Welcome 2025 — A Market Review and Look Ahead

 By Dan Moskowitz, CFP® President and Chief Investment Officer

2024 was another wonderful year for the stock market. In fact, the last two years were the best two consecutive years in a quarter century. An economy fueled by record corporate earnings, strong job creation and robust consumer spending led to better-than-expected returns for stocks once again.

Why not make it three consecutive years of positive returns? Although it is likely we will have another positive year in stocks, we are always looking for storms on the horizon. It is not always easy to see clouds building. Keep in mind, the last time we had two consecutive +20% performance years in the stock market, the internet bubble burst in late 1999 and it took more than fifteen years for the NASDAQ to regain those lofty levels.

Chatham Wealth’s Chief Investment Strategist John Lui’s thesis, as outlined in his commentary last month titled, Lui’s Lowdown on the Stock Market: Bad Breadth and Selfies https://www.chathamwealth.com/blog/mvtjmswh88gidg1lyenmi4c0m76ma2-8trrd, is that the stock market rally will broaden out. A handful of stocks in the AI sector are trading at unsustainable valuations given that their earnings will slow. His solution is to diversify into other high-quality companies whose valuation is more reasonable.

What could go wrong?

Higher interest rates – see chart below. Even though the Federal Reserve started cutting short rates in September, buyers of longer-term bonds have protested, and rates moved more than 100 basis points higher.

Bond market participants are clearly telling the Fed they were wrong to lower rates. While we are now approximately at the 250-year average for rates (4.60%), I believe rates will continue to move slightly higher and the ten-year treasury could soon test the 5% level. Our economy does not warrant more stimulus. The other factor helping raise rates is our fiscally irresponsible politicians. Our elected leaders seem allergic to restraining spending. I will be rooting for the newly formed DOGE committee to find some significant bloated items to cut from our national budget.

Inflation – unlikely to be a problem, but we are keeping an eye on the following potential hot spots :

1. Fed continues to cut rates while economy remains robust causing it to overheat 2. Tariffs become more inflationary than expected. 3. Mass deportation leads to significantly higher wages for the non-college educated workforce. 4. Lower taxes result in significantly more discretionary dollars to be spent.

Geopolitical unrest – this is always a likely event. With the current war in Ukraine/Russia and another in the Middle East continuing, can we have another major flare up somewhere on the globe? Obviously, the answer is: yes, we can. The more important question is, when does the market begin to care?

Stay positive - While I mentioned above, some of the potential obstacles, I do have faith in the entrepreneurial spirt of American business. According to Venture Forward from the “first quarter of 2020 to the first quarter of 2024, the number of microbusinesses per 100 people grew across America by double digits” across the whole country. This data shows we are set up well for the next decade. This along with the expected cutting of red tape through deregulation measures of the next administration should only continue to fuel that spirit.

Another positive sign is the chart above showing interest rates is now giving the “all clear” signal in terms of a recession in the near future. When the yield curve is steep (longer rates higher than short rates) the market is not anticipating a real slowdown in economic activity. In fact, I think the yield curve is telling us that we should expect an uptick in economic growth.

CWM Administration Issues

Thanks again to those clients who have referred business to us in the past year. We appreciate it.

Be careful and smart when on the internet. Here are a few tips - Always be suspicious (do not click on any link you are not familiar with), free WiFi is a risk, use a VPN when available, lock your credit info down, be extremely careful when posting or interacting on social media sites. Be on the lookout for an invite to our cyber crime webinar/video. We will be scheduling this soon.

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Your Schwab portal is the client centric hub that allows you to make changes to your account easily and allows us to send you paperwork that will be processed in the most secure and timely way possible. If you want to change an address, update your cell phone, or add IRA beneficiaries, Schwab Alliance will be the quickest way to do so. Time setting up your username and password, will be time well spent.

Each year the SEC requires us to offer you a copy of its Securities and Exchange Commission Form ADV, Part II. This form offers standard information on our partnership. If you would like a copy, please let us know.

2024 Tax Documents- be on the look out for 1099’s in early February. We still recommend waiting until late March or early April before filing your 2024 tax returns. Good news! You will not be getting two 1099’s like last year.

Disclosure

• Chatham Wealth Management is registered as an investment adviser with the SEC. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability.

• Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be profitable for a client's portfolio.