Bearish. Bullish. But Also Indifferent.

In what has become a holiday tradition at Refined Retirement, we like to discuss current and upcoming year market forecasts.

Memories fade quickly, so we find it helpful to take a look back at the (typically) errant guesses. We think it is a good reminder for our clients to be wary about market prognostications. In our opinion, predictions are the most consequential mistakes an investor can make. Thus, what better way to start off the new year than by sharing what we hope will be valuable lessons to help our clients avoid both the allure and pitfalls.

In Preparation for Landing

It seems so long ago, but recall from the latter half of 2023 all the talk about what type of “landing” the U.S. economy would have as it came out of the highest inflation levels in more than four decades. The Federal Reserve had embarked on a series of interest rate increases with the goal of bringing inflation back to its long-term target. The fear was that this would sink the economy into recession (i.e., hard landing). However, the hope was for a Goldilocks scenario where price increases would decelerate while the economy continued to grow (i.e., soft landing).

If one was handicapping sentiment, they would conclude it clearly favored the hard-landing scenario. Original forecasts called for several rate decreases in 2024 to help offset a declining economy and minimize the severity of recession. Predictions about the S&P 500 reflected this pessimistic view as well, and the average close to the year was forecasted between 4800-4900.

A Cautious Entry Into 2024 Now Looks Laughable

We believe it is fair to say investors were cautious entering 2024, thanks to the “landing” uncertainty, multiple wars (i.e., Ukraine-Russia and Israel on multiple fronts), and a contentious U.S. election on the horizon.

Now with 2025 upon us and the S&P currently hovering near 6,000 after achieving more than 50 new all time highs in 2024, this pessimistic view looks silly in hindsight. Almost all domestic equity segments have enjoyed above-average performance, with growth stocks once again leading the year. Volatile assets, such as crypto currencies, have largely experienced banner years.

Reacting to Rates

With that said, it has not all been rosy.

Interest-rate-sensitive assets, such as real estate and fixed income, have underperformed at times, as fewer rate cuts occurred than expected and the view of future cuts has become murky. Even among equities, international stocks severely lagged their U.S. counterparts.

Trend Followers Ride the Wave

For us as systematic trend followers, 2024 has looked like every year preceding it in the sense that we have simply followed our rules day by day, month by month. This has allowed us to take advantage of strong trends in U.S. growth stocks while minimizing exposure to foreign stocks and interest-rate-dependent instruments.

Until these trends shift, we will continue to ride the wave.

Bearish, Bullish & Indifferent

While we disregard predictions, we often say that the best indication of what something will do is what it is currently doing based on its trend.

If that is true, then the number one theme for 2025 could end up being what the Fed does with rates. After three straight increases, but with inflation remaining persistently above the long-term goal, will the Fed be forced to hold here? Or worse, will it be pushed to actually increase rates in 2025?

Additionally, what effect will the much-discussed tariffs have on prices and the economy at large? What if NVIDIA ever disappoints the markets with results or forward-looking results?

On the positive side, what if inflation resumes its decline, allowing the Fed to continue cutting? How might this impact interest-rate-linked assets, such as bonds and real estate? What if a potentially more favorable regulatory environment creates a boom for mid- and small-cap stocks in 2025?

As one can see, it doesn’t take much effort to create both bearish and bullish scenarios for a wide range of assets for the upcoming year.

As a systematic trend follower, we are thrilled at the results our investing process generated for our clients both before and during 2024. Perhaps just as important, we are excited about what it means for them — and us — in 2025.

In a time of year when we celebrate the idea of peace on earth and goodwill toward men, we are grateful to have an investment approach that promotes peace for our clients by always having a plan for what’s ahead. It’s not always easy, but it is simple. And we believe simplicity is key to navigating the sometimes-choppy waters of financial markets.

We encourage everyone to take a moment and reflect on the good things that have happened in 2024 and if you haven’t already, make a plan for a great 2025. Happy New Year!