big reasons why...
First, as I explained in my June 13 e-mail, one of the two biggest investing mistakes I've made in my career has been: I failed to follow the maxim that when you're in a bull market, ride it!
This lesson is so important – and so applicable to today – that I want to emphasize here what I said then:
At every point in my investing career over the past 25 years, there has been a well-articulated bear case for why the market is soon going to go lower. This was as true at market peaks as market bottoms.
The single biggest reason my funds underperformed from 2010 to 2017, which is why I ultimately decided to close them, was that I fell for the narrative that another big financial crisis was just around the corner.
I didn't want to experience the pain of late 2008 and early 2009 again, so I sold my winners and positioned my fund defensively – holding lots of cash and short positions. In short, I battened down the hatches and prepared for a storm... even though the skies were sunny.
Importantly, you can't let the occasional volatility shake you out of the market. As I continued:
This chart below (which a friend included in his hedge fund's investor pitch deck) shows that the S&P 500 Index over the past 43 years has only been down for the year 10 times, and it was down by more than 10% (shown by the green line) only four times.
But the maximum drawdown during a year has exceeded 10% in 21 years – nearly half the time.
And the S&P 500 rose more than 10% in 24 of those years and only once had back-to-back down years (three years in 2000 through 2002).
Overall, the main takeaway from this is that stocks are the best place to be for the long run – but for that to be true, you have to stay invested:
[Take a look at] this chart, courtesy of Visual Capitalist, which shows that missing 60 of the market's best days over 20 years reduced returns by a staggering 93%:
Of course, that doesn't mean you should never be prepared for a big downturn. Here's more from that June e-mail:
There are times when savvy investors should prepare for a crash... but only when there are massive, obvious bubbles – not small ones like the meme stock bubble in early 2021 or GameStop (GME) in the past month.
I very publicly identified two market peaks in early 2000 and early 2008, but such bubbles and subsequent crashes occur roughly once a decade.
The rest of the time, you should ignore the ever-present fearmongering in the financial media and – assuming you own good stocks (or an index fund) – sit tight.
(The second big investing mistake I made in my career made was failing to let winners run.)
The other reason I'm not battening down the hatches is that I think the U.S. economy will prove to be more resilient than most folks expect.
As I wrote in my December 6 e-mail on three responses to some big-picture concerns from a longtime reader named Jim B.:
Don't bet against America!
We live in a great country and our economy is doing remarkably well – especially when compared to our economic peers. On October 23, I gave a 25-slide presentation at the Stansberry Research annual conference in Las Vegas showing the data behind my argument – you can see those slides right here. For my commentary, see my October 30 and October 31 e-mails.
It's also worth repeating my conclusion from that e-mail last month:
... while I remain constructive on stocks, for someone like Jim, "with enough capital for a comfortable middle-class life for our projected future," my most important message is that you don't need to take a lot of risk.
As I've explained in many prior e-mails, though I don't think stocks are in bubble territory, the S&P 500 is in the top 10% of its long-term valuation range... which historically has meant that the average annual real return over the following decade has tended to be modest – often ranging between zero and 4%.
And as I continued:
I tend to be an optimist (oddly perhaps, for a value guy!). So if I were forced to guess, I think the S&P 500, with dividends reinvested, will compound at 4% annually over the next decade.
Well, heck, right now you can buy the world's safest instrument – a U.S. Treasury – and get a guaranteed yield of more than 4.1% [it's now at more than 4.5%] for the next 10 years.
I obviously don't know everyone's specific financial situation – and I can't give personalized financial advice, anyway. But a good idea for older folks who are fortunate enough to have enough money saved and/or have income streams from Social Security, a pension, or annuity that allow them to live happily ever after if they earn 4% on their money, is to park as much of it in cash as needed to sleep soundly at night.
Of course, this would raise the question: Why not put every penny into cash? As I noted, this isn't the most prudent move:
The main risk is if inflation takes off, which is obviously possible... but I think unlikely. If it goes back to 9%, which is where it was as recently as June 2022, folks who own 100% longer-term bonds yielding only 4% will be very unhappy – and maybe even get in financial trouble.
On the other hand, stocks might do better because companies – at least the good ones – can raise prices and therefore continue to grow their profits (and their stocks).
Put simply, over the long term, stocks tend to outpace inflation because they represent ownership in dynamic companies – a business can do different things to adjust prices, increase revenues, and maintain profit margins.
As I and my colleagues here at Stansberry have consistently said, stocks of high-quality companies are incredible drivers of long-term wealth.
So there you have it, folks...
Again, I'll admit this is an outlook that many of my readers may not find completely satisfying... I'm not pounding the table to either buy or sell – or do much of anything except what my team and I here at Stansberry do every day: scour the markets to find an occasional gem that the market has overlooked or over-punished.
When we do, subscribers of our flagship Stansberry's Investment Advisory are the first to know. In fact, our January issue with a brand-new recommendation is publishing this evening after the market close.
So if you aren't an Investment Advisory subscriber already, give yourself a New Year's gift by becoming one – and take advantage of our 30-day money-back guarantee when you give it a shot. You can get all the details here.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.