Hello 2025 – Investing in the zero visibility age on the Sunday Reads.

While there are only two trading days left in 2024, it is clear that it is another year that fooled everyone. The year 2023 fooled economists and market prognosticators with U.S. stocks up over 26% in U.S. Dollars (and up more in Canadian Dollars). 2024 is shaping up as a carbon copy in performance and in big swing and miss predictions. Canadian stocks are looking to finish the year up over 20%. Good luck making predictions as we enter 2025- a zero visibility age. Trump economic ‘policy’ will likely shape the year. There’s just no tellin’ what will happen.

But before we move on to 2025, some Santa stock market rally housekeeping.

Here’s the history of Santa rallies from 2000 on Seeking Alpha.

As can be seen from the chart, a Santa rally has successfully occurred 18 times out of 24 in the 2000s. One year saw a flat performance, while five years saw a decline, including as recently as 2023.

But so far, Santa read the Trump economic policy and went back into Santa’s house to have a nice hot chocolate. Here’s the equal-weight S&P 500 (RSP), more representative of broader market sentiment.

Or maybe Santa went inside for something a little stronger, perhaps a few hot totties.

And more holiday fun …

Did a rally start last Tuesday? Who knows. And it doesnt’ really matter, it’s obvious that 2024 was a wonderful year for investors who stayed the course, stayed invested; for investors who stuck to their investment plan. The final returns for stock markets will simply be statistics for the record books.

Here’s an update on stock market returns in U.S. Dollars …

Global Equity Returns in 2024…https://t.co/rQuXrxVXM0 pic.twitter.com/8sxjtYXKM0

— Charlie Bilello (@charliebilello) January 2, 2025

Trumpenomics and 2025

In the Globe & Mail John Rapley did a nice summary of the battle between the Fed, bond markets and Donald Trump’s economic ‘policy’. I put policy in quotes because the incoming U.S. President’s platform is currently more threats than anything else.

Here’s a key paragraph …

But it now looks like the Fed may be girding for a battle with the administration, with some governors hinting that they’re beginning to factor the inflationary impact of his policies into their own projections. If they decide to counterbalance a loose fiscal policy with a tight monetary one, the economic prognosis may well change.

Translation: proposed Trump tax cuts and looser regulations will battle with inflationary tariffs and deportations. Add in crippling U.S. debts and deficits. The bond market has been moving rates higher. The stock market (other than the magnificent tech) is moving lower over the last month. Both stocks and bonds are repricing Trump. But Trump is like a box of chocolates – you don’t know you will get.

The zero visibility age

Ian McGugan frames why forecasts are likely to be wrong (again) in this zero visibility age …

The simple explanation for these forecasting failures is that the world has entered some very odd economic territory. Lingering effects of pandemic weirdness, manic exuberance around artificial intelligence and a surprising resurgence of strongman politics are helping to create a thick fog of uncertainty.

It’s a weird mix of optimism, fear and uncomfortable uncertainty that can make you make all kinds of strange (and uncomfortable screwed-up) expressions.

On the plus side, momentum for the markets is strong. Earnings for the S&P 500 are poised to grow an impressive 15 per cent in 2025, Wall Street analysts declare. It’s still where they keep the growth. More on that …

🇺🇸 Earnings

Morgan Stanley projects a positive outlook for S&P 500 EPS growth, estimating $271 for 2025 and $303 for 2026
👉 https://t.co/3SVJ18ScHV

h/t @MorganStanley #earnings #EPS #sp500 $spx #spx pic.twitter.com/Qgf3uXIDIy

— ISABELNET (@ISABELNET_SA) December 28, 2024

But, will the last two years of U.S. stock euphoria hold us back?

Back-to-back stock market bonanzas happen just about never. In fact, only six times in the past 224 years have S&P 500 investors enjoyed consecutive years with 25-per-cent-plus gains. The average gain the year after these hot streaks? A mere 1 per cent.

I will let you know in a year how this turned out.

High expectations north of the border

I am seeing a lot of enthusiasm for Canadian stocks as we contine to play catch up. There are expectations of solid returns for Canadian stocks in 2025. Our stocks are cheap in comparison to the U.S. market. With considerable earnings now generated in the U.S., Canadian stocks can benefit from the weak Loonie. The struggling loonie also makes our exports more attractive. Tourism may see a bump.

Here’s a very good note from National Bank that shows the earnings prospects for Canadian stocks.

You’ll also find a surprising stat – the Canadian stock market is the best performing market in the fourth quarter …

Forward earnings growth estimates for Canada are quite robust and the Canadian market trades at a near historical discount to U.S. stocks.

Trump finds us so attractive, he’d like to make Canada the 51st State. So who knows 😉

Unpredictability is all the norm really. It’s just a bit more colourful these days. Here’s the poster child for what 2025 might look like …

Kevin on route to Mar a Lago to determine Canada’s fate. pic.twitter.com/nUOut5QTlv

— Marlene Robertson (@marlene4719) December 28, 2024

It’s not something the new balanced portfolio can’t handle. Ian agrees …

As always, an internationally diversified portfolio of low-cost index funds, with 60 per cent stocks and 40 per cent bonds, remains a smart choice. No, a 60-40 portfolio won’t shoot the lights out. But at least it means you don’t have to forecast. And there is a lot to be said for that.

My suggested version of the new balanced portfolio includes gold …

I also like bitcoin, that new/modern gold.

Other dedicated inflation fighters such as oil and gas stocks are suggested. The Purpose Real Asset ETF (PRA.TO) is a nice one-stop shop for fighting inflation.

I like the idea of being ready for most anything.

More Sunday Reads

At Banker on Wheels – do you really need international diversification? You’ll find the podcast link in that post. Another podcast (Bogleheads) of interest features Aswath Damodaran, a Professor of Finance at the Stern School of Business at New York University, where he teaches corporate finance and equity valuation. Damodaran looks at the state of the markets. That is worth a listen.

The Retirement Manifesto is a favourite for Cut The Crap Investing readers. In this post Fritz looks at his top 10 most-read posts of the year.

Don’t forget that Retirement Club starts in mid January. Use that contact form if you’d like to receive the outline. We’ll start with retirement funding, the 4% rule and the retirement portfolio.

Fore! FindependenceHub shows us what golf can teach us about wealth building.

Here’s the week in review from Dividend Hawk. Thanks to Hawk for sharing my Seeking Alpha article – Seeking Alpha. Finding Underpeformance series. Every week there are dozens of high income candidates present on their article leader board.

At MoneySense, Kyle looks back at 2024 and some of his predictions.

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