Anticipate the Emergence of a Fresh Investment Phase in 2025
Anticipate the Emergence of a Fresh Investment Phase in 2025
Major financial entities are reuniting to establish a "new" financial landscape - one built on traditional investment strategies and know-how.
Interest rates in the bond market - The "bond police" are back in action to readjust intermediate- and long-term interest rates to their actual values. This means paying close attention to economic and financial factors, along with potential risks (uncertainty). Although the Federal Reserve may suggest lowering short-term rates in the money market, these changes will have less impact on the remainder of the bond market. Furthermore, inflation now holds a stronger grip, with businesses and consumers continuing to respond to rising prices.
Valuations in the stock market - The stock market games, which started in 2021, have become overstretched. The AI bubble is colliding with reality, while hundreds of struggling companies are moving towards oblivion. Add to that the shift towards fundamentally strong companies (with better reliability and lower uncertainty) that boast genuine, rather than imagined, attractive qualities.
Housing market pricing - Increasing mortgage rates and property prices are once again reducing demand. Government efforts to "fix" the perceived problem will yield little or no results. After all, they are powerless against market forces, and the markets are currently reflecting today's demand, supply, and economic/financial conditions.
U.S. government debts and liabilities - The current debt level is historically high. Recall that just a year ago, Moody's downgraded the outlook for U.S. Government debt to "negative." Their reasoning? The massive debt, the growing interest payments (now above $1 trillion), and the political polarization posing obstacles to curative measures.
President-elect Trump's policies - Two potential actions could significantly and unpredictably impact the U.S. economy:
- Imposing large tariffs on major trading partners, such as Canada and Mexico
- Deporting millions of illegal immigrants and their families
So, what should an investor do?
The primary step is to put aside overly optimistic views and adopt Missouri's "show me" mindset. This translates to avoiding common stock investment mistakes often made during times of optimism:
- Focusing on a stock's growth rather than its fundamental value
- Relying on a company's non-GAAP fundamental measures
- Anticipating a stock split to trigger a price increase
- Disregarding the significance of dividend yields
- Willingness to increase risk through margin debt and options
- Willingness to invest in limited liquidity investments
As for bonds, be cautious about pushing for a slightly higher yield through these actions:
- Purchasing a longer-term bond
- Buying a lower-quality bond
- Buying a callable bond
- Buying a mortgage bond
- Buying a bond backed by consumer loans
The conclusion - Revise your news sources, and be prepared to pay for them
Quality news organizations have adapted well to the internet distribution process. Crucially, they can now charge a fee, and subscribers are willing to pay. This enables them to hire and retain skilled journalists.
Moreover, they are taking full advantage of website capabilities, providing easy access, relevant link resources, speedy search tools, in-depth research data, and constant updates.
For example, I subscribe to:
- The Wall Street Journal
- The New York Times
- Fortune
- Our Website
- Reuters
- Financial Times
This combination provides me with timely, relevant, and comprehensive reporting. For data and analytical tools, I use:
- Financial Visualizations (finviz.com)
- StockCharts (stockcharts.com)
- Federal Reserve Bank of St. Louis' FRED (Federal Reserve Economic Data - fred.stlouisfed.org)
- Trading Economics (tradingeconomics.com)
This combination of quality reporting and comprehensive data analysis can help an investor navigate through the noisy, contrived optimism and reach the calm, truthful perspective required for sound investing as the new investment cycle begins.
In light of the 2025 investment outlook, it would be wise for investors to consider diversifying their portfolios beyond the stock market. The bond market, for instance, could provide stable returns, given the ongoing interest rate adjustments.
As major financial entities work towards redefining the financial landscape, it's essential for investors to stay informed about the stock market's 2025 investment outlook, including potential movements in the bond market. This knowledge can help them make informed decisions to secure their investments ahead of these changes.