With 2024 fully behind us, it’s a good time to celebrate our winning calls from last year while also reviewing some mistakes to learn from them and improve our process. The good news is we got more right than wrong last year, but there were some misses. Some course corrections helped. Perhaps the most impactful decision we made was to recommend investors stay fully invested in equities at benchmark levels throughout the entire year despite expecting a stock market pullback around Election Day.

As 2024 draws to a close, investors have fully embraced the stock market. The S&P 500 is up more than 25% year to date. The broader Russell 3000 Index is up 24%. The Nasdaq Composite is up over 31%. Even the laggards are up double-digits with 12% and 14% advances for the small cap Russell 2000 and the Dow Jones Industrial Average. Volatility was low, with a maximum peak-to-trough decline for the S&P 500 of 8.5% (the long-term average max drawdown is over 13%). As we turn our attention to 2025, the supports of the past year largely remain in place, but some additional pillars have been added as we discuss below.

The Federal Reserve (Fed) is moving more cautiously in adjusting policy, and markets might have a hard time resetting expectations. Throughout the latest press conference with Fed Chair Jerome Powell, equity markets declined as investors were befuddled with the large upward revision to 2025 inflation forecasts; despite disappointing inflation projections, the “vibecession” is over as businesses and consumers have become more optimistic.

To say the U.S. economy has been difficult to read is an understatement. From generationally high inflation and interest rates to concerns about the labor market, it’s no wonder consumers are unsure about the overall health of the economy.

LPL Research’s Outlook 2025: Pragmatic Optimism will be released tomorrow and available on LPL.com. Here we just provide an appetizer before the main course and share some of the stock and bond market themes covered in the full publication.

The dollar’s continued climb higher has been predicated on a host of factors — including the rise in geopolitical risk and the dollar’s safe haven status as inflows have picked up markedly, uncertainty with regard to the Federal Reserve’s (Fed) interest rate move in December, a solid domestic economic landscape with inflation still “sticky,” a weakening euro as expectations suggest the potential for a stronger rate cut, and questions regarding the inflationary implications of the Trump administration’s tariff agenda. With more questions than answers, the dollar’s ascent is expected to continue — or level off — until there’s more definitive information regarding the extent of tariffs, and on the other side of the equation, the effect of retaliatory tariffs. Global capital markets seek clarity, particularly the currency market.

Trade dynamics have shifted considerably since President Trump’s first administration. Reshoring among U.S. businesses and headwinds to the Chinese economy may limit the inflationary impact from rogue trade policy.