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Q4 -- 2024 Something Old and Something New
We’re at the tail end of a tumultuous 2024 and quickly heading into 2025 with the promise of something old and something new. What’s old? Inflation, a technology driven economy and a conundrum on interest rates. What’s new? More tariffs, lower taxes and regulation and a Trump led government. Why will we have more tariffs under the new Trump regime since Biden kept the majority of Trump’s first set in place? It’s to try and onshore more of our manufacturing and keep supply chains more local and stable. Currently the US’ services industry represents about 80% of the economy and manufacturing/farming/other is about 20%. China is more like 85% manufacturing/farming/other. Trump’s idea of a dominant America appears to be one that is economically self-sufficient, and his ultimate goal seems to try to get that closer to equilibrium with our economy and to shore up our supply chains in the face of escalating ongoing global conflicts and the memory of Covid. All that said, A trade war could pose the biggest risk to global growth in 2025.
The prospect of deregulation and corporate tax cuts may finally give investors enough incentive to shift away from mega cap tech and cash to previously unloved areas of the market, like mid/small cap stocks. Take a look at small/mid-caps vs. the S&P 500 over the past decade – there’s a lot of catching up to do!
We see the new policies benefiting areas of the market such as data center real estate, engineering and manufacturing, nuclear and renewable power, energy transmission, gas-powered electricity, cooling technologies and the electrical components that connect it all. That said, when thinking about portfolio construction in 2025, we must determine what we’re looking to solve. Income, capital preservation or growth? Are you risk tolerant or averse? Is liquidity important? Most importantly, don’t put all your eggs into one basket
Some curveballs to think about as we head into the new year with all the tailwinds behind us.
- Artificial Intelligence (AI)I overshoots predictions causing big tech to take a bath. This is the worst-case scenario as the Mag 7 now make up 30% of the broad S&P 500 index
- Geopolitical conflicts take a turn for the worse with no peace in the Middle East, Ukraine’s saga continues, and new conflicts sprout up or old ones reignite.
- The Fed ends up hiking rates as inflation reignites due to the tariff driven economy.
All these variables point to a year of growth, but we’re unlikely to see the stock market gains of the past couple of years repeating.
Every wondered if you live in a top 1% area? Here’s a fun chart of the top 10 suburbs by income in the US
As I’ve been prone to do, I’ve made a donation in lieu of holiday cards/gifts to the Skin Cancer foundation as this disease is near and dear to me. If you’re in the giving mood, I highly recommend looking at Donor Advised Funds. Along the same train of thought, you can now gift $18k ($36k for married couples) annually to anyone without worrying about gift taxes.
Some links to enjoy through the holidays. This is one of the best AI use cases I’ve seen yet! Here’s some “top picks” for 2025 for all the stock pickers out there. Some folks are pretty skeptical about Elon Musk’s plans to colonize Mars. It was pretty hard to invest in sports when we ran the FANZ ETF, but it’s about to get easier.
Nick