Outlook 2025 Summary

Pragmatic Optimism

CLICK HERE TO READ THE FULL 2025 OUTLOOK

Looking back, 2024 clearly echoed many of the themes from 2023. By

and large, the economy continued to defy expectations and surprised

once again to the upside. Stocks continued their strong performance,

driven by powerful trends in artificial intelligence and technology. On

the other hand, the bond market experienced another lackluster year

amid policy ambiguity and uneasiness over rising debt levels.

As we look to 2025, we remain cautiously optimistic. We’re cautious

because no market environment is ever permanent, yet optimistic

since constructive long-term technology trends are in place. Plus,

potential tax policy and deregulation efforts in 2025 could provide

some tailwinds — particularly from an economic perspective. While

growth asset returns are not expected to be as robust in 2025, the

investment environment should prove to be favorable for investors.

To better ensure optimal outcomes for investors, we leverage the

expertise of our Strategic & Tactical Asset Allocation Committee

(STAAC), which identifies potential risks and opportunities. For 2025,

new fiscal and regulatory policies will need to be digested, and

relatively rich valuations may get tested. For the time being, this

backdrop favors a constructive, but also a conservative and balanced

approach, when it comes to tactical stock and bond allocations.

LPL Research is committed to supporting our advisors, our

institutions, and their clients throughout every market cycle. We truly

value our partnerships and will always strive to deliver the highest

level of guidance and support. We remain incredibly grateful for the

confidence bestowed upon us.

Economy

The economy has experienced significant shifts over the last few years, including aggressive rate hikes followed by a pivot to rate cuts, as inflation has come down some. The economy will likely downshift throughout 2025 as consumer spending begins to moderate, though pent-up demand for business capital expenditures, favorable tax policy, and likely deregulation could help offset some of the softening. Inflationary pressures may re-emerge as new policies are digested, so upticks in inflation could lead to changing narratives and a slower pace of Federal Reserve (Fed) rate cuts than expected. The labor market continues to show signs it is slowly shifting and remains key to how the economy ultimately lands.

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December 2024 Client Letter

December 4, 2024

Dear Valued Investor,

Solid gains for stocks gave investors a November to remember. In fact, the S&P 500’s more than 5% advance marked its best month of 2024. Several factors played into the stock market’s continued move higher. The U.S. economy continued its steady run of solid growth. The Federal Reserve (Fed) cut interest rates as expected, providing some reassurance about the outlook for inflation. Third quarter earnings season was solid, revealing that corporate America still has double-digit earnings power in its bag of tricks. The combination of election clarity and prospects for deregulation and lower taxes from the incoming administration also played a role. Market leadership was also encouraging, as small caps and economically sensitive consumer discretionary and financial sectors led, which may bode well for further gains.

More good news for markets came over the Thanksgiving holiday weekend with promising data for the all-important start to the holiday shopping season. According to Mastercard’s SpendingPulse (which measures both online and in-store retail sales), sales rose a solid 3.4% on Black Friday, compared to 2023 levels, driven by a more than 14% increase in online sales. Consumers broadly are still enjoying plenty of spending power thanks to rising wages, low unemployment, and high stock prices – especially those who refinanced mortgages during the pandemic. Add in the recent dip in gas prices and it’s likely the shopping momentum will continue through year end.

Looking ahead, more gains could be coming. History reveals that stocks tend to produce above-average gains in December and rise more often than they fall — even after strong gains the month prior. In 2025, continued economic and earnings growth, lower inflation, and potentially more Fed rate cuts position the stock market for further gains. If artificial intelligence investments boost productivity, as many expect, a good year could get even better.

Of course, there are risks. The last bit of excess inflation has been tough to wring out, so markets may need to further reduce expectations for rate cuts. Deficit spending could put upward pressure on long-term interest rates. Tariffs will likely trim company profit margins and be met with additional retaliation. Geopolitical threats cannot be dismissed even after a temporary cease-fire between Hezbollah and Israel and talks of a territory-for-peace deal in Ukraine. Finally, some measures of investor sentiment are getting stretched, so fully allocated investors may want to wait for a dip before adding to equity positions.

As always, please reach out to me with questions.

Warmest Regards,

Wayne Rigney

 

Important Information

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

All data is provided as of December 3, 2024.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All index data from FactSet.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Past performance does not guarantee future results.

Asset allocation does not ensure a profit or protect against a loss.

This research material was prepared by LPL Financial, LLC.

 

Not Insured by FDIC/NCUA or Any Other Government Agency Not Bank/Credit Union Guaranteed Not Bank/Credit Union Deposits or Obligations May Lose Value

 

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