Drunk on a Horse? Try to Maintain a Balanced Perspective
Quarterly Commentary | Q4, 2024
Author: Jason Kirchhoff
Reading year end commentaries and 2025 outlooks is like being drunk on a horse. Well… not actually, but sixteenth century theologian Martin Luther used this analogy to describe the difficulty of not taking extreme positions, i.e. falling into a ditch on either side of a road. Obviously, he wasn’t describing investing, but this is a good parallel for investors to consider. It can be difficult to stay away from extreme views and not fall out of the saddle. When reading the numerous commentaries and outlooks they often inspire optimism for the future or pessimism about the risks that lie ahead. It’s easy to fall into a ditch on your left or your right, and it takes effort to stay on the horse. Let me try to present a relatively balanced view of some of the main risks and opportunities as we look forward to a new year.
Reasons for Optimism
Artificial Intelligence – Massive capital investment in AI has the potential to create groundbreaking innovations in diverse areas such as software development, engineering/manufacturing, and customer service while also helping increase worker productivity.
Strong Consumers – Robust wage growth, low unemployment, and strong balance sheets are tailwinds for economic growth.
Global Easing – With most countries around the world seeing moderating inflation there is room for central banks and governments to ease financial conditions.
Corporate Revenue & Profits – U.S. corporate revenues are expected to be robust with estimates ranging from 10-15% in 2025 while corporate profit margins are expected to remain high.
Reasons for Pessimism
Debt, Deficits, and Interest Rates – A historically high level of indebtedness across most developed countries running large fiscal deficits may slow economic growth and cause unwanted inflation leading to higher interest rates.
Valuations – US Large cap valuations and certain fixed income sectors trading near all-time high valuations and credit spreads may cause future returns to be potentially muted.
Political Uncertainty – Contentious global elections in 2025 could lead to dramatic changes in fiscal? policies and foreign policies.
There can be times when it is appropriate to lean in one direction. For example, if you have specific short-term financial needs its best to err on the side of pessimism or caution and consider risks more than opportunities. For longer-term investment goals such as retirement or passing assets to future generations you will want to lean more to the side of optimism and look past the potential risks on the horizon. Having a firm understanding of your financial goals and time horizons can assist you in knowing what information is important and what might just be noise. Maintaining a relatively balanced perspective can help investors from falling into the ditch of pessimism/fear on one side or optimism/greed on the other.
As we transition into the new year, we thank our loyal clients and look forward to building on positive relationships while helping our clients achieve a predictable lifetime of financial freedom while living their most impactful lives.
The opinions expressed are those of Jason Kirchhoff as of the date stated on this article and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. Please remember that all investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.
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