Q1 2025 Market Intel Report | Thriving Through High Valuations and Policy Changes

Stocks boomed again in 2024, delivering a strong performance powered by interest rate cuts and hopes for economic growth.

Can the bull market keep running? Is a correction hiding around the corner?

We'll dive into what happened in the final months of 2024 and what we might see in the first months of 2025.

Advisory services are provided through Prosperity Capital Advisors LLC (“PCA”) an investment advisor registered with the United States Securities and Exchange Commission (SEC). Views expressed herein represent the opinions of PCA and are not intended to predict or depict performance of any particular investment.

All data provided, including any reference to specific securities or sectors, is provided for informational purposes and should not be construed as investment advice. It does not constitute an offer, solicitation, or recommendation to purchase any security. Consider your investment objectives, risks, charges and expenses before investing. These views are as of the date of this publication and are subject to change. Past performance is no guarantee of future performance.

Episode Transcript

Speaker 0 (00:08):
Hello everyone, this is Dave Allison, founder and CEO
of Allison Wealth Managementand Prosperity Capital Advisors,
and I want to welcome you toour Q1 2025 Market Intel Report.
2024 had a lot to celebrateInflation finally dropped to
more normal rates, economicgrowth was strong, interest

(00:31):
rates fell and markets soared tonew highs.
In fact, 2024 is an example ofwhy staying invested through
rocky markets has historicallypaid off for long-term investors
.
However, after markets have nowboomed for two years in a row,

(00:54):
it's natural to ask should webrace for a rocky 2025?
Now we know the past doesn'tpredict the future and none of
us have crystal balls, but wecan take stock of the market
environment and make educatedguesses.
There's a lot of reasons foroptimism in 2025.

(01:15):
Many analysts believe marketswill have another strong year,
including those who wererecently predicting a downturn
ahead.
If consumers continue to spend,companies continue to invest
and the economy continues togrow, we could absolutely see

(01:36):
another strong year for markets.
But there's also somechallenges ahead.
Markets hit multiple recordhighs in 2024, giving us some
very high valuations.
That often means markets areprimed for a correction if
earnings and businessexpectations don't keep up.

(01:58):
There's also uncertainty aroundinflation, the Fed's next move
and the new administration'spriorities.
If tariffs cut into businessprofits or inflation surges
again, investors could getspooked and cause markets to
retreat sharply.

(02:18):
The bottom line we'remonitoring economic data, we're
watching for opportunities andwe'll keep you informed
throughout the quarter and reachout as needed with any strategy
shifts.
Now to recap 2024, the S&P 500,which are the 500 largest

(02:39):
companies in the United States,rose by about 25%.
The United States rose by about25%, marking the second
consecutive year of 20 pluspercent gains, as we experienced
almost a 26.5% gain in 2023,coming off the downturn, of
course, in 2022.

(02:59):
Despite the uneasinessinvestors may feel following
periods of strong returns,history shows that stocks often
continue to perform well in thesubsequent year.
Prior to 2024, there were eightinstances of back-to-back 20%
gains since 1950.

(03:20):
20% gain since 1950.
The average return in thefollowing year was a healthy
12.3%, and in only two instancesdid the index fail to deliver a

(03:40):
gain.
Further support can be found inexpectations for continued
economic strength and robustcorporate earnings growth in
2025.
Now, that said, as is often thecase in investing, the path is
likely to be bumpy and includepullbacks along the way.
Financial markets respondedpositively to the results of the

(04:01):
2024 US presidential electionpricing, an optimism that tax
cuts and a looser regulatoryenvironment will be supportive
of both the economy andcorporate earnings.
However, there are severalpolicy proposals that could
prove to be material headwindsin 2025 and beyond.

(04:23):
Now, the extent andimplementation of these policies
remains uncertain.
Critics argue that broad,sweeping tariffs and mass
deportation could prove to benot only inflationary but also
weigh on economic growth.
Additionally, some of thetailwinds that we're considering

(04:44):
are, of course, the tax cuts,as Trump aims to extend the Tax
Cuts and Jobs Act of 2017 andintroduce additional cuts
intended to stimulate economicgrowth and boost corporate
earnings.
We look at deregulation and alooser regulatory environment,
which is expected to boosteconomic growth, corporate

(05:06):
earnings and small businessprofits by reducing compliance
costs.
And then, last but not least,just general stock market
optimism.
We know this incomingadministration is largely
perceived to be pro stock market, viewing the performance of the
S&P 500 as a measure of theadministration's success.

(05:30):
Now, of course, there's also theheadwinds mentioned trade
tensions, proposed 20% tariffson imports that could increase
costs for American householdsand spark retaliatory measures
from trading partners.
Deficit concerns, tax cuts andincreased spending would likely
add to the already largenational debt, potentially

(05:53):
impacting long-term economicstability and labor market
tightening, of course, plans forlarge-scale deportations, which
could reduce labor supply,potentially driving labor costs
and inflationary pressure higher.
These are all things that arerisks to the market and if we do

(06:15):
see a resurgence of inflation,it could cause the Fed to
continue to pause on potentiallycutting interest rates.
We've already seen some of thatin action.
Many people thought we mightsee four interest rate cuts in
2025.
Now people are talking aboutpotentially two cuts, again a
higher for longer rateenvironment, and we are seeing

(06:41):
continued geopolitical risksthat could spook the market.
But there's also an incredibleamount of optimism.
What we're seeing is continuedinnovation from some of
America's best companies, notjust the magnificent seven tech
companies that have seen a lotof tailwinds with AI spending

(07:03):
and data warehouses andinfrastructure build out, but
hopefully a broadening of themarkets.
Some people have speculatedthat we could be entering into
another technology bubblesimilar to what we experienced
in 2000.
And at this point we're notquite at those valuation levels

(07:28):
yet.
There's also another materialdifference that the tech
companies that do have very highvalues right now have huge
abilities to produce cash andearnings, which is a bit
different than what we saw inthe 2000s, but from a mitigation
perspective.
It just shows the importance ofdiversification.

(07:49):
Again, if you look at broadmarket indexes in 2024, the
NASDAQ did really well, the techheavy led NASDAQ, followed by
the S&P and lastly the Dow.
If you look at periods like 2000to 2009, when the dot com
bubble burst, the S&P 500 sawpretty much a lost decade for

(08:11):
stock market returnsCumulatively over that 10-year
period from 2000 through 2009,the S&P 500 was down
cumulatively about 10%.
But if you were diversified andyou looked at asset classes
like small cap or value or eventhe S&P 500 on an equal weight,

(08:35):
there were plenty ofopportunities to generate return
.
As an example, during that sameperiod where the S&P 500 market
weight index was downcumulative about 10%, the equal
weight of the S&P was up about65%.
If you went to the small ormid-cap sector of the United

(08:57):
States market, it was up around50% cumulative during that time
period.
And if you looked abroad indeveloped international and
emerging markets, you saw evenstronger returns.
And so the narrative of all ofthis is eliminating, reducing
and managing risk throughdiversification and sticking to

(09:20):
your long-term investment plan,having a bucket plan, having the
proper funding in your now andsoon bucket so that we can
weather any of the short-termvolatility.
That is just a normal cost ofinvesting.
So, with that being said, thatwraps up our Q1 2025 market
intel report.
If there's anything you need,please reach out to our team,

(09:43):
reach out to your advisor.
We're here to help and we'llsee you next quarter.