One day in the late 1980s, I walked into my Poppy’s house and asked what we would work on today.
He said, “We’ve got problems, but they’re good problems. We need to fix the washed-out fence down past the pond.”
I asked what made them good problems, and he said, “They’re good problems because we got rain and because we are blessed to have a few cows to keep in.”
That is very similar to the market we find ourselves in right now.
There’s no perfect family, there’s no perfect church and there’s no perfect market. The stock market has had a great two-year run with back-to-back 20% annual gains and more than 50 record highs. But as we begin 2025, everyone wants to know if the markets will hold up. The market has problems, but they are good problems, making me think the path of least resistance for stocks is to keep climbing.
The market problems
1. One problem is that the economy is staying hotter much longer than economists and investors have allowed in their models.
2. Corporate AI investing will take a while to become profitable. Investors might have to wait longer than expected to see the incredible amount of money being spent on AI reflected in their investments’ stock growth.
3. People are over-optimistic about Trump. Trump will definitely shake things up, but many consumers and investors mistakenly think he will restore prices and jobs to their 2019 levels. The market might have baked in some Trump magic into its investment plan that might not be fully realized.
These are good problems. Over-optimism is much better than out-of-control inflation, the Federal Reserve raising rates or an economy busting high unemployment. We aren’t there. Today, we have a GDP of 3%, stocks at all-time highs and below-average layoffs.
There are potential dangers. If the yield curve starts to invert, the market will react negatively. Stocks would also sell off if the Fed had to raise rates, making the dollar soar. Stocks are really high, having been lifted because of tech and Trump enthusiasm, which could lead to some volatile days.
Overall, I like what I see. Corporate America is producing some strong profits, and the new administration should bring about some market-friendly policies, which could help lift stocks further. I believe the strong corporate profits, the possibility of lower taxes and productivity gains will offset the overly high stocks. It will be a volatile year in the market, but I would not be surprised if stocks increase with 7-8% returns in 2025. It will be a year for active investment management to roll with the expected changing market conditions.
Poppy’s pond was spring-fed, and the spillway flowed into a dry creek. With heavy rains, the usually dry creek would flood and sometimes wash out his west border fence.
I don’t enjoy fixing barbed wire fences, but I always enjoyed spending time with Poppy. He taught me a lot while we worked, like the difference between good and bad problems.
The market and economy aren’t perfect, but their problems are good problems to have. Like Poppy, it’s always good to have assets to contend with.
Have a blessed week.
Fervent Wealth Management is a financial management and services entity in Springfield, Mo. Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions are for general information only and not intended as specific advice or recommendations. All performance cited is historical and is no guarantee of future results. All indices are unmanaged and can’t be invested in directly.
The economic forecast outlined in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
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