Market View: December 2024-January 2025

By Argent Wealth Management, LLC on December 13, 2024

Conclusion

• Recession odds remain low, and the bull market is likely to continue.
• However, the bull market is maturing, and valuations are high.
• Investors should expect more volatility, and lower equity returns in 2025 than in 2024.

Credit Conditions

• The availability of credit to consumers and businesses is favorable.
• Credit is available to expand your business or buy a home.
• This measure would likely be on a downward trajectory if a recession was imminent.

Unemployment

• There remains over 1x the number of job openings per unemployed in the United States. 
• Despite coming down, it is still above the average since 2000.

Delinquency Rates

• Credit card delinquency rates are well below the average since the early 90s.

Consumer Health

• The Household Debt Service Ratio is below the historical average. 
• Consumers are in good shape and consumption makes up about 70% of GDP in the U.S.

Inflation is Coming Down

• Inflation is coming down, but getting core inflation, which sits at 3.3%, down to the Fed’s target of 2% will be difficult, especially if the economy remains strong.

Presidential Cycle

• The first year of a presidential cycle tends to be positive, even though on average monetary and fiscal policy becomes more restrictive.

Presidential Cycle

• The Federal Funds Rate is at 4.5-4.75%.  With the economy in good shape, and inflation likely to remain sticky, the easing cycle is more likely to be slow than fast.
• Investors are pricing in an 86% chance of a rate cut in December, but only 1-to-2 more in the first half of 2025.

Stock Market and Rate Cuts

• Slow easing cycles tend to be good for stocks.  It usually means the economy remains strong, and the Fed isn’t cutting to fight a recession, but to maintain balance between price stability and unemployment.

Stocks vs. Bond Valuation

• Despite a positive macro and technical backdrop, stock valuations are high on a relative basis.

Absolute Stock Valuation

• And valuations are high on an absolute basis as well.
• ITOT = S&P Total U.S. Stock Market ETF.
• EFA = MSCI EAFE Index ETF, generally considered a representation of developed international markets.
• EEM = MSCI Emerging Markets ETF.

Sentiment

• Sentiment is optimistic.
• More good news is priced in than bad news.
• Incremental good news would have less impact relative to incremental bad news.

Cyclical Bull Market History

• Cyclical, or short-term, bull markets within secular bull markets (what we are in today) have historically averaged 751 days with returns over 100%.
• The current cyclical bull has lasted about 575 days and is up around 55%.

History of Secular Bull Markets

• In the previous two secular or long-term bull markets, the DJIA went up double digits annually over roughly 18 and 24 years, respectively.
• The current bull is about 15 years old, which is shorter than the last two.
• Moreover, returns are in line with historical bull markets.

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