Quarterly Market Update: Navigating the Road Ahead in 2025
January 10, 2025 | Market Updates
GreenUp Wealth Management reviews the 2025 market outlook, including earnings growth, consumer strength, interest rates, market corrections, and portfolio updates.
Happy New Year!
The start of a new year brings an opportunity to reflect on the past and set goals for the new year. In 2025, one of my personal goals is to spend time hiking outdoors. For me, hiking offers both mental clarity and physical challenge. These long winding trails can serve as a metaphor for the unpredictable nature of today’s markets. The paths, like the markets, are rarely straightforward but provide valuable perspective and resilience when approached with preparation and curiosity.
As we step into 2025, the economic outlook is promising. Forecasted earnings growth of about 15%, a strong consumer and employment market, and declining borrowing costs suggest a path that appears smooth and straightforward. But when has market performance ever followed a perfectly linear trajectory? The divergence between expectations and reality is not a flaw but rather one of the market’s intriguing features. It’s a reminder that the road to financial growth is rarely straight and paved. It’s often similar to a bumpy yet impressive path forward, like an incredible hiking trail.
Market expansions are dynamic, multi-year phases filled with twists and turns as various asset classes compete for attention and growth. After stepping back and reflecting, I’m reminded that none of the potential volatility feels unusual. Instead, it signals that we’re firmly on a long and winding road of financial expansion.
High Expectations Meet High Returns
Market expansions often bring years of above-average returns, and 2024 was no exception. Catalyzed by normalized supply chains, moderating interest rates and inflation, and the emergence of transformative technologies, U.S. Large Cap stocks delivered a remarkable 23% return, with other equity classes also performing well.
Is this the new normal? Will 2025 follow suit? Perhaps. At GreenUp Wealth, we, like many in the market, anticipate continued corporate earnings growth driven by a strong labor market, declining interest rates, and resilient consumer spending. Investors, too, share this optimism, with equity allocations climbing to a record 20.9%, significantly above the 25-year average of 15.6%. However, the question is whether corporations and consumers can meet these elevated expectations.
The Consumer and Economy: Pillars of Stability
The job market and consumer resilience in 2024 have laid a strong foundation for economic stability in 2025. Wage growth averaged 4%, which consistently outpaced the current rate of inflation of 2-2.5% as measured by Personal Consumption Expenditures (PCE). Couple these factors with a 4.2% unemployment rate; this dynamic has preserved and even enhanced consumer purchasing power. As discussed in prior commentaries, the consumer is a cornerstone of economic growth and remains robust.
This stability is reflected in the broader economy. Recent data shows the economy has grown at a rate of 2.73% in 2024, with projections for Q4 approaching 3.1%. Against this backdrop, corporations are thriving. The earnings recession of 2023 has given way to a brighter outlook, with analysts forecasting S&P 500 earnings growth of 15% in 2025.
What Could Go Wrong?
Rather than looking at things through a negative lens, it is often insightful to look at how markets react during expansions. Following market shocks like the COVID-19 downturn or the interest rate-induced bear market of 2022, expectations are often low, and investing feels straightforward. But after a 26-month rally that saw the S&P 500 rise by 69.75%, investing can feel precarious.
This sentiment reflects a natural stage in the market cycle. Historically, expansions last an average of 5 years and 9 months, with the S&P 500 gaining 192% over that time. However, corrections – declines of 10% or more – are a normal part of the journey, occurring about 1.2 times per year. The last such correction occurred in October 2023.
How GreenUp Wealth Views Corrections
Even when earnings growth eventually misses forecasts, corrections serve as the market’s mechanism for recalibrating prices. At GreenUp Wealth, we view corrections as opportunities rather than setbacks, particularly in a favorable economic environment with strong corporate earnings and an accommodative Federal Reserve ready to step in if necessary.
Corrections should not be feared but embraced strategically. When corporate earnings remain positive, especially in double-digit territory, market dips often present buying opportunities and that is exactly what you should expect from us. With a resilient economy, robust consumer spending, and potential Federal Reserve action to support growth, we see volatility as a feature of the market cycle. This can often serve as an opportunity rather than a flaw as some may initially think.
The Path Ahead
Like any hike, the journey through 2025 will include unexpected twists and turns. But this is nothing new. Expansion remains our guiding principle recognizing that volatility, competing interests, and cyclical changes are natural to the markets and life itself. With a thoughtful financial plan, investors can navigate the path ahead with confidence, prepared for whatever challenges and opportunities the year may bring.
GreenUp Portfolio Updates
Dynamic, Index and ESG Portfolios
We are decreasing our equity exposure to iShares S&P 500 Value ETF (IVE), iShares Core S&P 500 ETF (IVV), Invesco QQQ Trust (QQQ), Avantis Emerging Markets Equity ETF (AVEM), and iShares S&P Mid-Cap 400 ETF (IJH) and increasing our exposure to iShares Core S&P Small-Cap ETF (IJR), Avantis US Small Cap Value (AVUV) and iShares S&P Small-Cap 600 Growth ETF (IJT).
We are decreasing our fixed income exposure to iShares 20+ Year Treasury ETF (TLT) and increasing our exposure to iShares 0-5 Year Investment Grade (SLQD)
Large Cap Stock Model
We added Ball Corp (BALL), Lam Research Corp (LRCX), Mastercard Inc (MA), Monolithic Power Systems Inc (MPWR), Novartis AG (NVS), Omnicom Group Inc (OMC), Schlumberger, Ltd (SLB), HCA Healthcare Inc (HCA), Meta Platforms Inc (META), Eaton Corp PLC (ETN), Constellation Energy Corp (CEG), Howmet Aerospace (HWM), United Health Group (UNH), and CVS Health Corp (CVS) to the portfolio
We sold Boston Scientific Corp (BSX), Comcast Corp (CMCSA), ConocoPhilips (COP), The Walt Disney Company (DIS), Exelon Corp (EXC), Parker Hannifin (PH), Wells Fargo (WFC), Exxon (XOM), Berkshire Hathaway Inc (BRK.B), and Zoetis Inc (ZTS) from the portfolio.
Equity Income Model
We are removing Sanofi SA (SNY) and added Western Midstream Partners LP (WES) and Zurich Insurance Group AG (ZURVY)
Tactical Equity Model
Portfolio is moving to 100% Cash
Tactical Income Model
No Changes
Past performance is not indicative of future results. The material above has been provided for informational purposes only and is not intended as legal or investment advice or a recommendation of any particular security or strategy. The investment strategy and themes discussed herein may be unsuitable for investors depending on their specific investment objectives and financial situation. Information obtained from third-party sources is believed to be reliable though its accuracy is not guaranteed, and GreenUp makes no representation or warranty as to the accuracy or completeness of the information, which should not be used as the basis of any investment decision. Information contained on third party websites that GreenUp may link to are not reviewed in their entirety for accuracy and GreenUp assumes no liability for the information contained on these websites. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Firm. For more information about GreenUp including our Form ADV brochures, please visit https://adviserinfo.sec.gov
Author
Daniel Greulich, CFA CFP®
Chief Investment Officer | Wealth Advisor | Ann Arbor, MI -- Daniel leads our Investment Committee and partners with Aaron Kirsch, Chief Client Advocacy Officer to design and implement client portfolios with your advisor. Daniel brings 14 years of practical experience as a trader, financial advisor, and money manager at both large and mid-sized financial services companies to GreenUp Wealth Management. In addition, he holds a CFP® designation and is also a CFA charterholder. This combination of experience and knowledge helps Dan confidently guide his clients through the development, execution and monitoring of their customized financial plans.
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