The Sunday Drive - 12/29/2024 Edition [#143]
Musings and Meanderings of a Financial Provocateur
👋🏼 Hello friends,
Greetings from Saratoga Spring, NY! 🐎 This is the final edition of the Sunday Drive for 2024. Whew! We made it!!!
I wish you all a very happy and safe New Year celebration and much peace and prosperity in 2025. 🥳🍾
Let's take it easy and enjoy a leisurely Sunday Drive around the internet.
🎶 Vibin'
One thing I think we can say with a lot of confidence is that there will be a lot of changes in 2025. Some will be good, some might be bad. But the coming year seems to be shaping up to be a very different year than the one we are soon to exit.
So this week, I’m vibin’ to Yes (that other well known progressive rock band who isn’t named Rush) and their 1983 hit, Changes. Enjoy…
💭 Quote of the Week
“Knowledge is knowing that a tomato is a fruit. Wisdom is knowing not to put it in a fruit salad. “
— Peterson Omerta
📈 Chart of the Week
This week’s Chart represents, at least metaphorically, a partial view of my overall theme and expectations for 2025.
With a hat tip to the legendary Strategist at Morgan Stanley, Byron Wien (RIP) and his famous annual Top 10 Surprises, I’m bringing back the Fearless Forecasts that I used to write back during my tenure at Eaton Vance.
Below is an abbreviated draft of my contribution to the broader 2025 Outlook piece that I and my colleagues at Investment Research Partners will be publishing for our partner RIA firms and their clients early in the new year.
Fearless Forecasts for 2025:
U.S. Equity Returns Moderate: We see a moderation of U.S. equity market returns, in particular the S&P 500 compared to 2023 and 2024, as mega-tech stocks underperform for a time to "grow into" their valuations.
Better Performance Outside the Mega-Caps: Mid-cap and higher quality small cap stocks outperform mega-cap stocks. An equal-weighted S&P 500 outperforms the market cap-weighted S&P 500.
Fixed Income Performs Poorly: Bond returns are tepid or worse, as short rates are slow to decline and long rates stay relatively high or even rise, due to either accelerating U.S. inflation or government debt related concerns. The Bloomberg Aggregate Bond Index delivers low single digit returns at best.
Inflation Returns: We see a modest but meaningful return of inflation, owing to a resurgence in global growth, labor constraints, and the impact of tariffs likely to be imposed by the incoming Trump administration. We're not likely to see a return to the 9% level of 2022, but we could potentially see a move back up to the 4-5% range.
Commodities Make a Comeback: Commodities perform well as global growth accelerates and investors seek to hedge against a resurgence of inflation.
U.S. Dollar Weakens: We see a weaker dollar as U.S. policies focus on growing exports and slowing imports and commodities trade higher.
DOGE is Real + Return of the Bond Vigilantes: The U.S. makes some meaningful progress on slowing the rate of U.S. fiscal spending, which is still pacing near pandemic levels. This progress on spending should at least somewhat offset the return of inflation and a weaker dollar.
Europe Reawakens: Stocks in developed European markets start to narrow the performance gap with U.S. stocks, as a result of a weaker dollar and stronger commodity prices. Green shoots of structural political, economic, and capital markets reform could start to appear. We can look to Argentina as a recent example of how quickly this can happen. The urge for economic freedom is contagious and sentiment in Europe couldn't be much worse.
AI Goes Nuclear: An AI-focused data center which is self-sufficient in terms of power and incorporates its own on-site, "baby" nuclear power plant will be announced. This is nuclear power re-imagined and could accelerate the rate of data center development, clean power growth, and returns on capital for AI spending.
Bitcoin Crashes Again: Bitcoin will have (another) 50+% drawdown, reminding everyone of just how volatile crypto currencies can be, and how important it is that they be appropriately sized in portfolios which own them. Bitcoin will also recover some or all of the decline.
Of course, some or all of these forecasts could turn out to be dead wrong, but laying them out in this format helps frame our current thinking and lays out a base case for the year. New information and events throughout the year could certainly present themselves and alter our views, but for now… We are fearless.
If you’re interested in receiving the 2025 Outlook, please email me.
🚙 Interesting Drive-By's
📈 Growth is from Mars, Value is from Venus
💡 The Future of Work is About Doing Better - Not Less
🤔 Fountain Life: Prioritize Your Longevity
💰 Should Retirees Ditch the 60/40 Split?
😳 What Happens When the Internet Disappears?
🎯 A Visualization of Europe’s Non-Bubbly Economy
👋🏼 Parting Thought
Here’s to a most happy, peaceful and prosperous 2025!
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X ‘em?) at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners or Cache Financials.
I hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mike
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