The #1 Market Shift Coming in 2025
TRANSCRIPT
[00:00:03] This is Antwone Harris with Platinum Bridge Wealth Strategies and 2025 is already shaping up to be a very dynamic year. We had decent economic growth last year. I'm going to talk to you a little bit about what we're seeing for 2025 and how it may impact your investment.
[00:00:20] Some of the key themes this year are going to be, of course, artificial intelligence, inflation, interest rates, and potential policy changes that could impact the economy and the global economy at large.
[00:00:32] The U. S. grew at a decent pace last year at about 2. 4 percent. We're expecting continued growth in 2025. However, there's a lot of uncertainty around the new policies that may come on board with the new administration, and some of that is perceived to be potentially inflationary, and that's caused our interest rates to creep up.
[00:00:50] Now, that's going to have an impact on your bonds in the short term, so as interest rates go up, the value of bonds falls. It also could impact growth stocks like artificial intelligence stocks. A lot of these companies that have been benefiting like NVIDIA, Microsoft, Google, Meta are going to face headwinds in the midst of a rising rate environment. Because we could potentially see higher interest rates in the short term that could have some short term volatility for the bond part of your portfolio. So we want to make sure that we have adequate exposure to alternatives. I've spoken to my clients a lot about this as far as diversifying from merely using stocks and bonds in a portfolio to using a category called alternatives, which are not correlated the stocks, nor are they correlated to the bond market. It's a way to promote additional diversification. If we see some short term volatility in those bonds, those alternatives have the opportunity to continue to offer some support and help lower volatility in portfolios.
[00:01:47] Higher rates are also going to adversely impact smaller companies and higher rates impact your international stock based investments, as well. Higher rates are going to cost some short term volatility in your bonds and most of your stock portfolio. So how do we deal with this? Well, longer term, higher rates are actually good for bonds. Obviously, if you're getting higher interest payments on your bonds over time, that's going to bode well for for that safe part of your portfolio for the ballast aspect of the portfolio.
[00:02:17] For stocks, higher interest rates can definitely call some short term volatility. But over time, as long as interest rates don't go totally parabolic on the upside, the market's going to adjust to these higher rates and some of these strong companies with excellent earnings are going to continue to do well.
[00:02:34] So I think that actually bodes well for the stock market in 2025. Now, we're a little more than two years into a bull market. The average bull market going back through the 1920s last about a little more than four years. So we're probably about halfway through an average bull market. I still think there's some upside potential, probably not as robust as what we saw last year, the year before but as long as you're positioned properly, there's still some opportunities in the market. Now, it's important to monitor the breadth of the market, meaning that these markets have been driven by a few very strong tech companies, obviously benefiting from artificial intelligence.
[00:03:15] We want to see that start to broaden out to benefit some other industries. With the new administration that's coming in, it's kind of hard to get a feel for exactly which policies are going to be implemented. But I think a theme that I continue to read about is decreased regulation. I think that's a very important theme to be mindful of in 2025. With lower regulation, that's going to promote more merger and acquisition activity within our economy and that bodes well for big investment banks that kind of position themselves to be the catalyst for these mergers and acquisitions that boost their revenue and these banks may do well in 2025.
[00:03:52] So it's important to make sure you have the right types of exposure this year.
[00:03:56] As we continue to build out the infrastructure to support artificial intelligence in this country, that means that we're going to be using a lot more energy. So that bodes well for certain areas of the energy sector. These big data centers that are processing all these data consume a lot of energy. They're just using a ton of energy to power these really strong computers to make artificial intelligence come to fruition and to analyze all the data. So we want to make sure that we're positioned there. That's an area that should see increased revenue in 2025.
[00:04:25] It's also expected that the new administration is gonna be very supportive of using more domestic energy sources, so that's also potentially bodes well for that sector as well.
[00:04:34] It's also very important to appreciate that we're going to have some volatilities this year and we kind of got spoiled in 2024. There wasn't a very volatile year. The market kind of continued to trend up over time because there's so much uncertainty with how the new policies are going to come to fruition and what's going to be implemented and when and what the impact may be, including tariffs and global policies, et cetera, that's going to cause short term volatility. The Fed may be on board. It may not be on board. We don't know exactly how this is all going to play out.
[00:05:05] So a key thing to remember for 2025, the money that you need to spend should be someplace safe. Meaning that any money that you're using for retirement income, et cetera, should be basically out of the market. It should be in something earning some interest and very safe because we're going to have some short term volatility but that's not abnormal.
[00:05:25] Typically, you have volatility in and out of the markets throughout the year. Remember, going back to the early 1920s, the stock market, the U S stock market is up by the end of the year, 73 percent of the time and that's just a fact. So as long as you're able to maintain your resiliency for the longer term part of your portfolio, I think that's going to bode well for you provided you have the right asset allocation for your portfolio.
[00:05:50] Now, the U S stock market is indeed a bit overvalued, meaning that it's expensive by historical standards, but keep in mind the market can remain overvalued for several years. So, it's not a good short term predictor of what the stock market is going to do. A lot of that overvaluation again is concentrated in the tech sector. So there are many other areas of the market as I mentioned, financials, industrials, some other areas of the market that hopefully start to participate more in 2025 and a lot of the stocks in those sectors are not as expensive as the tech sector. So, if we're able to broaden out, meaning more sectors are participating in the growth and appreciation for 2025, I think the market can sustain continued growth provided that it starts to broaden out.
[00:06:43] So what does this mean for your portfolio? You want to make sure that you're adequately diversified. Many of you may have been overloaded to the tech sector. Hopefully we start to see broader participation. I think that's going to be necessary for these markets to continue to appreciate. So you want to make sure that you're diversified at a sector level to make sure that you can continue to take advantage of any broadening that we see in 2025. But net net, you want to keep your long term plan in place, make sure you have the money that's needed within this year and something very safe so that you can weather the short term volatility to take advantage of the longterm potential within the markets overall. So this is Antwone Harris with Platinum Bridge Wealth Strategies.
[00:07:21] If you have any questions at all, email me, reply to these videos. I'm happy to answer any questions that you have. I'll talk to you soon.