2025 Annual Outlook

As we enter 2025, we strive to continue delivering confidence derived from 30+ years of owning high quality investments allocated thoughtfully so that our clients have the best chances of reaching their goals.

Last year’s stock market returns were highlighted by falling short-term interest rates, continued enthusiasm over artificial intelligence (AI), and big swings during election season.

Stock prices rose twice as fast as earnings, led for the second year in a row by a narrow subset of names where AI sentiment was most enthusiastic. These corners of the market finished the year more expensive than they started. Excitement was fueled by prospects of falling interest rates, the opposite of which occurred in 2022 when stocks fell on expectations of rising interest rates.

Bond markets finished 2024 higher for the second year in a row despite smoldering inflation. More importantly, we saw bonds revisit their historical role as portfolio guardrails, rising when stocks fell during 2024’s summer market rout in which bonds gained ground, lessening the blow to diversified portfolios.

Looking ahead, the anticipated downward path of interest rates favors stocks. Future inflation expectations remain anchored to historical averages at 2.2-2.4%. The stubbornness of inflation expectations is surprising to some amidst strong jobs data, politicians’ promises, and geopolitical turmoil. Taken together, however, current economic data suggests the Federal Reserve has more work to do in lowering interest rates. Future rate cuts on the horizon and normalized long-term rates portend well for stocks historically.

With history as our guide, we believe productivity gains from AI will be long-term and broad-based. While we have thoughtful exposure to near-term beneficiaries, our stock market “bets” are spread more evenly than the ten companies currently making up nearly 40% of the US market.[1] As was the case for fiber optic companies in the internet age and railroad stocks at the turn of the century, long-term returns accrued to the most disciplined investors. We expect this time will be no different.

Across global markets, our preference for US companies remains, owing to a more dynamic growth outlook domestically. Within the US, we continue focusing on fairly priced companies with compelling growth stories and fortress balance sheets. Profitability and financial prudence alone do not guarantee success, but they remain necessary ingredients. Quality investment portfolios in concert with prudent cash flow management and ongoing tax loss harvesting give our clients confidence that they will meet their long-term goals.

We turn the page on 2024 having lost from this world one of the great contributors to our collective pursuit of timeless wisdom, Charlie Munger.

Munger was the lesser-known contributor to Warren Buffett’s success. He was Robin to Batman. Munger once wrote, “[Warren] hasn’t needed much enlightenment. I frankly think I get more credit than I deserve. If [I] had never lived, the Buffett record would still be pretty much what it is.” This came from the man who introduced Apple to Berkshire Hathaway portfolios.

Munger was a student of psychology and decision-making, attributing his investing success to lessons learned in these fields. In a lecture on group behavior, Munger noted:

?“Another type of ant demonstrates that the limited brain of ants can be misled by circumstances as well as by clever manipulation from other creatures. The brain of this ant contains a simple behavioral program that directs the ant, when walking, to follow the ant ahead. And when these ants stumble into walking in a big circle, they sometimes walk round and round until they perish.”

By striving to own high quality investments, thoughtfully managing client liquidity, and allocating portfolios with a view to the long-term, we are able to guide clients closer to a life lived with confidence on a path of their choosing.

[1] S&P 500

Other than disclosures relating to JGP Wealth Management, this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Other than certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst’s judgment.

Our employees may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed in this research.

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Any third party referenced herein may have positions in the products mentioned that are inconsistent with the views expressed by analysts named in this report.

This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.