Summary
The long-term trend in the US stock market has been higher. In the 40-plus years since Ronald Reagan became president in 1980, stocks have turned in profitable performances almost 80% of the time. The average annual increase is 13%. This year was another winner, as stocks in 2024 extended a bull market that began in October 2022. The rally was fueled by falling inflation and has been fueled by lower interest rates, steady economic growth, and rising corporate profit growth rates . But despite the historical trends, there is no guarantee that 2025 will also be a bell ringer. The start of the year may be difficult, as the Fed grapples with stubborn inflation, the employment environment possibly weakens from a historically strong position, and geopolitical issues simmer. But earnings growth is expected to accelerate to a low double-digit rate year-on-year in the first half. And if inflation were to resume its downward journey, giving the central bank more freedom to cut rates, the outlook for the second half should improve. We believe the stock market will take its cues from two sources in 2025. First is the Fed, which has been in the driver's seat for this second leg of the bull market since it hurt its rate outlook. Second will be earnings growth, which is already solid but could get a boost in 2025 from Donald Trump's new policies. The comfort is at least moderate