2025 – Our List of KSFs For The Markets

First off, Merry early XMAS as this is the last stock talk before the holiday next week.

Second, we’ve gotten a lot of great questions since the election on the outlook for the economy and the markets for 2025.  We have addressed the key issues we see affecting the markets in 2025, however there are many other topics and smaller issues that keep popping up in many of our viewers’ questions.

Hopefully we touched on many of these topics last night during Troy, Charles and my recent livestream. While the focus of last night was recapping 2024, it’s our investment teams and financial planners’ goal at OHFG of focusing on the future, not dwelling on the past. The link to last night’s live stream is here. Check it out and subscribe to our original content.

I’m keeping this one short, due to our prep for last night’s event, but I hope you pass it on to others and help me get my subscriber base above 1000 before 2025 begins.  Investors. We have been in a bull market for equities.  We have been since at least 2011 secularly, and cyclically since the October 2022 low as well as Oct 2023 pivot higher from 4150 on the S&P500.

Our team has been discussing since well before the election why this bull could remain alive in 2025 regardless of who was elected.  Without preempting our 2025 market outlook summit that will take place on January — at the Hotel Zaza here in Houston, here is a list of those things that wee feel are most important to extending this bull market for another year.  And investors, these are listed in order of importance.

1. S&P 500 earnings growth and growth rates continue to be strong. First and foremost, stocks follow earnings and marginal returns on invested capital over periods measured in years.
2. Interest rates, both nominal, real growth rates, and inflation expectations. Lower trending rates at the long end of the Treasury curves, which are generally market based, is better for equities than higher trending rates. Why? Because the terminal value for equities is based on discounting their free cash flow over years back to present value, and when you make that calculation with a lower interest rate, your terminal value goes up.  When that calculation is done with a higher rate, your present value for equities goes down.
3. Goldilocks for equities is stable to lower longer-term interest rates, lower trending inflation and stable to lower real rates. That’s what happened in 2017 even with the Federal Reserve raising rates at the short end.
4. Stock market valuations aren’t low, but don’t get me started on this topic. They are a horrible timing tool for selling or calling tops.  See the 3 above notes.  Valuations are not “cheap” based on history.  But investors, you rarely get cheap unless you are in a recession, and we are not in one currently. We had one in the 1h22 and stocks dropped 25-35% in the S&P500 and 50-75% in the tech heavy NASDAQ.
5. A Federal reserve that is not a headwind to investing but is looking at rate of changes in the economy. Don’t loosen too much, but don’t get the itchy trigger finger and tighten either.  The 10yr-3mo yield curve un-inverted on 12/13/24 for the first time in over 700 days.  This has been a leading indicator for recessions in the past, however it didn’t catch the 1h22 recession we had, but it’s worth keeping an eye on.
6. Keep a watchful eye on the US dollar basket. There is no de-dollarization of note in global markets. There is a broad move across all fiat currencies of debasement.  Remember, currencies are a relative game. The S&P 500 and its returns would be best served by a gradually weaker down in 2025 much the same way it weakened in 2017 under Trump 1.0.  A weaker US dollar would broadly help earnings of large cap multinational companies, think MCD, PEP, KO, SBUX, and technology.  A slightly stronger dollar has been a headwind to many large cap stocks in 2024, just asked Oracle and Adobe after they reported their most recent quarters.
7. Tax rates for both corporations and individuals. Lower corporate tax rates for businesses means more cash for shareholders and hopefully higher ending investment returns as well. Lower to stable taxes for individuals, means more cash in your wallet to spend as consumers or invest as investors.  It also takes the pressure off many investors who need to sell stocks now or in 2025 to beat the rush to higher tax rates in 2026.
8. Fiscal restraint. The much-discussed DOGE effort under Trump 2.0 is a necessary good first step at slowing and eliminating waste in our federal government.  However, investors need to remember that whether you liked the Bidenomics IRA economic plan or not, many public companies and their shareholders benefitted greatly from the spending in 2023/24 and it makes those companies comps more difficult to achieve in 2025/26 particularly if those programs get cut back in a material way.   What’s good for the taxpayer and lower deficits on the surface, might not be good for the investor.  This is actually one of my own biggest fears that can lead to slower growth in 2025 and 2026 and lower EPS than many think.
9. China economic slowing and stimulus programs. Let’s be frank. China’s economy is a mess currently.  There is no chance they are growing at the rates their government says.  It is one of the top economies and largest markets in the world for products and services and global stock markets and investors would be best served if they actually put in place some programs to stimulate consumption by their population in 2025/26. Whether they are waiting to see President Trumps hand and gameplan, I don’t know, but they did stimulate in 2017 and their markets were one of the best performing asset classes that year even with the Trump Tariffs and geopolitical tensions.
10. There is a great deal of discussion, debate, and hysteria in many circles on this subject. First off tariffs are taxes.  Taxes are friction to investors.  Investors hate friction that separates them from their money and desired investment.  Now between 72-75% of the US economy is consumption and service based. Tariffs should not affect the service component leaving consumption.  When one breaks down US goods consumption by categories, overall, the necessary goods that we import to survive is relatively low and since the initial Trump tariffs were enacted during his first term, most international companies have diversified their manufacturing supply chains away from China. Autos would be hurt as well as some others like electronics, however we are energy independent and now a large exporter of BTU’s.
11. Immigration policies. Yes, mass deportation of illegal immigrates would likely initially cause not only and economic slowdown, but also an increase in service inflation. Our team sees a softer policy once implementation begins as a weaker economy is not in the administration’s best interest.
12. Geopolitical uncertainties. These get talked about all the time by many economists and strategists on TV and in social media. Exactly how many times have they turned out to be relevant to your investments beyond 1-2 quarters?  There is an entire consulting field around this topic, but I rarely if ever hear the most successful longer-term investors talking about this subject.  Traders, yes? Long term investors?  Warren Buffet? Technology and Venture capital investors?  Almost never.

Investors here’s a few overlays of 2016/17 and 2024/25 for a number of the above data series.  You can follow along in 2025 and see if the markets are rhyming again.  If they don’t, it’s likely due to 1. A stronger dollar in 2025 and 2. Higher nominal and inflation interest rates.

Investors, S&P500 7000 in late 2025?  Is it doable in the next 12-14 months? The simple answer is yes.  Is it “easy”?  No of course not. Black swans can hit. The unforecastable can play out.  Maybe it is different this time. For now, the math I follow says 6660 would be a likely topping place in 2025.

But investors before you dismiss myself, or the likes of Tom Lee who says 7000+, or Rich Ross, who have been more right than wrong over the ongoing bull market, in favor of those of retired billionaire hedge fund managers, or doomers like Jeremy Grantham, Robert Kiyosaki, or other newsletter writers who keep trying to scare you and have been horribly wrong, ask yourself.  Have they been right? Have they been right Lately? Have they been right Consistently? Or were they one hit wonders from years if not decades ago, who keep popping up in your social media feed because of a catchy computer algorithm that knows your age, gender and political beliefs?

Until proven otherwise, my suggestion to you, trade or invest similarly to Trump1.0 for at least the early stages of Trump 2.0.  Why? Because it’s the same people doing the same things, and therefore the outcomes tend to be very similar. A similar outcome to 2017 for 2025 would be S&P500 7000.