Happy Holidays...
After 5 months of hibernation with no real reason than writing block, I decided to use quiet morning of Christmas day to start writing again. Lot has happened in last 5 months - in particular release of Animal Spirits with Fed starting interest rate reduction cycle and historic victory of President Trump for 2nd term. As the year turns into 2025 and stock markets at all time high, one would wonder, what's next?
To answer this, one needs to look back at 1920s and 1990s to give us some context on where markets may be headed.
1920s saw invention of televisions, radio, wider adoption of cars, vacuums, penicillin and many other which we consider household items now. These inventions created roaring 20s with markets going up by 500% eventually leading to crash of 1929. However during mid-20s, markets keep going up due to excitement of these inventions and end of World War-1 and Spanish Flu Pandemic.
1990s also saw many inventions - the key being launch of Netscape in 1994 leading to dot.com boom which continued till end of the decade. Netscape was released on Dec 15, 1994 - post that S&P returned 34% in 1995 and 20% in 1996. At that time, Fed started its rate cutting cycle from over 5%. All of these gains led to famous Greenspan comment about "Irrational exuberance". But despite all of these, markets continued to pivot higher returning 33% in 1997, 28% in 1998 and 21% in 1999. People who stayed invested despite two years of bumper returns in 1995/1996 reaped the benefits. This also was with 2nd term for President Clinton. The internet boom created massive cycle of investments in building the internet. Eventually after 5 years of double digits returned, markets corrected in 2000 leading to dot.com bust.
So now that we understand little bit of history, we are again at similar cross-roads as mid-20s and mid-90s. Just over 2 years back release of ChatGPT created the massive investment cycle of rebuilding the compute infrastructure led by cloud titans with over $200 billion Capex investments each year spent and planned. Similar investments are needed to rebuild private data centers to be ready for AI workloads. Fed is reducing interest rates albeit slowly than markets would like them to do. President Trump is all about de-regulation and his MAGA theme would get into over-drive of investments coming into USA (Softbank already announced intention of investing over $100 billion). Cryptos are getting major boost due to crypto friendly policies by new administration. The tax cuts which are supposed to expire in 2025 would definitely get extended (selfishly I hope they also fix SALT part of tax-cuts). All of these bode well for the economy and the stock markets. USA is best positioned in all of the world in terms of economy and markets.
So what should an investor do? This time, instead of recommending individual stocks, I would recommend sector ETFs like:
Technology: XLK, QQQ, SMH, IGV
Overall Market: SPY, IWM, MDY, VTI, FAS
Dividend/Income: JEPI, JEPQ
China: KWEB
Crypto (very small amount): BTC, XRP, HBAR
Given markets are at all time highs and it can correct in a flash of moment (like it did last week post Fed meeting), my recommendation is to do periodic (weekly) investments into these ETFs to cost-average your investments and let it ride for next few years...Eventually we will see corrections like in 1929 and 2000 but that's little further out. As Mark Zuckerberg had said... "The Biggest Risk is not taking Not Taking any Risk"...and he knows this since Meta has been one of the best performer of big stock in 2024!
Enjoy the holidays and Happy New Year.
/Shyam
Comments