The third scenario: Stocks rise slightly amid dueling geographic sentiments. Bearish Europe fears its own shadow. America’s bulls tout US exceptionalism powering AI, tech and crypto skyward. These may offset each other – wiggling, waggling, and netting little.
Absent that, take Jack Bogle’s advice: “Don’t just do something—stand there!”
But with heightened expectations, inaugural GOP administrations also run disappointment risk. Presidents aren’t kings. They rarely accomplish as much as supporters hope and opponents fear. Hence, all but four GOP inaugural years were negative since 1926 (Trump in 2017 being one of the four). In this upcoming inaugural year, Trumpian hope could exceed reality – particularly with a tight congressional margin.
Trump’s victory-elated Republicans, maybe paving the way for another trick I proved decades ago – the “Perverse Inverse.” Investors overall lean more Republican than Democratic, viewing the GOP as pro-business and Democrats as anti-business. Hence, when Republicans won the White House, spirits rose – and election year returns averaged 15%. When Democrats won, concern rendered below average 8% years.
Still, some things are clear and more will be soon. Let me explain.
Dec. 18’s steep tumble, while just one aspect, was super bullish. Since World War II, 114 S&P 500 days dropped 2.5% or more shortly after a bull market high. Stocks rose 12 months out 87% of the time, averaging 20%-plus returns.
What to do? Two of the three scenarios will fade away sometime in the first quarter as yet unforeseen factors leave one dominant. Lots happens soon in both politics and sentiment, like how Trump’s government finally functions. When I see which scenario will dominate, I’ll be back pounding the table with a definitive forecast for the rest of 2025.
Meanwhile, if you need growth, stocks remain your default. Why? They rise in almost 75% of calendar years. Betting against 3-to-1 odds without a solid leg up on others is a sucker’s game. Exiting stocks rationally requires seeing something big and bad others don’t.
When I am lucky enough to take advantage of this basic investing truth, I never fear sticking my neck out. I did it with my outlook for 2023, which was followed by my outlook for 2024. Both were pound-the-table bullish – and pretty darned accurate.
Beating the stock market requires knowing something important that others don’t.
