The S&P 500 posted back-to-back annual gains for 2023 and 2024 of more than 20% for the first time since the late 1990s. Smaller companies, as measured by Russell 2000, were up 10%. The Dow was up 13%, and the Nasdaq was best with a 29% return. For more quantitative commentary, see “10 charts that tell the story of markets and the economy in 2024.”
Year-end is when we take stock of what happened and look forward toward emerging trends. This commentary favors historical study rather than the folly of speculation about the future.
On 11-20-23, Wall Street giant Goldman Sachs predicted that the S&P would rise to 4700 (the actual was over 5800). Returns for 2024 were predicted to amount to 6% (over 20%). Most investment bank 2024 predictions were far too low.
The past 24 months have generated substantial returns that will ultimately reach a difficult-to-hold valuation level. Select technology companies in artificial intelligence are becoming overbought. The recent S&P 500 results have been skewed by the so-called “magnificent seven”: Microsoft, Amazon, Meta, Apple, Alphabet, Nvidia, and Tesla.
As the calendar turns to 2025, forecasts and proclamations will now focus on the market’s future direction. The paramount challenge is likely to be the unfortunate prospects of radical changes in tariff, immigration, and energy policy. Combine this with the biggest companies bid up to high valuations, and we are likely in for a challenging 2025.
Since 2020, the US economy has grown at around three times the pace of the rest of the world’s advanced economies known as the G7 (Canada, France, Germany, Italy, Japan, and the United Kingdom). In recent decades, China’s economy has been catching up, but Chinese nominal GDP has fallen from about three-quarters the size of America’s peak in 2021 to two-thirds recently.
On 12-19-24, the Economist wrote about the astounding American economic performance: “This success is partly thanks to pandemic-inspired government spending. But the fundamental reason is the dynamism of the private sector. Along with America’s huge market, this is a magnet for capital and talent. No other economy is better placed to create and profit from revolutionary technologies like biotech, advanced materials and, especially, artificial intelligence, where its lead is astounding. Were it not for growing protectionism, America’s prospects would be even brighter.”
On 1-3-25, the WSJ headline, “The American Worker Is Becoming More Productive,” pointed out: “Productivity in the U.S., as measured by how much the average worker gets done in an hour, has been on the rise. That matters because the faster that productivity grows, the faster the economy can grow as well. The success of the U.S. economy, and why it has grown so much compared with other countries over the past century and more, has hinged on its productivity.”
One reason the US markets attract more capital than those in the rest of the world is that our accounting standards and regulatory environment protect investors, allowing fundamental trust in the system. Reuters reported on 2-7-23 that “global equity market data provider MSCI estimates that U.S. market cap as a share of the global total hit a record high around 62% in 2021. It has dipped a bit since that time but is still a historically high 60%”.
Many structural elements foster the dynamism of America. Our incredible geography, combined with a robust constitutional democratic system, market capitalism, and the dynamism of our diversity, is a juggernaut. The United States has an innovative, mobile population. America has always had iconic magnetism that draws immigrants to build new lives. Our accounting and legal systems are a model for the Western world. The US Financial system has evolved to become the world’s most valuable and dwarfs trading volume globally. The American Dollar dominates the global financial system and creates a transcendent structural advantage.
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2025 will unveil a second term of reality TV presidency. The campaign messaged the idea that vague wholesale change centered around tariffs and deportation with a big helping of outrage at the status quo. It is unlikely that the burst of post-election enthusiasm will predict a new excellence in leadership. One’s political party affiliation generally slants the notion that season one of the DJT era was economically vibrant. A significant mythology has developed around the President-Elect that may be far from the actual results.
Economics is a scientific discipline that attracts endless opinions and commentary from the common man. Unlike archeology, physics, or biology, people are inclined to project passionate personal views about the complex interactions of interest rates, markets, and government policy. People often confuse their personal financial circumstances with macroeconomic conditions. The tendency to tie political opinions to one’s economic theorizing extends this illusion of knowledge into immense complexity and erroneous beliefs.
Elections arbitrate (miraculously, we could accurately count American votes in 2024), and backward-looking narratives emerge to fit the outcomes to observable trends and shifts in the electorate. The famous quote attributed to James Carville, “It’s the economy, stupid,” is suggested to imply that political electability is directly linked to economic conditions. Thus, it is critical for presidents to rev the economy to facilitate re-election.
The overriding factor in 2024 was not the economy, although the post-pandemic inflation spike was a marquee issue. In the opinion of this commentary, the crucial factor for Republican success in 2024 was not rallies, messaging, or resumption of the 2016-2020 leader. It was simple frailty and denial of the fact that Biden was unelectable. Biden insiders took the 2020 victory and, in some delusional scenario, supported his declaration to seek re-election. It is now being illuminated that ole’Joe B was essentially being stage-managed and meticulously sheltered from press appearances and other crucial activities of 1st term presidents seeking re-election.
On 7-3-24, this commentary lamented, “The idea that President Biden could campaign and win in 2024 may have ended during a surreal presidential debate on June 27th. Working at a high-capacity past age 80 is something that is accomplished by a very small group of people who can remain professionally active at that extended age. The Democratic Party is under intense pressure to face up to this reality.”
Shockingly, this historic blunder was revealed on the 6-27-24 presidential debate. Articulation and public speaking were never Joe’s strength, yet the contrast of the two elderly men was a stark revelation of Biden’s frailty. This image overshadowed the gibberish during that debate that has become the stock and trade of the president-elect. Frailty was a transcendent message that compelled the party to force Joe into retirement.
Marshall McLuhan would have reminded us that, “the medium is the message”. Voters were quick to conclude that this man was too old for the job. The baton was handed to Harris, with little time to rewrite the narrative. In hindsight, frail images of a sitting US president doomed the Harris / Walz ticket as they ran a 120-day campaign against the man who has been at it for over 9 years. The entity, DJT, has built a personal brand since 1971. For over 50 years, he has implemented a strategy that has fundamentally employed provocation and controversy. The Trump brand has employed energetic articulation of edgy messaging under the belief that all press is positive and essentially free advertising and promotion.
Harris has now joined a long list of defeated US vice presidents. Al Gore, Walter Mondale, Hubert Humphry, Richard Nixon (1960), Hillary Clinton (technically not a VP, but was a sort of VP to Bill), and Mike Pence, although the 2024 GOP primary was a stunted effort. Joe Biden should also be included with a win and a loss.
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We are all country clubbers now. Get your initiation fee ready. It’s a bargain at $100k. On your way to your new golf utopia, pick up some DJT cologne and gold-branded sneakers. Head out to the links where the swamp is being drained by lobbyists and influencers careening their necks to kiss the ring of the triumphant returning leader.
Since 2015, the president-elect has exerted immense influence on American political discourse. Through relentless television and radio appearances, Trump has been energetic and relentless, and this was a very potent message—no matter the multiple trophy wives, casino bankruptcies, or $1B tax loss. A television show that positioned the patriarch as a business visionary was also essential to the imagery. He has beaten a weak Democratic party candidate and now has a second opportunity to lead.
The post-2024 narrative suggests a wave of support for what has been proposed by DJT leaves out what has effectively been a 50-year effort. The explanation for the election results of 2024 is based on interpretations ranging from the genius idea of recycling a Reagan-era slogan (maga) to the media operator that is DJT.
American presidential elections are often shrouded in narratives that are quickly proven suspect. The simplicity of a binary either-or choice is then extrapolated to have great meaning. The outcome of a 2-3% margin in the popular vote is now breathlessly broadcast as a political “mandate” for the political promises and “vows” of the campaign.
The proclamations by the new Republican president are particularly suspect as the extreme over-promising nature of his public persona. Mexico is still not “paying” for a wall, Ukraine will not be solved in 24 hours, and your grocery bill is unlikely to be magically lowered. It also seems clear that we should not sweat Obama’s birth certificate, and Hillary is unlikely to be locked up.
Storylines of a structural shift in the American electorate are about as accurate as the idea of Democratic Party dominance during the peak of the Obama presidency. The post-election market rally of 2024 is a sigh of relief in the expectation that the election could be a tie and end up in the courts.
Occam’s razor would suggest that American presidential elections have more straightforward explanations. The dour elitist John Kerry lost to the uninspiring Bush / Cheney incumbency. The perceived bumbling of Gerald Ford, mired in the shadow of a disgraced Richard Nixon, lost to the southern charm of Jimmy Carter. Humphry was never going to beat Nixon in 1968; John McCain was saddled with the baggage of George W. Bush and stood little chance against Obama.
The idea that there is a significant change and now carnival barkerism will have staying power is unlikely. The working man constituency will likely be quite disappointed with more tax cuts that benefit upper-income taxpayers. The Republican “wave” has bypassed Congress, where the GOP majority is razor thin. The defeat in 2020 is long forgotten, but it will be soon remembered that this is the same guy who gave bonkers press conferences during COVID-19, patronized Kim Jong Un, and suggested that “Putin is a strong leader.”
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On 12-16-24, SoftBank Group CEO Masayoshi Son stood beside President-elect Donald Trump at Mar-a-Lago, announcing a commitment to invest $100 billion in America over the next four years – and create 100,000 jobs. The investments will be concentrated in artificial intelligence (the hot trend of 2024). “My confidence in the economy of the United States has significantly increased with his victory,” Son said at the news conference.
Softbank was founded over 40 years ago and has amassed $168b. It is incredulous to proclaim that an operator of its size could get anywhere near the scale of this announcement. As this commentary has often stressed, economics is not subject to hype and exaggeration any more than wishful thinking could somehow alter the force of gravity. Over-the-top expectations and political hyperbole will likely be overshadowed by a new 87-year-old boss brimming with ideas that counter the significant economic challenges we currently face.
In 2016 the DJT presidency narrative was to hire ‘all the best people.’ Implying that people who have succeeded in private enterprise can come and serve the federal government and have an impact. It is sad in 2024 to witness a ragtag group of marquee cabinet appointments headlined by the attorney general appointment (since dispatched), Dr Oz, and a cast of others with all manner of questionable qualifications. A new “swamp” is being filled with tush-kissers and the highest donors to the election effort.
Not only does this diminish the potential efficacy of a second presidential term, but it slows the process and unnecessarily expends political capital. Essential issues like skilled immigrant policy flounder under an arbitrary cap set in 2006. The vibrant American tech industry struggles to obtain HB-1 visas, and the economic implications are vast. Elon Musk now initiates an awkward debate regarding skilled immigrants. This is where complex problems meet political campaign provocation rhetoric.
The president-elect is now contorting himself with contradictory statements as the new influencers (Musk, Ramaswamy) suggest that we can get skilled and other “good” immigrants while, at the same time, the mass deportations will be removing the “bad” ones. Imagine a bureaucrat with a clipboard making real-time decisions to send people “back to where they came from.”
The visa debate is a stark example of the contradictions between provocative political statements about immigrant criminality and actual policy that can benefit business, American commerce, and society. Musk is now trying to explain how crucial low-cost skilled workers are to American companies. The justifications are contorted and offensive. His sidekick, Ramaswamy recently stated: “Our American culture has venerated mediocrity over excellence”. Say what you will, Vivek has very poor political sense. His companies have produced grandiose promises with little actual results.
The twisted idea that immigration is net negative creates all sorts of conflict between provocative political marketing and economic realities. American principals can easily transcend this nonsense. Free markets, education, and meritocracy build the world’s most dynamic workforce. The same elements apply to low-skilled immigrants – they tend to work harder than most in jobs that “nobody wants to do.” Yet, we are about to embark on mass deportation that will be disruptive to labor markets and the economy.
Tragically, this deportation effort is based on toxic misrepresentations and exploitation of people’s fear of foreign cultures and change in general. The problem with populism is that it can be politically effective without a real policy plan. Political support gathered with fearmongering and imaginary accusations of criminality has little to offer when the populists attempt to administer effective governance.
The sad reality is that most of the economic sloganeering of 2016 and 2024 is incoherent and counterproductive. Many of the “campaign promises” are a slipshod mix of a strategy seemingly based on promising anything and everything to a given audience. The ideas are disjointed and disruptive, from no tax on tips for social security to tariffs.
The cognitive dissonance of the world’s richest man talking about cutting trillions in spending without addressing where that would come from while the president-elect pushes for a debt ceiling increase before inauguration day is striking. During his first term, DJT showed no interest or inclination in fiscal discipline and presided over spending without regard to federal debt. The tax cut of 2017 was a blunt giveaway to high income earners. It was written with a 2025 expiration date because the numbers were unsustainable.
The true nature of the president-elect is concerning and has been revealed over many years of experience in the private sector along with a chaotic term in 2016. Borrowing and undisclosed leverage in the family real estate business is impossible to assess as it is a private company. The bias and conflicts of interest are potentially vast. Once again, the narrative of business excellence is simply a story. Governing, particularly at the federal level, is far removed from operating a privately held branding and real estate portfolio.
The surreal participation of Elon Musk compounds the unique nature of this president’s second term. Elon has become the world’s richest man through incredible innovation, successful products, and relentless brand promotion. Most crucially for his wealth is the stock, TSLA, where an insatiable cult of personality has driven the PE ratio to $170 / 1. This means that people are currently paying $170 for one dollar of earnings. This is unlikely to be sustainable.
Traditional notions of conflict of interest have been cast aside as business people race to interject themselves into the presidents sphere of influence. There are daily headlines of meetings at the country club as executives seek to ingratiate themselves and exploit the tendency of the president to be subject to fawning and kowtowing. Big donors of campaign cash are receiving key posts while disregarding conflicts of interest.
American industry has a significant risk of being harmed by tariff policy. Beyond the impact of cost increases on business and American consumers, there is a dynamic of the government picking winners and losers. Before the ink is dry on any federal tariff, manufacturers, distributors, and many others will come rushing in for political favor, exemption, and license to avoid a sudden change in the cost of doing business. The WSJ noted on 12-26-24, “there were roughly 100 groups lobbying on tariff issues when Mr. Trump took office. By June 2018, there were nearly 450.”
It seems naive to ignore conflicted historical figures like the former Halliburton executive Dick Cheney. There were endless conspiracy theories that he was maneuvering in his roles after his time as chairman of the board and chief executive officer of the oil services behemoth. Another example would be former Secretary of State George Schultz and his history with the private construction juggernaut, Bechtel and later in the debacle known as Theranos. The accusations of conflict of interest have historically been fierce, even in the face of previous protocols of severing ties and creating barriers to such conflicts.
These conflicted figures from the recent past have now been rendered quaint examples of a bygone era. The proposed commerce secretary, Howard Lutnick maintains ownership in numerous businesses. The Treasury nominee Scott Bessent is a hedge fund manager who has spent his professional career in money management. Ironically, Bessent logged significant time within the confines of the right-wing boogeyman investment firm Soros Fund Management. Mr. Bessent’s main claim seems to be donating massive amounts of money during the 2024 campaign.
It has been said that the “test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time.” Yet it seems grossly ill-informed to cheer deportation and yet despise inflation, to celebrate tax cuts and champion the working man, for the Montana libertarian to vote for a New York populist.
Unfortunately, we now witness numerous “policy” ideas articulated as “the weave.” This is a unique process of rambling through a series of disconnected thoughts, boasts, and provocations. Add in numerous uneconomic “vows” such as tariffs, draconian tax cuts, and police state immigration ideas, and you can somehow ascend from lifestyle branding entrepreneur and reality TV provocateur to the American Presidency and actually lead.
The American economy, societal structure, and end markets have shown incredible historical resilience in the face of numerous past challenges. Investors are going to be tested as erratic proclamations of purchasing Greenland or taking control of the Panama Canal emerge out of thin air. The likely outcome is that the American economic system is more dynamic and capable than any ill-conceived political idea.
The real challenges of funding Medicare, Social Security, and the American military budget are complex issues that are unlikely to be addressed by social media political proclamations. Investors will need to summon the maximum level of courage as the tests of the next four years will likely threaten the elevated current equities prices.
Discipline and patience are crucial. Try to own quality things, ignore short-term fluctuations, and stay invested long-term. None of the drama in Washington DC should change our core principles. The rewards of remaining invested are likely to be vast. I am eagerly looking forward to working through 2025 and beyond with every one of you.
A new year is a watershed reminder of how eternally grateful I am for this incredible opportunity to work together. We are very excited that Hannah Shink is now supporting the process and learning every day. I look forward to remaining in my role for a long time and seeing this process through. I embrace every day with excitement to do my best for all my wonderful clients. Stay positive; we will work through all of what is to come with patience, courage, and a broad historical perspective.