The Path to 2025: What Investors Need to Know

Credent’s annual 2025 outlook is still to come, but investors should know a few important things as the year winds down.  

Below, we share our Investment Policy Committee’s insights regarding the presidential cycle, the labor market, and the most significant risk to investment allocations in 2025.  

Seasonality, or how stocks tend to react at different times of the year, is a critical technical factor we use to gauge the market’s momentum. Of course, seasonal rhythms are not always reality, and there is room for nuance.  

For example, not all stocks have been impacted equally by the Santa Claus Rally. In particular, the U.S. large-cap growth market (which represents many AI-heavy companies) has surged this month, almost doubling the rate of stocks outside the large-cap space (value stocks and smaller stocks). 

Even still, one seasonality factor we are considering going forward is the four-year presidential cycle. 2025 is the first year in that cycle, and historical data indicates that the first year tends to be the weakest in returns. This trend doesn’t mean negative or no returns next year, but it could indicate the potential for volatility and a more subdued structure to return profiles in 2025. 

Another consideration is the labor market. At the start of 2024, there was uncertainty around the labor market’s continuous strength, but it has proven resilient.  

The unemployment rate has ticked up to 4.2%, but it is still historically low, and while continuing claims are creeping up, initial layoffs have not grown dramatically. Overall, most people who are looking for a job are still able to find one. This labor market strength has helped consumption, another resilient economic factor.  

In addition, over the past six months, white-collar jobs have increased at twice the rate of most blue-collar jobs. Why does this matter? White-collar jobs tend to have a greater attribution to economic growth, so it’s notable that this sector is doing well as we enter 2025.  

Finally, what is the status of The Federal Reserve and interest rates as we close out the year?  

President-elect Donald Trump plans to keep Jerome Powell as the Fed chair. Regardless of your opinion on this announcement, it’s important to note that The Federal Reserve is independent of anyone in office.  

In addition, the market is pricing in about 75 basis points (0.75%) of rate cuts next year. How could interest rates impact the fixed-income market and the housing market? 

If 2025 brings weakening economic indicators, rate cuts in excess of those priced in by the market could result in a net positive outcome for bond prices and mortgage rates. However, the opposite is also true. If inflation remains high, fewer rate cuts could be detrimental to bond prices and home buying. 

As such, we maintain that the most significant risk to investment allocations in 2025 is tied to bonds, not stocks. While that may sound counterintuitive, when we consider the impact of rate cuts, the best hedge for inflation, and how to recover quickly from volatility, the equity market overshadows the fixed-income market despite the short-term benefit of downside mitigation in the fixed-income market.

Overall, Credent is bullish on equities, a decision supported by earnings data and the disinflation trend.  

Even still, we’re incorporating risk management strategies to shield us from volatility and create opportunities going forward. One tactic we’re using is structured assets, which allow us to participate in the equity market up to a certain point while protecting us from losses below a certain point.  

These structured assets are set to mature around May, when we are due for an important GDP announcement and can reassess our strategy.  

Overall, clients should remember that we have an entire team focused on positioning them in a way that aligns with their financial plans and the realities of the market as we enter 2025.  

If you have questions about your investments, reach out to a team member using the form below.