By John Lau
January 2, 2025 – The S&P 500 extended 2024 gains as the election results raised expectations for tax cuts and other pro-growth policies in 2025, while the economy remained on solid footing and the Fed continued to cut interest rates. The S&P 500 logged a modestly positive return for the fourth quarter and an annual return greater than 20% for the year.
As Donald Trump convincingly won re-election in November while Republicans took control of both houses of Congress, essentially completing a “Red Sweep,” the Trump and Republican victories proved to be bullish catalysts as investors embraced the idea of future tax cuts, deregulation, and a pro-business administration. That helped the S&P 500 rise above 6,000 for the first time. Shortly following the election, however, investors were reminded of the volatile nature of a Trump presidency, as the president-elect nominated several unorthodox supporters to prominent cabinet positions. These surprises caused investors to contemplate policy risks to the pro-growth agenda, and stocks dipped mid-month. However, the withdrawal of Attorney General nominee Matt Gaetz and the nomination of Scott Bessent as Treasury Secretary helped to calm investor nerves about the president-elect’s cabinet, and stocks resumed their rally in late November.
In December, renewed focus on the potential economic benefits of an incoming Trump administration combined with the “Goldilocks” economic environment of solid growth and continued Fed rate cuts sent the S&P 500 to another all-time high near 6,100. However, that rally stalled mid-month as President-elect Trump doubled down on his support for other unorthodox cabinet nominations and issued tariff threats at major trade partners, including Canada, Mexico, and China. Market volatility increased as the Federal Reserve cut interest rates at the December meeting and reduced the number of expected cuts in 2025 to just two (from four). That sparked a sharp selloff in stocks that continued into year-end, causing the S&P 500 to finish slightly positive for the month, but well off the highs.
In sum, 2024 was a very strong year for the broad markets as the Fed seemingly achieved a soft economic landing and aggressively cut interest rates, while foreign and domestic political risks and drama failed to derail the rally.
Q1 and 2025 Market Outlook
Markets begin 2025 with great expectations as anticipation of tax cuts and pro-business deregulation, a continued economic soft landing and ongoing Fed rate cuts have helped propel stocks higher throughout 2024. Those positive factors remain broadly in force, yet unlike 2024, the market does not have low expectations or a “wall of worry” to climb. Instead, things are looking pretty “good” right now for stocks, and for the rally to keep going, things are going to have to stay good and get even better. Given that, I wanted to share several of the important events looming in the coming month that I believe may offer some insights into whether things are going to stay good or if we’re in for mild disappointment that could cause some pullback.
1) Speaker of the House election. Friday, January 3. Why this matters: How united are Republicans, and how quickly can markets expect pro-growth measures. This is the first test of Republican unity, and the margins are very slim, as Republicans can only afford to lose one or two member votes and still elect a Speaker. If Johnson is elected in the first (or second) ballot and there is no Speaker drama, this would imply more Republican unity than investors may think at this point. But if it takes several rounds of voting to confirm him (lasting over several days), that will be a bad sign for Republican unity, and hopes for quick action on pro-growth policies will likely take a hit.
2) Jobs Report. Friday, January 10. Why this matters: Markets are complacent to a growth scare, and if we get one with a very weak jobs report on January 10, stocks will drop like they did in August. On the other hand, with the Fed showing less desire to cut rates, if the jobs report is really strong, it will probably reduce rate cut expectations and boost yields, which is also negative for markets. It will be positive for markets if we get a Goldilocks job adds number (so in line with expectations or slightly soft) and the unemployment rate stays in the low-4% range.
3) Earnings Season. Begins Monday, January 13. Why this matters: The only way valuations for this market aren’t prohibitive is if we get substantial earnings growth. Consensus for 2025 EPS growth is close to 15%[1], more than double the historical average. If earnings season offers warning signs on earnings growth, especially from the Mag 7 and AI names, it will likely exacerbate the valuation issue with this market. The market would want to see strong results, positive corporate commentary, and earnings growth from the Mag 7 and AI names. If Mag 7 earnings guidance disappoints markets, it will increase fears that earnings growth estimates are too aggressive, and market valuations are unsustainable.
4) Consumer Price Index (CPI). Wednesday, January 15. Why this matters: The Fed went to fewer rate cuts in 2025 because of the bounce in inflation metrics. And the Fed currently thinks that bounce is “transitory,” but the data needs to confirm that soon in 2025. So, if the CPI on January 15 confirms expectations that inflation will fall back towards the Fed’s 2% target, it will likely increase rate cut expectations. But if the CPI is hotter than expected and implies inflation is bouncing back, it will further reduce rate cut expectations and send yields higher (and stocks lower most likely).
5) Fed Decision. Wednesday, January 29. Why it matters: The Fed continuing to cut rates (even if it’s slowly) is a critical piece of this bull market, and if the Fed hints it may pause cutting rates at this meeting, that will be a substantial negative. Although no one expects the Fed to cut rates at this meeting, if the Fed signals it is still committed to cutting rates in 2025, it would be market-positive. It will be negative if the Fed (and Powell specifically) implies the Fed may have “paused” its rate-cutting cycle.
Bottom line, the fundamentals for this market are good as we start 2025, but there are also great expectations, and meeting those expectations starts right away, and these are the key events that will likely determine if those positive expectations are met (and stocks start 2025 with gains) or if we see a continuation of the declines of the past two weeks.
At Robertson Stephens San Ramon and Burlingame, our team understands the opportunities and risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. As I often say, successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals. Therefore, it is critical to stay invested, remain patient, and stick to the plan.
We thank you for your ongoing confidence and trust and please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.
Please do not hesitate to contact us with any questions or comments or to schedule a portfolio review.
Our clients rely on us for timely information, and our job is to deliver.
[1] FactSet
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2225
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
Solid Economic Growth and Rate Cuts Power Stocks in 2024
By John Lau
January 2, 2025 – The S&P 500 extended 2024 gains as the election results raised expectations for tax cuts and other pro-growth policies in 2025, while the economy remained on solid footing and the Fed continued to cut interest rates. The S&P 500 logged a modestly positive return for the fourth quarter and an annual return greater than 20% for the year.
As Donald Trump convincingly won re-election in November while Republicans took control of both houses of Congress, essentially completing a “Red Sweep,” the Trump and Republican victories proved to be bullish catalysts as investors embraced the idea of future tax cuts, deregulation, and a pro-business administration. That helped the S&P 500 rise above 6,000 for the first time. Shortly following the election, however, investors were reminded of the volatile nature of a Trump presidency, as the president-elect nominated several unorthodox supporters to prominent cabinet positions. These surprises caused investors to contemplate policy risks to the pro-growth agenda, and stocks dipped mid-month. However, the withdrawal of Attorney General nominee Matt Gaetz and the nomination of Scott Bessent as Treasury Secretary helped to calm investor nerves about the president-elect’s cabinet, and stocks resumed their rally in late November.
In December, renewed focus on the potential economic benefits of an incoming Trump administration combined with the “Goldilocks” economic environment of solid growth and continued Fed rate cuts sent the S&P 500 to another all-time high near 6,100. However, that rally stalled mid-month as President-elect Trump doubled down on his support for other unorthodox cabinet nominations and issued tariff threats at major trade partners, including Canada, Mexico, and China. Market volatility increased as the Federal Reserve cut interest rates at the December meeting and reduced the number of expected cuts in 2025 to just two (from four). That sparked a sharp selloff in stocks that continued into year-end, causing the S&P 500 to finish slightly positive for the month, but well off the highs.
In sum, 2024 was a very strong year for the broad markets as the Fed seemingly achieved a soft economic landing and aggressively cut interest rates, while foreign and domestic political risks and drama failed to derail the rally.
Q1 and 2025 Market Outlook
Markets begin 2025 with great expectations as anticipation of tax cuts and pro-business deregulation, a continued economic soft landing and ongoing Fed rate cuts have helped propel stocks higher throughout 2024. Those positive factors remain broadly in force, yet unlike 2024, the market does not have low expectations or a “wall of worry” to climb. Instead, things are looking pretty “good” right now for stocks, and for the rally to keep going, things are going to have to stay good and get even better. Given that, I wanted to share several of the important events looming in the coming month that I believe may offer some insights into whether things are going to stay good or if we’re in for mild disappointment that could cause some pullback.
1) Speaker of the House election. Friday, January 3. Why this matters: How united are Republicans, and how quickly can markets expect pro-growth measures. This is the first test of Republican unity, and the margins are very slim, as Republicans can only afford to lose one or two member votes and still elect a Speaker. If Johnson is elected in the first (or second) ballot and there is no Speaker drama, this would imply more Republican unity than investors may think at this point. But if it takes several rounds of voting to confirm him (lasting over several days), that will be a bad sign for Republican unity, and hopes for quick action on pro-growth policies will likely take a hit.
2) Jobs Report. Friday, January 10. Why this matters: Markets are complacent to a growth scare, and if we get one with a very weak jobs report on January 10, stocks will drop like they did in August. On the other hand, with the Fed showing less desire to cut rates, if the jobs report is really strong, it will probably reduce rate cut expectations and boost yields, which is also negative for markets. It will be positive for markets if we get a Goldilocks job adds number (so in line with expectations or slightly soft) and the unemployment rate stays in the low-4% range.
3) Earnings Season. Begins Monday, January 13. Why this matters: The only way valuations for this market aren’t prohibitive is if we get substantial earnings growth. Consensus for 2025 EPS growth is close to 15%[1], more than double the historical average. If earnings season offers warning signs on earnings growth, especially from the Mag 7 and AI names, it will likely exacerbate the valuation issue with this market. The market would want to see strong results, positive corporate commentary, and earnings growth from the Mag 7 and AI names. If Mag 7 earnings guidance disappoints markets, it will increase fears that earnings growth estimates are too aggressive, and market valuations are unsustainable.
4) Consumer Price Index (CPI). Wednesday, January 15. Why this matters: The Fed went to fewer rate cuts in 2025 because of the bounce in inflation metrics. And the Fed currently thinks that bounce is “transitory,” but the data needs to confirm that soon in 2025. So, if the CPI on January 15 confirms expectations that inflation will fall back towards the Fed’s 2% target, it will likely increase rate cut expectations. But if the CPI is hotter than expected and implies inflation is bouncing back, it will further reduce rate cut expectations and send yields higher (and stocks lower most likely).
5) Fed Decision. Wednesday, January 29. Why it matters: The Fed continuing to cut rates (even if it’s slowly) is a critical piece of this bull market, and if the Fed hints it may pause cutting rates at this meeting, that will be a substantial negative. Although no one expects the Fed to cut rates at this meeting, if the Fed signals it is still committed to cutting rates in 2025, it would be market-positive. It will be negative if the Fed (and Powell specifically) implies the Fed may have “paused” its rate-cutting cycle.
Bottom line, the fundamentals for this market are good as we start 2025, but there are also great expectations, and meeting those expectations starts right away, and these are the key events that will likely determine if those positive expectations are met (and stocks start 2025 with gains) or if we see a continuation of the declines of the past two weeks.
At Robertson Stephens San Ramon and Burlingame, our team understands the opportunities and risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. As I often say, successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals. Therefore, it is critical to stay invested, remain patient, and stick to the plan.
We thank you for your ongoing confidence and trust and please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.
Please do not hesitate to contact us with any questions or comments or to schedule a portfolio review.
Our clients rely on us for timely information, and our job is to deliver.
[1] FactSet
Disclosures
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2225
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
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