As we gear up for 2025, we look back at a year that began with election anxiety, questions about “soft landings,” rising geo-political tensions, inflation’s impact and uncertainty over the direction of interest rates, and a new global awareness of the AI revolution. Reflecting on where we started and where we find ourselves now, we cannot help but feel the pull between fear and relief; we find ourselves moved by forces that feel bigger than we are, as well as innovations that move faster and faster every year.
Whenever I write after an election, I cannot help but acknowledge that our country’s reaction to the results is very divided; in almost equal parts, people are finding that the next four years come as either sweet relief or a source of disappointment and anxiety. There are many reasons to feel strongly that have nothing to do financial concerns, but with that being understood – investing through a political lens can leave you with lackluster returns over time; take a look at this chart…
The takeaway from this chart is that staying invested regardless of which party is in office has the greatest potential impact on your returns. At this time, it is difficult to weigh the impact of potential forthcoming policy whether related to taxes, immigration, tariffs, etc. under a new administration. For this reason, we would be on guard for a market that experiences more volatility than we are enjoying now. If this volatility worries you, please don’t hesitate to call so that we can either make adjustments or bolster your resolve to stay the course.
Global markets have fared well in 2024; at the time of writing, a 60/40 portfolio has returned around 9-14% depending on the type of stocks are owned. However, markets care most about corporate earnings, so the question becomes: will corporations continue to be profitable in the near term? For the moment, the expectation is to see earnings growth over the next two years that would exceed 10% annually. With growing profits, you should expect to see prices for stocks broadly rise alongside those earnings.
But also remember, the market is an emotional beast that devours the news moment to moment. Headlines and short-term thinking drive markets on a daily basis. Over time, the push and pull of short-term thinking yields longer-term wealth creation if companies can innovate while adapting to both consumers’ changing preferences as well as changing legislation. While we’ll need to remain nimble, we still want to think like investors and find opportunities for wealth creation over the long-term.
The last few years have seen our economy move from a high growth/high inflation environment to what is likely to be a lower growth/lower inflation world. Historically, even lower growth environments that also coincide with lower inflationary pressures tend to create positive conditions for corporate earnings and markets have tended to respond favorably. We prefer a world with less disruption moving forward as we know markets crave certainty above all else. And while stocks seem to be getting a bit expensive (some more than others), markets can rally for prolonged periods when the overall conditions remain favorable.
One theme that deserves attention: for the moment, it would seem that there is little with greater potential to alter corporate profitability than the adoption of well-crafted Artificial Intelligence (“AI”) solutions. This technology quite simply has the potential to accelerate innovation in significant ways that we are only just coming to understand. This speaks nothing of the simple efficiencies that can be created by relying on AI to handle mundane tasks at the office or home. We are likely to look back in a decade and realize that the companies who found ways of incorporating AI into their operations are thriving while those that didn’t may indeed be struggling. We believe companies will become more profitable through the adoption of AI solutions – which would further support broad market growth over time. For this reason, we remain intrigued and optimistic for market returns as profit growth can be seen more widely across a swath of companies, not just the top 10 corporations in the S & P 500 index.
With that in mind, we are excited to introduce our clients to one of the innovations we are incorporating into our own practice today and into next year. We will be introducing a new suite of services through GReminders that should improve the communication and coordination of our scheduling process within the financial services department. We believe that effective and consistent communication is the best way to avoid surprises while improving preparedness for the future. We feel it is important to emphasize that AI communications will not replace our human touch; rather, automated scheduling and reminders will give us back time to focus on the more meaningful aspects of our relationship with you.
We thank you for your continued confidence and allowing us to be a part of your team! We are always seeking to improve our ability to serve your needs, and we look forward to seeing you in the new year! If you need anything along the way, please let us know how we can be of service to you and your loved ones.