2025 Outlook – Expect A New Investing Cycle

Major investment forces are rejoining to produce a “new” investing reality – one based on classic investing strategies and wisdom.

Bond market interest rates – The “bond vigilantes” have returned to reset intermediate- and long-term interest rates to reality. That means focusing on economic and financial fundamentals and risks (uncertainties). The Federal Reserve can talk about lowering short-term rates in the money market, but the effect will be felt less in the rest of the bond market. Moreover, inflation has a stronger hold now, with businesses and consumers continuing to take actions based on price increases.

Stock market valuations – The meme stock games that began in 2021 are stretched, the artificial intelligence bubble is bumping into realities, and the hundreds of walking dead companies are stumbling towards oblivion. Add to that the beginning shift to fundamentally strong (AKA, higher reliability and lower uncertainty) companies with real, not imagined, attractive fundamentals.

Real estate (housing) market pricing – Higher mortgage rates and higher house prices are once again limiting demand. Expect little or nothing from government attempts to “fix” the perceived problem. Not only are they incapable of overriding market forces, the markets are properly reflecting today’s demand, supply, and economic/financial conditions.

U.S. government deficits and debt – The level of borrowing is historically high. Remember that a year ago, Moody’s dropped the rating outlook for U.S. Government debt to “negative.” The rationale was the large debt, the growing interest payments (now over $1 trillion), and the political polarization that could prevent agreement on curative measures

President-elect Trump’s policies – Two primary actions could have large and highly uncertain effects on the U.S. economy:

• Sizable tariffs on major trading partners, including Canada and Mexico
• Deportations of millions of illegal immigrants and their families

So, what is an investor to do?

The primary adjustment is to ignore optimistic views and adopt Missouri’s “show me” approach. Doing so means avoiding these common stock investing mistakes made in optimistic times:

• Focusing on a stock’s rise rather than its fundamental valuation
• Relying on a company’s non-GAAP fundamental measures
• Expecting a stock split to produce a price rise
• Ignoring the importance of dividend yield
• Being willing to increase risk through margin debt and options
• Being willing to invest in limited liquidity investments

As to bonds, don’t push the uncertainty up for a bit more yield from actions like these:

• Buying a longer-term bond
• Buying a lower quality bond
• Buying a callable bond
• Buying a mortgage bond
• Buying a collateral bond backed by consumer loans

The bottom line – Adjust your news sources, and be willing to pay for them

The quality news organizations have settled into the internet distribution process well. Importantly, now they can charge a fee, and readers are willing to pay. That means the organizations can hire and retain quality reporters.

Moreover, they are making good use of website capabilities, giving readers easy access, links to relevant information, quick search tools, thorough research data, and the latest updates.

As an example, I subscribe to the following:

• The Wall Street Journal
• The New York Times
• Fortune
• Forbes
• Reuters
• Financial Times

For me, that combination provides timely, relevant, and complete reporting. For data and analytical tools, I use the following:

• 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 fulsome data analysis can guide an investor away from all the noisy, contrived optimism to quiet, accurate realism. That shift is just the thing to produce sound investing when the new investing cycle arrives.