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With the turn of the new year, we naturally shift our focus to the next 12 months to see what 2025 will bring us. Here are a few themes I’ll be watching as we enter a new year, in no particular order:

Stock Market Valuations:
- The S&P 500 forward P/E ended the year at 21.5x, which is one of the highest year-end readings of this metric in 30 years^. The market is already assuming a robust 2025 and continued growth. With Large Cap stocks returning 26% in 2023, and then another 25% in 2024, the market is due for a breather at some point.*
The Magnificent 7:
- The top-7 stocks by market weight in S&P 500, known as The Magnificent 7, continue to be the anchor of the stock market. These 7 stocks makeup nearly 33% of the weight of the index, yet accounted for 55% of the stock market return. I suppose our quote from Chris Pratt’s character, Josh Faraday, continues to fit well in 2025 when he says, “So far, so good!”. Stock market returns in 2025 will continue to be driven by these 7 names due to their large weight within the index.
Artificial Intelligence/Tech:
- Advances in AI continue to grow at a rapid pace. The emergence of systems like Chat GPT and Grok are beginning to rival search engines for simple daily questions, and the use of the technologies is used daily in technology fields. The growth of this sector will only continue to grow.
Inflation:
- Wait, I thought we beat inflation? In the immortal words of Lee Corso, “Not so fast!” As we’ve discussed many times, bringing inflation from 9.1% (July 2022)** back down to the Fed’s goal of 2.0% will be difficult. In September 2024, market participants expected the Fed to aggressively cut rates as it appeared inflation was dropping quickly. By December, that enthusiasm almost disappeared and the market only expects 0.50% worth of rate cuts this year.^^ Inflation is the elephant in the room. While there are high hopes that DOGE (Department of Government Efficiency) can find ways to cut spending, the threat of new tariffs, and President-elect Trump’s history of being a spender (not a saver), puts us in a “wait and see” position on the type of fiscal and monetary policies we will see. While everyone hopes for the 10-year Treasury to fall, which is generally how mortgage rates are priced, current indicators do not show this will occur in the near future. Inflation has been sticky, and appears it will stay sticky for the near term. While the yield curve un-inverted for the first time in years, it continues to indicated risks are to the near-term. We’ll have more about this topic in the coming months.
Bitcoin hits the mainstream (2.0):
- It’s been one year since The Securities and Exchange Commission (SEC) approved a spot Bitcoin ETF, allowing investors to access this asset class via an ETF security. The largest of these ETFs brought in $37 billion in investments in 2024 making it one the fastest growing ETFs in history.
New Administration
- With a new administration within 2 weeks of being sworn in, market participants expect a pro-growth/deregulatory agenda.
College Sports
- College sports, specifically college football, is entering a new paradigm with payments to players via new rules around Name, Image, and Likeness (NIL). For example, in recent months, a 5-star recruit to the University of Michigan was reportedly offered a $5.0 million deal. The next few years will feel a lot like the Wild West as there are no player’s union in college football, which means there can be no collective bargaining agreements. In other words, there are essentially no rules for how much a school can offer a player. I suspect in the next 5 years some sort of payment framework will be adopted across the landscape. What a time to be a college athlete!

There’s a lot going on and a lot of news to digest and understand how it plays into markets, investing, and the economy. Our job is to help you make good decisions with your money and build your financial fortress. We watch markets everyday so you don’t have to. As always, if you have any questions, please give us a call.

^,*,**, ^^J.P. Morgan Guide to the Markets: Page 5, 59, 27, 32

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