January 2, 2025
Good morning,
Happy New Year everyone!
On Monday, we wrote about changes that might be in store for markets in 2025. Sentiment changing to extreme bullishness by investors (recall that sentiment is a contra-indicator – bullish sentiment is bearish for equity index prices and vice-versa), yields rising throughout the yield curve while the Fed considers more rate cuts (higher yields are not historically great for equity prices), valuations rising from their already record high levels (no explanation needed) and model portfolios moving to less than overweight equities. None of these changes are bullish. This morning, we’ll look at what history has to say about 2025.
Cycles Composite Charts are a compilation of 1 year, 4 year (election), and 10 year, cycles for the S&P 500 Index. Long term readers of these Morning Notes have been seeing Cycles Composite Charts for years. As a reminder, these charts do not inform any portfolio decisions during the year but are often referenced to have some idea of how history may be influencing markets at any point in time. As you’ll see below, history is a positive offset to the worries listed above.
Note that the direction of the trend is more important when reading the cycle charts than the actual levels. Last year, the market was ahead of the cycle composite curve until December’s correction. For 2025, history suggests that the markets will climb its wall of worry (paragraph 1) to the end.
So, it is not all doom and gloom around here as Monday’s note might have suggested. The bullish message of the market did suffer some damage in December’s correction but remains overweight equities. I would characterize the concerns above (paragraph 1) as reasons to be on high alert. That is likely to be the main market call for Q1-2025 – High Alert, indeed.
Be well,
Mike
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