With another year in the books, it’s a great time to review how the current economic trends could affect your investments and financial strategies. Hi, I’m Iván Mendoza, financial advisor at Mendoza Private Wealth. 2024 was another strong year for U.S. markets.

Reviewing the S&P 500: How the Market Performed in 2024

Let’s break down the key market trends and what lies ahead. As you can see on this chart, the S&P 500, represented by the purple line, put up a pretty impressive 25% performance last year. On a standalone basis, that would be impressive, but when it comes on the heels of another great year in 2023, over the last two years, the average is about 26%. What’s the long-term average? 11%. Hopefully, that gets your attention. Could we continue this? Is this sustainable? Or is 2025 going to prove to be a bit more challenging?

AI, Rate Cuts, and Their Role in Market Growth

Well, there’s no question that the enthusiasm around artificial intelligence and perhaps the expectation of further rate cuts from the Fed has led to the market being where it is today. But certainly, the risks are out there, and geopolitics is one of them. Recently, Canada’s Prime Minister Trudeau announced his resignation. Leadership changes across Europe. This is all adding to global uncertainty.

Domestic Challenges to Economic Growth in 2025

Domestically, we have our own uncertainty to deal with with regard to the new presidency, tax policy, tariffs, unemployment, and immigration. It remains to be seen what the net effect of those policies will be. But thankfully, as you can see on this next chart, inflation, as represented by the red line, has largely been brought under control. And this is thanks to the Fed’s pretty swift action in increasing interest rates during that time in 2022. But unfortunately, the S&P 500 is actually down 18% that year, as you might recall.

Inflation Trends: The Fed’s Actions Are Paying Off

The hard work of increasing interest rates to combat inflation seems to have paid off. As you can see, inflation is essentially tapered out around the mid-2 % range, pretty close to the Fed’s target, perhaps a little bit stubborn here in the mid-twos, they like it to come down to closer to 2%. But most recently, the Fed has seen it appropriate to start cutting rates. And last year, we had three rate cuts, 50 basis points, and then 25, 25. Of course, the question is now, where do we go from here? What’s the outlook?

Balancing Optimism and Uncertainty in 2025

I would call it moderate optimism, perhaps coupled with some uncertainty. Again, we’re not sure what the new presidential administration’s policies will actually result in. There is some concern around the inflationary effects of tariffs, although those are likely to be one-off temporary effects. They’re all done at once, at least. And if it’s gradual, and if it’s kind of painfully slow, it might lead to higher market uncertainty.

Is It Time to De-Risk Your Portfolio?

The question I would ask after two strong years is this: is it time to perhaps consider de-risking your portfolio? If nothing else, perhaps taking a little bit of gains off the table and maybe trimming some of those large concentrated positions that have inevitably ballooned in the portfolio, particularly if you were invested in the Magnificent Seven or Big Tech, shall we say. As always, time in the market beats trying to time the market. And at times like these, staying diversified and regularly rebalancing your portfolio is critical.

Long-Term Financial Planning for Market Uncertainty

Long-term financial planning remains the key to weathering market unpredictability while pursuing your most important financial goals. If these market shifts have you questioning your financial strategy, now is the perfect time for a review. Reach out, let’s navigate the future together. Thanks for watching.