Please Don't F#ck This Up!
Once again, the stock market had another banner year in 2024. The country’s biggest and most profitable companies as represented by the S&P 500 was up 23% and the tech heavy Nasdaq was up 30%. The same 2 dominant themes that drove the market in ‘23, boosted returns in ‘24: Inflation cooling (prices moderating) and excitement around innovative technology, such as artificial intelligence (AI). What will happen in ’25 is anyone’s guess. If you’ve read my newsletters, you know that we don’t do predictions at Hamilton Wealth. For those who pretend to know what’s ahead, please remember: they're all guessing. One day this bull market will end just like all of the other bull markets that came before it. There have only been 3 prior instances where the stock market was up more than 20% for two consecutive years. See below from Barron's last month. This is a very small sample size that offers no predictive value. I’m showing you this in part to help manage your expectations…please don’t extrapolate. To become great investors, we must be OK with uncertainty.
But let the record show that our newly elected king president is inheriting the best economy in many years.
“President-elect Trump will inherit unquestionably the strongest economy for an incoming administration since the George W. Bush administration…the labor market remains extremely strong…it is hard to imagine an incoming administration wanting a stronger economic situation to inherit…Growth in real gross domestic product (GDP) and GDP per capita are both running at their fastest pace since 2000.”
According to the Economic Policy Institute, a nonprofit, nonpartisan think tank (January 17, 2025)
Bidenomics has worked well, the data backs this up:
Our economy added 256,000 new jobs in December, and the unemployment rate remains low at 4.1% according to the Bureau of Labor Statistics
The Federal Reserve Bank of Atlanta estimates that our economy grew at 3.2% in the fourth quarter (beating expectations)
Consumers continue to spend at a brisk pace according to the most recent U.S. retail sales data
The big U.S. banks just reported their 2nd most profitable year on record (after 2021) as reported by Bloomberg
The stock market climbed more than 20% for the second consecutive year, only the 4th time in history this has occurred
Let’s hope the president doesn’t f*ck this up undo this momentum. My expectations are low. We know Trump is not going to address our national debt crisis, or climate change, or income inequality, on the contrary, he’ll exacerbate our problems. His threats policies around tariffs and mass deportations have the potential to undo the excellent work the Federal Reserve has done regarding inflation. Recall what inflation did to our economy and our portfolios. The bear market of ’22 saw stocks fall nearly 20%, bonds had their worst year on record down 13%, gold was down slightly, and that perceived inflation hedge and ultimate store of value, Bitcoin, crashed 60%. Trump’s priorities around tariffs (which are taxes on imported goods) and mass deportations are inflationary, full stop. We have rebalanced portfolios accordingly.
The good folks at Pimco published a more diplomatic 14 minute podcast on what they expect under trump’s administration, The 5 D's of Trump's 2nd Term (Pimco):
Deglobalization…’America First’ trade policies will likely include tariffs, which are simply taxes on imported goods (passed onto consumers), historically leads to higher inflation & retaliation from other countries
Deficit financed tax cuts…our massive deficit will continue to expand, worsening our debt crisis
DOGE…Dept of Govt Efficiency will attempt to cut govt spending using technology, but any benefits to the deficit will likely be negated by tax cut
Deportation…restricting immigration will reduce the labor supply, which is inflationary, and immigrants consume food, shelter, etc so we could see a hit to growth
Deregulation…banks and oil companies will see reduced regulations and less enforcement of existing regulations…expect more climate events
“Any potential tariff will add about $1.5 billion to $2 billion in costs for aluminum consumers in the United States, Oplinger said, adding that industries such as packaging and automotive will likely see the most impact. “
--Alcoa CEO William Oplinger (Trump's tariffs could redirect metal flows, Alcoa CEO says | Reuters)
Megatrends Intact
More importantly, we believe the megatrends or themes that make up the core of our portfolios (Global Aging, Digital Revolution/Tech, etc) will continue to grow over time despite this administration and the unqualified lightweights appointed to lead various government agencies. There are no adults in the room, zero guardrails. I will be watching the bond market closely for clues on how the market will interpret the executive branch.
Care for One Another (some more)
HEARTS, THOUGHTS, & PRAYERS ARE NOT ENOUGH
Our neighbors are hurting. So many have lost so much. The LA fires have devasted entire communities, destroying homes and upending so many lives. As if life isn’t hard enough. Hamilton Wealth has donated to the organizations below. We hope you join us in supporting these wonderful organizations that are on the front lines helping our fellow citizens. Please stop for a moment and imagine if it was your home that was incinerated. If you have already donated or helped in any way, thank you!
Disaster Relief: Food Assistance after Earthquakes, Fires, etc.
Thank you!
-randy
The opinions expressed in this communication are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this communication is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
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