Please join us today at 1pm ET for our 2025 Year Ahead Outlook.
Register HERE.
Please click below to view our Macro Minute (duration: 5:29).
Click here to view our 2025 Outlook deck in PDF format.
There are strong tailwinds supportive of stocks in 2025. But we see this as a tale of “two years”
- BASE CASE: Equity risk-on first half, S&P 500 7,000. Visibility weakens, YE 2025 at 6,600.
- THESIS: TWO “PUTS” MAKE IT RIGHT:
– Fed “put” as inflation eases and Fed focuses on supporting employment
– Trump “put” as White House implements policies to boost confidence & EPS
– Re-allocation of investor capital from cash/bonds to equities - TALE OF TWO HALFS: After back-to-back 20% gains:
– 5 precedents since 1871. Cumulative 4-yr +69% vs 2021-2024 tracking +27% (1-yr left)
– 4 of 5 precedents saw stocks fall 3rd Year. Only positive was 1996.
– 5 of 5 precedents saw stocks do worse in second half of year 3 (2025) - WHAT COULD GO WRONG: To us, the downside risks are:
– DOGE too effective and GDP falls on spending cuts
– Tariffs are actually implemented and GDP impacted - EPS: We see 2025/2026 EPS growth to $275/$300 (yoy 13%/9%) cyclical driven EPS.
– corporate capex fell past few years, but easing FCIs mean capex recovers.
– potential GDP recoveries in Europe/Asia and
– weaker USD suggests upside to EPS.
– Productivity improving. - P/E: P/E expanding in 2025 towards 22X P/E ‘26E (vs 21X P/E ’25E today). Since 1937, the highest P/E realized when yields 3.5% to 5.5%. When between 4% to 5%, P/E is >18X 65% of the instances.
- BEST IDEAS: Top sector pick Small-cap (IWM 0.57% ), Financials (XLF -0.01% ), Industrials (XLI -0.03% ), and Bitcoin-related.
- 2025 S&P 500 TARGET: Mid-year 7,000. Year-end 6,600 which is 22X 2026 EPS of $300.
2025: Key Themes and Market Expectations
- DOGE EFFECTIVE: The most significant “surprise” fundamental developments likely come from the newly created Dept of Govt Efficiency (DOGE). Surprises:
– identify areas of poor procurement/gov’t waste
– headwinds for Govt contractors (IT consulting, Defense, Healthcare)
– downside pressure on long-term rates (lower future deficits) - BITCOIN $250,000: There are two tailwinds for Bitcoin and digital assets in 2025.
– “halving” price cycle already favors upside for Bitcoin in 2025
– “friendlier govt regulations” as Trump administration embraces Bitcoin
– upside to $250,000 - ANIMAL SPIRITS RETURNS: Many factors restore animal spirits:
– The dual Fed “put” and Trump “put”
– de-regulation drives M&A
– benefits small-caps IWM 0.57% - STRONGER TAILWINDS FOR SMID GRANNY THEMES
SPACE – AI/Labor -> Musk involvement in new White House moves “space” forward
LONGEVITY – Millennials -> Millennials are the most “obese” generation ever. MAHA
DOGE – Easing financial conditions + AI -> Palantir/AI gain from DOGE - STOCK PICKING: Correlations between stocks falling to 20 year lows.
– Good for stock picking à SMID Granny Shots, Newton’s upticks
– reduced impact from macro drivers, except Fed - ROTATION OUT OF “RISK-FREE”: Capitulation of “cash is a strategy”
