Today is the last day of 2024 – New Year’s Eve. It’s been a second very good year for investment markets and we’ll start seeing tomorrow if we are going to get a “three-peat” performance in 2025.
Here are some of the predictions I’ve seen that will impact retiree finances in the New Year …
- ECONOMIC INDICATORS:
- +11.5% – S&P 500 Growth (7-14%)
- +2.5% – USA GDP Growth
- +2.4% – Inflation (CPI)
- < 4% – Unemployment Rate
- 50bps – Two Fed Rate Cuts of 25bps
- POLITICAL CHANGES:
- Extension of TCJA / “Trump Tax Cuts”
- Increased SALT Deduction (from $10K to $20K)
- No Federal Tax on Social Security Income
- Higher Tariffs 20%: China, Mexico, Canada
- DOGE Target $500B in spending cuts in Year 1
- HEALTHCARE
- 8% Medical Cost Inflation
- +7% Health Insurance Increase
- AI Analysis of almost all health profiles
- Telehealth / Virtual Care > 50% of Visits
- No significant changes to Medicare
Overall, it’s a pretty positive outlook for the economy & healthcare. I would feel pretty good about on next New Year’s Eve. The current NY Federal Reserve outlook for a possible recession is pretty low at a 15-30% chance in the next 18 months. That’s much lower than it has been the last few years, but you never know.
Which of these forecasts would you take the “over” or “under” on in 2025?
Image: Pixabay
MrFireStation 
I think stocks go higher as well as inflation but unemployment will be quite low due to baby boomer retirements and lack of immigration and out migration. Labor will become a problem due to lack of workers.
Tax cuts will continue but that is about it on the tax front. Tariffs are more of a threat than what they will be. DOGE will be massive.
Healthcare is steady as she goes, but telehealth will increase
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I don’t disagree with any of that reasoning, and I’d mostly be happy with that outcome. DOGE is the biggest wild card here. It could be massive, but I think they can only get so far in 2025. Will Trump get it done?
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I think there will be more than $500B budget cuts. Dr. and Sen. Rand Paul flagged $2 Trillion wasteful spending in his annual Festivus Missive. Trump and Musk are going to bully any rent seekers who want to stand in the way, by publicly shaming them in the new public pillory (X and Truth Social and many others).
I also think we are going to see less business-as-usual in Medical. The US spends over twice as much on a per capita basis as Japan and yet we live around 10 years less and many spend the last decade of their life in poor health.
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I hope that DOGE lives up to your expectations. We’ll all benefit. That said, Trump already supported the 1,500 page budget reconciliation that he insisted needed to suspend the debt limit. It took the GOP budget hawks to vote him down. Johnson seems more willing to work with the Democrats than get serious about the debt. That’s a bad sign.
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Let’s hope that Trump is running out the clock until Inauguration Day to keep BiDUMB from doing more dumb acts. Trump’s Chief of Staff, Susie Wiles, has instructed all Trumps appointments go offline until they get through confirmation. She has been very successful toning down Trump’s messaging. We will see how this is going to go on January 21st.
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Agree – the “lame duck” season is always a bit self-serving for the party exiting. They take full advantage of their situation to steal cookies from the jar before they leave.
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I subscribe to several data providers to facilitate self-management of my investments. Brian Bollenger, the CEO and Founder of SimplySafe sends out a very nice quarterly letter. The vibe of his letters remind me of Warren Buffett’s missives.
Here are some key points about the current state of the S&P 500 Index, which is market weighted.
The top tech stocks dubbed the Magnificent Seven – Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta, and Tesla – accounted for more than half of the U.S. stock market’s gain in 2024 as more investors jumped on the AI bandwagon.
These tech titans have a collective market cap nearing $18 trillion – more than the combined value of major European stock exchanges and about equal to the European Union’s annual economic output (GDP). Just seven companies.
The rapid growth of these companies and the high valuation multiples they have sustained have made the S&P 500 heavily concentrated. The 10 largest stocks in the market now account for 40% of the index’s market cap, per Charles Schwab senior investment strategist Kevin Gordon.
Investing in the S&P 500 Index is really investing in a focused Technology Fund these days. My 40 year career was in the technology industry and I experienced firsthand several boom and bust cycles. The aerospace industry, which was California’s major employer throughout the 1980s had major layoffs in the early 1990’s after the fall of the Soviet Union resulted in a peace dividend and massive layoffs in the Defense Industry. Six properties that touch mine were lost to foreclosure. None of the other neighbors worked in the Defense Industry, but they were impacted by disruptions to their customer base.
I experienced a second tech boom during the late 1990s. Companies were forced to replace systems because of Y2K and adoption of the internet was driving major improvements in productivity. 1996 to 2000 were actually my highest earning years during my working career. Another bust started at the end of the first Quarter in 2000. All the systems that needed to be Y2K mitigated, were already mitigated, which caused reductions in equipment, software and people to code, test and replace the systems. There was also excess capital funding internet startups and most went bust or were acquired for pennies on the dollar.
The current theme of today’s technology boom is Artificial Intelligence. Why will this boom end differently this time? Warren Buffet writes about similar booms from a historical context. There was one for the auto industry, another for aviation industry, and another in the 1960s for Xerox, IBM and Polaroid, etc.
The problem with boom cycles is you never know when they will go bust. I would like to end with one of my favorite Warren Buffett quotes, “You find out who isn’t wearing a swimsuit when the tide goes out.”
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AI is tremendously transformative for almost everything it will touch. I’m sure there are companies that won’t make it, but over the long term, but the technology will be huge financially and in our lives. It may bust briefly, but it’s a good long-term technology.
When I think of booms & busts, one recent boom stands out as not really having a bust … the explosion of social media. Facebook, YouTube, InstaGram, Twitter, and TikTok have all grown nicely as an industry for 15 years+. Individual companies (Snap, MySpace) may have fallen by the wayside, but overall, they have never really busted, have they?
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So far I find AI annoying. Many companies are adding it to their phone queues to try to avoid the labor cost of having a person answer. As an example, my power was down for three days right after Thanksgiving. SCE really didn’t want to answer their phone. I actually had to map out their workflow to figure out how to get around their AI.
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Yeah – there will be some growing pains … and some applications that don’t make sense.
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