2025 began with the S&P 500 index ending lower in a holiday shortened week as Wall Street’s bull run lost some steam. After hefty yearly gains in 2024 with the S&P 500 returning 23.3%, investors took some money off the table. Additionally, uncertainty over the economic effects of President elect Donald Trump’s policies and the path of future monetary policy weighed on sentiment.
Fed’s progress toward its 2% target has been choppy of late. Fed officials capped 2024 with a quarter point interest rate cut and new economic projections signaling just two rate reductions in 2025. Chair Jerome Powell has indicated further adjustments will depend on the trajectory of inflation.
This year’s crop of investment outlooks from banks, advisers and asset managers is dominated by one guy: Donald Trump, whose anticipated policies are fueling both corporate optimism and anxiety about trade.
Only time will tell.
Future Wealth’s View
Even as we look at what lies ahead, it would behoove us to look back on the phenomenal year that produced outsized returns for investors for the second year in a row. Not since 1997-98 has the market provided 20%+ returns back to back. It is safe to say that it is highly unlikely that we would benefit from another 20%+ year in 2025. It is important for investors to bear in mind that the long term return of the S&P 500 is ~10% annually. Even at 10%, money doubles every 7 years due the effect of compounding.
Another insight that is worth mentioning is that most hedge funds and index funds barely kept up with the overall stock market in 2024. 26 of the 30 largest Vanguard index funds underperformed the S&P 500. Hedge funds performed even worse – underperforming the market with the hedge fund index showing an aggregate return of 10.03% in 2024. Private Equity (PE) and Venture Capital funds, with few IPOs in 2024 and no exits, posted even more miserable returns. Venture capital returns were -1%. On the other hand, Future Wealth LLC’s clients – a mix of aggressive, moderate and conservative investors, enjoyed an average return of 20.3% in 2024. Active wealth management has prevailed over passive investing and alternative investments.
It is not often that we hear hedge fund or PE managers accepting their mea culpa. There was one exception last week when the manager of hedge fund Kenrich Partners – accepting his woeful fund performance of -35.4% in 2024, wrote in his letter to investors – “I pretty much missed all the major themes in the last two years. I have come to the realization that I am not good at what I am doing but I guess some of you may have sensed that already”.
The stock market has a way of humbling even the finest.