Before delving into our new year projections, Julie and I would like to wish you and your family a wonderful holiday season and a prosperous new year.
In today’s discussion, we:
– Provide a brief 2024 reflection.
– Offer three 2025 financial projections.
– Expose a new financial trend.
Related: Windsor Wealth Management’s 2024 projections. They all came true!
2024 Financial Reflection
The market has soared 29% this year, building on the 26% gain in 2023 and recovering from the 18% downturn in 2022.
Much of this growth has been driven by AI and the tech giants: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, aka the Mag 7.
Interestingly, the market’s surge has defied expectations, surprising most Wall Street analysts.
Bonds have also made a comeback this year, with the Bloomberg Aggregate Bond Index (Agg) up 3.02% year-to-date.
Still, our bond portfolios have really shined, gaining a solid 4.7% year-to-date.
Why are our bond portfolios outperforming the average?
Because we construct your bond portfolio with high-quality bonds, focusing on short-term (1-3 years) and intermediate-term (3-10 years) maturities. Overall, shorter terms are more stable.
Longer-term bonds can be a bit of a rollercoaster ride. They can go way up, but they can also go way down. Therefore, we stick with shorter-term bonds for a smoother ride.
Windsor Wealth Management’s
2025 Financial Projections
Given the time of year, it’s always fun to make new year projections.
Remember, though, our primary focus is on planning. Specifically, building resilient financial plans and investment portfolios that can adapt to changing market conditions, since the only constant is change.
Let’s dive into our three projections…
#1—Continued Economic Growth
We’re expecting another robust year for 2025.
Currently, the U.S. economy benefits from a strong labor market, rising corporate profits and easing inflation.
The International Monetary Fund (IMF) projects a 2.2% GDP growth rate for 2025. What’s more, the global investment firm Capital Group’s estimates are even higher at 2.5%-3%, according to the firm’s economists.
A key factor impacting future growth will be the new administration’s policies, including potential tariff increases, tax cuts and deregulation.
#2—Limited Interest Rate Cuts
As of early December, the Fed has cut interest rates twice: 0.50% in September and 0.25% in early November.
We expect the Fed to cut rates again in early 2025, but more likely by a smaller margin. Much of the timing and extent of cuts will depend on economic conditions.
The Fed is worried that further rate cuts could reignite inflation. Also, increased tariffs can exacerbate this risk by increasing the cost of goods.
As an aside, 30-year mortgage rates have fluctuated recently. They peaked at 7.29% a year ago, dipped to 5.95% a few months ago, and currently sit at about 6.81%.
#3—Minor Inflation Movement, But Continued Price Pressure
Inflation has improved, but prices are still rising, just at a slower pace.
Inflation was 3.24% a year ago, it’s now around 2.6%. That’s a decrease of approximately 19.1% year-over-year as of late November.
It’s unlikely, however, we’ll see significant price decreases in 2025, especially for food and housing.
The housing market, while slowing, remains strong. Many sellers are largely able to get the full asking price, especially where there’s low inventory. This can contribute to higher inflation, as rising home prices can drive up costs for things like moving, furniture and appliances.
Related: See our post discussing limited housing inventory and the “why” behind it.
In general, a strong economy typically leads to increased demand for goods and services, which can drive up prices. Also, when companies are profitable, they can pass on increased costs to consumers, potentially causing inflationary pressures.
What’s more, if inflationary pressures and/or supply chain issues occur in 2025, then you’ll likely see more shrinkflation.
For example, last year a regular box of cereal shrank 22.0%, from 10 oz. to 7.8, and 48% of American shoppers have abandoned a brand due to shrinkflation, according to Capital One shopping research.
Seriously, could the packaging get any smaller or emptier?!
We’d love to hear your thoughts about this.
Have you recently stopped purchasing from a brand that you used to favor, perhaps due to a decline in value or quality?
New Financial Trend
We’re seeing more diversification within portfolios.
Specifically, companies beyond the Mag 7 are increasingly driving growth, and we’re anticipating this trend will continue in 2025.
This broader market participation is a healthy sign for the economy.
For a deep dive, read T. Rowe Price’s article, Unlocking opportunities: Market broadening and a new chapter for emerging markets.
Wishing you a wonderful holiday season.
Sincerely,
–David Bunker, Financial Advisor & Licensed Fiduciary
Before You Go
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.