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It depends on who you ask. Non-equity investors might think the Trump trades are playing out just like in 2016. Over the last few months, FX traders and bond investors could have followed the 2016 script and made out like bandits (Charts 1 & 2). However, at this juncture, it might be time to at least take some chips off the table—if the 2016 analog stays intact, both the U.S. dollar and interest rates are poised to change course over the next few months. Near-term knee-jerk reactions aside (stronger dollar, lower yields), the newly announced tariffs will likely impact growth more than anything else, which would make it hard to sustain a stronger dollar and higher rates. 

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• Read the latest MTI update

This study provides an initial look at 2024 factor returns, paced by a 25% gain for the S&P 500 index. Three factors topped the S&P (one by just a smidgen) while eight fell short, a ratio we will later see is typical for exuberant bull markets. Of the laggards, six trailed the S&P by more than 10% with a seventh just sneaking inside that ignominious cut point, and their shortfalls contributed to an average factor spread of -6.3% for the eleven contenders.  We also find that 2024 was an echo of an even tougher 2023 when the S&Ps 26.3% return was also driven by mega-cap growth, causing nine factors to lag the index with an average shortfall of -9.0%. Two consecutive years with similarly spectacular yet narrow S&P returns led to significant underperformance across our basket of factors and motivated us to try to understand more about this phenomenon.

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Select Industries was down 7% in December as the breakdown in internal breadth provided a significant headwind for our all-cap investment universe.  While the final result was a sizeable lag versus large cap indexes, the strategy was in-line with mid and small cap indexes.

New Years Eve 2024 was a party to remember for the 4% Club (stocks with a minimum 4% weight in the S&P 500). Thanks to December’s ridiculously top-heavy performance, a record five firms toasted the new year in the VIP-only Club (Chart 1). For most of the past five years, membership had been limited to two or three companies. Before that, the Club’s March 2000 high-water mark of three firms seemed unobtainable—and, with a little hindsight, a laughable signpost of the Tech Bubble. Well, who’s laughing now?

In the theme that’s reminiscent of all but a few of the last 16 years, the optimal strategy for equity managers and asset allocators in 2024 was the same: Buy the S&P 500, and then hit the links. There is statistical support for doing exactly same thing in 2025. 

Our favorite market forecasting guide, Benner’s Prophecies of Future Ups and Downs in Prices shows the next big inflection year will be 2026, which qualifies as a “Year of Good Times and High Prices… Time to Sell.” That classification was on the mark in two of the last three cases (1999 and 2007, but not 2016). 

We’ve paid attention to an increasing number of stock-market calendar patterns over the years, boosting the odds that one of them will score a major hit in any given year. In all, we’d grade the composite of these cycles as mildly bullish for stocks in 2025.

The drawback of a relative valuation ratio is that it tells us nothing about the absolute valuation appeal of either asset. While it’s relatively cheap of late, the median S&P 500 stock still trades in its top historical decile on four of five metrics.

Key measures of S&P 500 valuation enter 2025 at levels only seen in the final gasps of either the Tech Bubble or the 2021 post-COVID market mania. Many would counter that speculative psychology is not at the same heights as in those crazed market eras. Based on at least one sentiment measure, they’re correct: It’s higher!

Commemorating the Y2K Tech bubble today is not necessarily premature, since December 1999 was the valuation peak of that bubble—and indeed of all U.S. stock market history. Buying the S&P 500 at the end of the last century might therefore be considered the worst-timed stock market entry ever.

One can’t blame the stock market for not hinting that 2024 was going to be a barn burner. It did. On January 2, 2024, a critical “breadth-thrust” signal was triggered and, true to historical form, SPX delivered a 20%-plus gain through the next twelve months. Notably, an impressive aspect of the breadth-thrust track record remains intact: The index has never registered a 12-month loss after any these signals.

The labor market continues to send mixed signals. Initial unemployment claims for the final week of 2024 sunk to an eight-month low. However, December’s average claim level was about 9% above that of a year earlier.

The NY Fed model puts the next twelve months’ recession probability at 29, yet based on the continued steepening of the yield curve, the model’s recession odds will continue to drop in the months ahead. But beware. Recession probability dropped to just 12% the month before the commencement of the 2008-2009 Great Recession.

A year ago, we wrote “We’re not as cautious on the stock market as we should be, because it is going up.” We’d never make such a silly argument to a fifth-grader, but we somehow felt it appropriate to share that rationale with our audience of seasoned market professionals.

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Momentum was the best performing factor for 2024 - and it wasn’t really close. Growth continued to perform better within large caps compared to small caps. Sentiment and growth were also positive while, no surprise, value was negative again.

Over the entire history of this study, the momentum plays of our “Dreams” and “Nightmares” have worked both ways. Like everything else, our Dreams fell short of the Cap Weighted S&P 500 in 2024. However, the spread of Dreams over the Nightmares was fairly impressive.