by Bryan Perry
December 31, 2024
On the day after the November 5th election, equity markets shot higher on the prospect of a pro-business administration, lower tax rates, deregulation and a robust economic outlook. The major averages raced to new all-time highs by the first week of December, with the S&P 500 approaching 6,100 on December 6th (up 6.8% from 5,712 the day before the election), but equities have since lost some of those gains due to rising bond yields (from 4.15% on the 10-year Treasuries on December 6th to 4.62% last Friday) and a more hawkish Fed policy statement, even though the Fed lowered the Fed funds rate on December 18th, and the Personal Consumption Expenditures (PCE) index came in below forecast on December 20th.
The notion of increased tariffs and reduced immigration has stoked some concern among investors that inflation could be rekindled, raising more fears of bond yields rising on the long end of the yield curve. Last Thursday’s 4.64% peak on the 10-year Treasury marked the highest level since June of this year, even though reports on Durable Goods, Consumer Confidence and New Home Sales all came on the light side of the consensus estimates. (However, Initial Jobless Claims came in lower than forecast).
That mix of signals delivered some rough trading sessions in late December, historically a positive time for stocks. The VIX spiked to 28 on December 18th, followed by a not-so-jolly sleigh ride by both the bond and stock markets. The VIX closed just under 16 last week (at 15.95) but left its mark on investor confidence that put traders on the defensive at year’s end. The Mag 7 stocks that re-emerged to lead the market to new highs earlier in December have also dominated the market’s latest pullback.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
If the markets continue to keep pace with President Trump’s first 2016 post-election cycle, investors are in for a treat in 2025. We’ve already seen the honeymoon, November 5 to December 5 (see chart, below), but what’s next? From the day before Trump’s election in 2016 to the last day of 2017, the Dow Jones Industrials surged 35.4%, the S&P gained 25.4% and Nasdaq leapt 33.6%. Considering that the red wave in Congress is stronger this time, the potential for another strong year for stocks seems likely in 2025.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
There seems to be a consensus that economic growth and corporate sales and profits will be surprisingly good, but what 2025 brings with it is the potential to see real progress on the budget deficit and ultimately the national debt. The new Department of Government Efficiency (DOGE) has their work cut out for them to find $2 trillion in spending cuts without seriously affecting essential services and programs.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
One thing that seems certain is that if such savings can be initiated, there will be an immediate glut of homes for sale in the Washington DC area, with the federal employee workforce cut sharply. That’s because DOGE intends to get rid of (or relocate) 100,000 jobs out of Washington D.C. immediately.
Vivek Ramaswamy said on Fox News that, “If you require most of those federal bureaucrats to just, like normal working Americans, come to work five days a week, a lot of them won’t want to do that,” so they may be the first to leave. Ramaswamy said DOGE plans to think big and move swiftly. Specifically, he said, “We expect certain agencies to be deleted outright. We expect mass reductions in force in areas of the federal government that are bloated. We expect massive cuts among federal contractors and others who are over-billing the federal government,” he said. “I think people will be surprised by…how quickly we’re able to make some of those changes, given the legal backdrop the Supreme Court has given us.”
Partly as a result of this cost-cutting crusade, veteran investor Ed Yardeni has made a bold prediction that the S&P 500 will reach 7,000 by the end of 2025. His forecast is driven by a scenario that he calls the Roaring 2020s, which anticipates strong productivity gains, GDP growth of 3.0%-3.5%, and inflation cooling at near 2.5%. Yardeni also expects the S&P 500’s earnings per share (EPS) to grow by 18.8% in 2025, reaching $285. If Yardeni is right, investors are in store for the S&P to gain 17% from its current level. For 2024, the S&P has gained 25.3% as of last Friday. Another 17% would certainly be welcome.
Happy New Year!
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
My Final Three Predictions for 2025 (And Updates on the First Three)
Income Mail by Bryan Perry
History Favors the Bulls Following Recent Presidential Elections
Growth Mail by Gary Alexander
A Report Card on the First Quarter of the 21st Century
Global Mail by Ivan Martchev
2024 Was Great, But What About 2025?
Sector Spotlight by Jason Bodner
Holiday Trading Days Mean…Next to Nothing
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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