MLD Market Update – January 2025

Join Chad Larson, Senior Portfolio Manager, as he dives deep into the 2025 Market Outlook discussing uncertainties and opportunities that lie ahead in the financial markets. Discover how to navigate the policy fog and position your portfolio for success!

Balancing Act: Reassessing Portfolios in a Shifting Market Landscape

00:00:00 – Introduction to MLD Money Matters
00:01:09 – Optimism in Investing
00:02:44 – Navigating Uncertainty in 2025
00:04:01 – Economic and Market Outlook
00:05:36 – The Importance of Rebalancing Portfolios
00:06:08 – Asset Allocation Strategies
00:07:40 – The Shift in Market Dynamics
00:09:08 – International Market Opportunities
00:10:57 – The Role of Alternatives in Portfolios
00:12:01 – The Evolution of the 60-40 Portfolio
00:13:16 – Market Performance and Valuation Concerns
00:15:56 – Behavioral Finance Insights
00:20:02 – Understanding Risk and Uncertainty
00:23:34 – The Emotional Cycle of Markets
00:28:00 – Minsky’s Financial Instability Hypothesis
00:31:35 – Current Market Valuations and Future Outlook
00:35:00 – Investment Themes for 2025
00:40:12 – Conclusion and Personal Reflections

In this episode of the MLD Wealth podcast, I, Chad Larson, present an in-depth analysis of the 2025 Market Outlook. Recorded on January 3rd, this episode comes after a reflective process following a previous recording that didn’t save. I share insights gained from early morning thoughts and extensive research, aiming to provide a comprehensive view of the investment landscape for the upcoming year.

The episode begins with a discussion on the inherent optimism required for investing, emphasizing that there is always opportunity, even amidst uncertainty. I introduce the theme of the episode: “Out of this cyclical storm and into the policy fog,” highlighting the complexities and challenges that investors face as we transition into 2025.

I delve into the context of market performance, noting that while some years present significant opportunities, others, like 2025, follow strong rallies, leading to questions about when to sell. I stress the importance of time in the market over timing the market, while also acknowledging our responsibility to be tactical and responsive to changing conditions.

A key focus of the episode is the uncertainty surrounding various factors, including Federal Reserve policy, fiscal policy under the new administration, trade dynamics, and the ongoing strength of the labor market. I summarize insights from various reputable sources, including Vanguard, JP Morgan, and Goldman Sachs, to provide a consensus view on the economic and market outlook.

As I discuss the cyclical forces at play, I note that while the U.S. economy has shown resilience, it is now downshifting to a more normal pace, which could leave it vulnerable to shocks. I emphasize the need for investors to rebalance their portfolios after a period of strong performance, particularly as valuations have become elevated.

The conversation shifts to asset allocation strategies, where I critique the traditional 60-40 portfolio model. I advocate for a more diversified approach that includes alternative assets, suggesting a potential shift to a 50-30-20 model. This reflects the evolving landscape of investment opportunities and the need for a balanced portfolio that can withstand market volatility.

I also highlight the performance of the “Magnificent Seven” stocks and the underweighting of international markets in many U.S. equity portfolios. I discuss the potential for foreign markets to outperform, despite geopolitical uncertainties and currency headwinds.

Throughout the episode, I weave in themes of behavioral finance, emphasizing the timeless nature of human emotions in investing. I share insights from a book I recently read, which explores the consistent patterns of human behavior over time, reinforcing the idea that while markets may change, the underlying emotions driving investor decisions remain constant.

As I conclude the episode, I provide my outlook for 2025, predicting a modest return of around 10% for the S&P 500, while cautioning that this may feel disappointing compared to the previous years’ performance. I stress the importance of remaining vigilant and adaptable in the face of market volatility and uncertainty.

Ultimately, I express my gratitude for the trust placed in me and the MLD Wealth team, and I wish listeners a prosperous and fulfilling 2025, encouraging them to stay informed and engaged as we navigate the complexities of the financial markets together.