Financial Market Outlook for 2025

Happy New Year! As we reflect on a successful 2024, Family Legacy also looks forward to a productive 2025. Read more on our reflections on the stock market and economy.

As 2024 has come to an end, we’ve just concluded two great years in the markets. Earnings were up in 2024 and expected to rise about 15% in 2025 according to FactSet. Stock prices are derived from earnings and expectations of earnings growth more than any other factors. Should earnings top estimates, we see positive results, and if they disappoint, we see equity prices fall.

We’ve read a lot about high valuations and forward-looking price-to-earnings ratios of 21.4 are higher than their five-year average of 19.7. At the beginning of a bull market, valuations normally expand, and this bull market began in October of 2023. Bubbles are not blown in a season, and we are riding a sixteen-month rise that could continue for some time.

We will of course have a correction. Every writer who talks about some imminent 10% drop in the market is most likely right. Equity markets average two corrections (10% of greater drops) per year. Markets then recover and go higher, and the cycle continues.

Productivity drives earnings growth and productivity is up in 2024 and expected to continue to rise. We have gotten better at using the remote technology introduced during the pandemic. Artificial intelligence is expected to drive our ability to do more with less for years to come which will give a virtuous lift to corporate earnings.

The housing market is still tight most likely due to the thirty-year mortgage rate hovering around 7%. We don’t know what will happen once mortgage rates fall. Normally prices would rise.

The country is inaugurating Donald Trump on January 20. Our new president plans to extend the 2017 tax cuts and even add some more benefits. During his campaign, he promised to cut taxes on social security, tipped wages, and overtime. These changes would stimulate the economy and may also stimulate inflation.

Interest rates remain higher than any of us are accustomed to. We look to see if inflation has been tamed or if it is just taking a break.

Former President Jimmy Carter has passed. We respectfully remember one of the most courageous acts of any of our past Presidents, and that is the hiring of Paul Volker, who as the Chairman of the Federal Reserve raised interest rates to uncomfortable levels and tamed inflation. While President Reagan got most of the credit, President Carter had the vision to make the fight on inflation a priority.

We wish our new President great success over the next four years and wish you prosperity and health in 2025.

Let’s all do the good work and make 2025 the best year yet.

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Nothing above is meant as actionable investment advice for any person or entity. Please contact an investment professional for any advice specific to your situation. While written in good faith, most of the above is opinion, not fact.