My Major Concerns as We Enter 2025
Let's step back and take stock of the past couple months and see what to watch for the new year -- and what to watch out for.
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“There are decades where nothing happens; and there are weeks where decades happen."
-Vladimir Lenin
Well, the last couple of months of 2024 have been anything but boring. Let's take stock of what just happened, and what I'm watching out for as we enter the new year.
The U.S. election result was clearer and more decisive than almost any pundit projected. But governments in France and Germany have failed no confidence votes recently. Syria has rid itself of the Assad regime in the blink of an eye after over a half century of rule, South Korea implemented martial law for a few hours and Canada appears to be teetering on the brink of a new potential government after its finance minister resigned this week. These are just some of the issues the new administration will have to deal with along with a fiscal deficit which rang up over $620 billion in new red ink in the first two months of federal government’s fiscal 2025 year. If nothing else, we are blessed with living in interesting times.
In the market, the Dow has had its longest daily losing streak since 1978. The Nasdaq remains quite impervious and remains near all-time highs. Of course, the largest seven mega-cap tech stocks in the index are up some 75% on average so far this year.
Going forward, the top-heavy nature of the advance during 2024 and for 2023 remains a major concern I have for the overall market. The other is with valuation, as the overall market is more overbought now than it was at the very end of the Internet Boom nearly a quarter century ago, by many valuation metrics. Doug Kass at the Daily Diary does a terrific job every week of sharing charts and thoughts illustrating the extreme concentration and valuations of the overall market.
Investors are betting heavily that the new administration will be more business friendly than the prior administration and will roll back the regulatory state to some extent. This does seem likely and, we can hope, results in better economic growth. There are also high hopes that the new "DOGE" working group will be able to identify and eventually cut a huge deal of government waste and spending. I wish the group well but feel this initiative could end up like the Grace Commission during the Reagan administration or the National Commission on Fiscal Responsibility and Reform commission (better known as Simpson-Bowles) under the Obama administration. Both resulted in some good ideas, but little in the way of actual implementation.
Finally, the impact of any new tariffs under the incoming leadership is a major unknown, especially how any additional tariffs will affect inflation, global supply chains and trade relationships. The bottom line is investors are going to have a lot to sort through in the coming months.
In my column Friday I will discuss why I will be keeping a very close on both the commercial and residential real estate markets in the coming year. The first because I expect loan delinquency rates across many parts (office, retail, multi-family) of the sector to continue to climb in 2025 off already concerning levels. I will be watching residential real estate closely as many home builder- and housing-related stocks are already pricing a substantial rebound in the housing sector in 2025. A scenario that I think is extremely unlikely to play out.
