Change in D.C. May Benefit Investors

PUBLISHED JANUARY 2025

The year just past brought significant developments across global markets, capping off a banner year with quarterly gains despite economic shifts, policy changes, and geopolitical events.  

The S&P 500 recently posted one of its strongest monthly gains of the year, up 5.7 percent, as the “Trump Trade” returned in full force following the November U.S. presidential election, which substantially influenced market dynamics. Despite a four-day losing streak in the final trading days of the year—the longest year-end decline since 1966—the S&P 500’s bellwether gain for the year (23.3 percent overall) completed the index’s best two-year run since 1997-1998. The NASDAQ closed the year up 30 percent, and the Dow Jones rallied by nearly 13 percent during 2024, propelled by Magnificent Seven giants like Nvidia, Meta, and Tesla.

With Donald Trump securing another presidential term, positive change is expected for business and economic interests in future months. Pro-growth policies are anticipated, benefiting from deregulation, infrastructure spending, and lower taxes. Motivated by Trump’s second presidency, many investors anticipate a favorable environment for corporate profits and U.S. equity markets this year, especially in sectors with high exposure to domestic economic activity.

U.S. security and defense are also back in the spotlight following the domestic terror shocks in New Orleans and Las Vegas on New Year’s Day. Defense spending also has been in the spotlight over the past few years amid the ongoing wars in the Middle East and Ukraine.

“We need resources,” FBI Director Christopher Wray told the House Appropriations Committee last spring during budget deliberations for 2025. “There is already a heightened risk of violence in the U.S.,” he added. “Since then, we’ve seen a rogue’s gallery of foreign terrorist organizations call for attacks against Americans and our allies. Given those calls for action, our most immediate concern has been that individuals or small groups will draw twisted inspiration from the events in the Middle East to carry out attacks here at home.”

Adding to global tensions, Russia launched another attack on Ukraine on Christmas Day, threatening Ukraine’s energy infrastructure and increasing volatility in the geopolitical landscape. These developments have intensified scrutiny on the global markets, with potential disruptions to oil and gas causing fluctuations in energy prices. The New Year’s attacks also contribute to broader market uncertainty and a renewed focus on the United States, defense sectors, investing in law enforcement, and the potential economic fallout from escalating tensions. 

All of this adds to the significance of Inauguration Day on Jan. 20 and the start of Donald Trump’s much-needed second presidential term.

Consumption has been one of our biggest economic drivers, demonstrating resilience in Q4 with U.S. GDP growth remaining solid. According to the Atlanta Fed’s GDPNow model, as of Dec. 24, Q4 growth was estimated at 3.1 percent, a continuation of Q3’s robust 3.1 percent expansion and aligning with the Fed’s “soft landing” efforts.

The Fed reduced interest rates by 50 basis points in Q4, and during December’s meeting, the committee offered insights into its outlook for 2025: a potentially more cautious approach to monetary easing, maintaining a target range of 4.25 to 4.50 percent. The committee suggested fewer rate cuts this year than previously anticipated, which could lead to sustained higher rates for a longer period, causing long-term bond yields to surge.

In recent historical terms, inflation remains sticky, with November’s headline CPI at 2.7 percent year-over-year, an increase of 0.3 percent, and core CPI (excluding food and energy) remaining at 3.2 percent (to solidify persisting inflationary pressures). But 227,000 jobs were added in November, above expectations, even though the unemployment rate experienced a half-percent increase with an overall unemployment rate of 4.2 percent. 

In sum, 2024 was a banner year for the markets amid the AI frenzy and the Fed’s reduction in interest rates. And 2025? It’s anticipated to be even better!