Before going on to our thoughts about the outlook for 2025, I would like to review what we got wrong and what we got right about 2024. ( See: https://shulmaven.blogspot.com/2023/12/2024-volatile-politics-volatile-markets.html)
• We were dead wrong about the stock market. Instead of trading in 5000-4200 range, The S&P 500 soared above 6000.
• Stocks completely ignored the geopolitical risks we outlined.
• The S&P 493 did not outperform the Mag 7.
What we got right or close to right:
• Inflation, as measured by the core CPI, accelerated to a 3% run rate and the 10-Year Treasury closed well above 4%. (For my UCLA discussion on the economy see: https://shulmaven.blogspot.com/2024/12/my-ucla-anderson-talk-on-prospects-for.html)
• The Fed avoided a recession but did not cut rate soon enough to help Biden.
• The presidential election was close, and, at the time, we were leaning toward Trump.
• Ukraine did not set the West Siberian oilfields ablaze, but it did hit energy infrastructure deep into Russia.
• It looks like Israel has defeated Hamas, but Saudi Arabia, as of yet, is not on track to join the Abraham Accords.
Now for what 2025 will look like:
• Inflation will run at a 3% rate because of continued wage growth of above 4%, the imposition of tariffs and the beginnings of a mass deportation of undocumented/illegal immigrants.
• With continued inflation and a rising federal deficit, the yield on 10-Year Treasuries will exceed 5%. The bond vigilantes will exact their revenge.
• In this environment stocks will exhibit the volatility we though would happen this year and the S&P 500 will likely trade in a wide range of say 6400-5400, closing lower on the year.
• The House Republican Caucus which puts the “dys” in dysfunction will get is act together to renew the 2017 tax cuts with a $20,000 SALT deduction. The other elements of Trumps tax cut plans will be put in separate bills making passage unlikely.
• Two of Trump’s controversial cabinet appointees will be turned town by the Senate.
• France is fast becoming the new Greece and German dysfunction will only increase.
• Israel will attack Iran’s nuclear infrastructure which will bring with it unknowable consequences.
As they say in Las Vegas, read’em and weep, but remember I am often wrong and never in doubt.
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