Ingredients in Place for Another Good Year for Stocks in 2025
The LPL Strategic & Tactical Asset Allocation Committee (STAAC) determines the firm’s investment outlook and asset allocation that helps define LPL Research’s investment models and overall strategic and tactical investment thinking and guidance. The committee is chaired by the chief investment officer and includes investment specialists from multiple investment disciplines and areas of focus. The STAAC meets weekly to closely monitor all global economic and capital markets conditions to ensure that all the latest information is being digested and incorporated into its investment thought.
Key changes from December report:
• Established year end 2025 fair-value target range in the S&P 500 at 6,275 – 6,375
• Established year end 2025 10-year Treasury yield target range at 3.75 – 4.25%
Investment Takeaways
Stocks ended mostly lower in December as historically strong seasonality failed to materialize. Focus centered around the Federal Reserve (Fed) rate decision, and key takeaways for the rate cutting path in the New Year. The Fed delivered its third consecutive rate cut, although commentary was more hawkish than expected while the updated dot plot penciled in only two rate cuts in 2025. Stocks sold off following the meeting and failed to hold on to a subsequent rebound in the final four days of the year. The more defensive tone was broadly credited to weak market breadth, stretched sentiment, and a volatile legislative landscape. Nonetheless, the S&P 500 logged a 25% annual gain, including dividends.
Within fixed income markets, Treasury yields were higher across the curve in December due to concerns about the possibility of stickier inflation and fewer Fed rate cuts than markets were expecting. Moreover, the yield curve continued to steepen as markets continue to price out the prospects of recession. The 0.50% increase in the 10-year Treasury yield caused negative returns for most fixed income sectors with the broad index (Bloomberg Aggregate Bond Index) lower by 1.6% in December. High quality fixed income sectors, agency mortgage-backed securities (MBS), and investment grade corporates specifically, underperformed during the month.
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IMPORTANT DISCLOSURES
Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks. All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy. Precious metal investing involves greater fluctuation and potential for losses.
Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.
Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
All index data from FactSet.
The Strategic and Tactical Asset Allocation Committee (STAAC) is a division of LPL Research.
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