Abstract
The long-term trend in the US stock market was higher. In the 40-plus years since Ronald Reagan became president in 1980, stocks have shown profitable results almost 80% of the time. The average annual profit is 13%. This year was another winner as stocks extended into 2024 the bull market that began in October 2022. The rally was triggered by falling inflation and fueled by lower interest rates, consistent economic growth and increasing rates of corporate profit growth. But despite historical trends, there is no guarantee that there will be bells in 2025. The start of the year could be tough, as the Fed grapples with stubborn inflation, the employment environment potentially weakens from a historically strong position, and geopolitical issues simmer. But earnings growth is expected to accelerate to a low double-digit rate year over year during the first half. And if inflation continues its downward trajectory, giving the central bank more room to cut rates, the outlook for the second half should improve. We believe that the stock market in 2025 will follow two sources. The first is the Fed, which has been the driver of this second stage of the bull market since it changed its rate outlook. The second will be earnings growth, which is already solid but could get a boost in 2025 from Donald Trump’s new policies. That’s at least a modest comfort
