Old Angst Times

Markets rarely ever have years as good as 2024. Yet 2024 was a near carbon copy of 2023. What a time to be alive!

We ended the year up 23%, which is actually slightly worse than a year ago. It is the best two-year performance since 1997 and 1998. The S&P 500 is up 53% since Dec. 31, 2022. The Nasdaq Composite is up 84%. Most of us are much richer than we were a few years ago. Some of the smartest among us are those who just bought index funds and found better things to do with their lives.

It is easy to say nobody saw this coming. And indeed, the market is almost always giving you plenty of reasons to worry things will get worse from here. But dear reader, at the risk of sounding immodest, the market prediction I made a year ago at this time was spot on. Honestly, I challenge you to find me anyone who got it more right.

A lot of good it did me. I spent the year missing out on some of the fun. Which I am at least telling myself is by design. I’m of an age where income is beginning to matter. I spent most of 2024 selling partial stakes in big winners, especially those without a dividend, and reinvesting the proceeds in stocks often yielding 5% or more. I’m curious how history looks back on this time. I think we’ll look back on it and say the market was so focused on a small handful of companies that it ignored screaming buys for an extended period of time. But of course it is possible it will look back and say the market had correctly realized that some dividend players were headed for ruin, and I’m poorer for falling for it.

Either way, I do have predictions for 2025. I am going on the record as saying the S&P 500 will not close 2025 at 5,881.63. It might be higher; it might be lower. It might be much higher. It might be much lower. But I believe with great certainty that it is unlikely to finish 2025 at the exact same level as 2024.

Beyond that, I don’t know what to think. The consensus seems to be the market will be up 6% to 7% in 2025. At the risk of being contrarian by not being contrarian and hating on the consensus, that seems… about right?

While anything is possible, it is hard to see another 20%-plus gain after two straight years of such results. Priced relative to earnings, the market appears, um, not undervalued, to say the least. And the ingredients don’t seem to be in place for a major fall. (More on that in a second.)

I do think we will see an uptick in drama in 2025. This past year was the calmest for markets this decade in terms of volatility. Yes, we saw a few ugly days. But we always see ugly days. By comparison to most years, 2024 had fewer of those days. I think the law of large numbers, volatility in Washington, and the significant expectations priced into closely-watched stocks will lead to more mini-panics in 2025. Just not a real, prolonged crash.

I do worry some about the economy. But things are good enough for the “haves” that I don’t see a recession. It is terrible social policy to have such a divide, but it isn’t necessarily the cause of economic ruin, at least not in the short term (societal ruin is another story). And whatever else you think about the incoming administration, there is reason to believe it will be hyper-sensitive and proactive to anything that smells of an economic slowdown.

I tend to agree with the conventional wisdom that the rest of the pack will catch up with big tech in 2025. Mind you, that might mean that big tech is still the better performer. But just not by the same margin. As I said before, my theory is the market has been asleep to some great companies with stable earnings, creating real value. The market won’t stay asleep forever. And a combination of a new administration, strong cash balances built up when we all feared a hard landing, and lower borrowing rates should mean a strong year for M&A.

But what about the reckless prediction?

I checked the terms and conditions, and you can’t write on January 1 about the year to come without saying at least one thing that will look really stupid in the months to come. It is the law.

So here goes nothing: Warren Buffett will step down at this year’s Berkshire annual meeting, and soon after (at the same time?) the company will initiate a dividend. This is something I genuinely believe will happen. All of this subtle portfolio reshaping and cash hoarding is happening for a reason. Warren is setting up the next generation, and preparing a way to sweeten the blow of him leaving.

I expect Buffett to go relatively silent once he steps down, at least in terms of Berkshire. He will not be Howard Schultz. But they will invite him to the annual meetings for as long as he wants to come to opine on markets, soda pop, and whatever else is on his mind.

If that actually happens, you damn better believe I will remind you I said it come May.

Happy New Year.

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