It's a real head scratcher, right?
The stock market is setting new records every other day,
but at the same time,
you've got all these economic warning signs flashing.
Yeah, like storm clouds gathering on the horizon.
It's a bit of a paradox.
Exactly.
So today, we're gonna try to make sense of it all.
We're diving into Ocean Park's latest investment insights
to see what they have to say about this strange situation
and what it all means for our wallets.
Yeah, Ocean Park just released this report
called Riding High, Looking Ahead, Markets at a Crossroads.
And they really get into the nitty gritty of what's going on.
They look at inflation, interest rates, politics,
the whole shebang.
Okay, so let's start unpacking this,
starting with inflation.
It feels like we've been talking about inflation forever now.
What's Ocean Park's take on where things stand?
Well, he used this interesting phrase,
the last mile of inflation.
Basically, they're saying that, yeah,
we've seen some relief from those peak prices
we saw a while back,
but getting inflation back down to that,
that ideal 2% target, it's proving tougher than expected.
I get that.
I mean, things have calmed down a bit,
but go to the grocery store is still
a bit of a shock sometimes.
Right, it's those everyday expenses
that really highlight this last mile issue.
And Ocean Park points to a couple of things
that are making it particularly sticky.
Shelter and auto insurance.
Oh yeah, I definitely noticed that.
Yeah.
My rent went up again and my car insurance
is through the roof.
Exactly, it's those kinds of things
that are keeping inflation stubbornly high.
So you've got this backdrop of sticky inflation
and then you have the Federal Reserve
trying to manage it all.
Right, they've been raising interest rates
to cool things down, but at what cost?
Well, that's the tightrope they're walking.
Raising rates too aggressively
could really hurt the job market
and slow down the economy.
And it seems like the job market
is already starting to show some cracks.
You're right, Ocean Park's report mentions
that the unemployment rate ticked up
to 4.2% in November,
and there's also been an increase in people
filing for unemployment benefits.
Over 1.9 million people are now collecting benefits,
which is the highest we've seen since late 2021.
So to help ease the pressure,
the Fed actually lowered these interest rates
back in September.
But doesn't that kind of contradict their efforts
to fight inflation?
It does, they're in this really tricky situation.
It's like a two-front war,
battling inflation on one hand
and a weakening job market on the other.
And as if that wasn't enough to deal with,
we also have the uncertainty
of a new presidential administration and their policies.
Exactly, new policies always bring
a certain level of uncertainty.
And Ocean Park points out that there could be some conflict
between the government's spending plans
and the Fed's efforts to control inflation.
So you could have the government pushing the gas pedal
while the Fed is pumping the brakes.
It's a pretty good analogy.
And here's where things get really interesting.
Amidst all this uncertainty and potential conflict,
the stock market seems to be living
in its own little world of optimism.
Yeah, I was just gonna say,
it's almost like the stock market is completely ignoring
all these potential problems.
The S&P 500 is hitting record highs,
it's a little baffling.
Right, so how does Ocean Park explain this disconnect?
Well, they point to two key factors.
First, you've got the AI revolution.
Advancements in artificial intelligence
are transforming industries at an incredible pace
and investors are betting big on its potential.
Yeah, AI is definitely the hot topic these days.
It seems like it's everywhere you look.
And it's not just hype, there's real potential there.
And then the second factor is the fact
that both consumers and corporations
are in a relatively healthy financial position.
So people have savings companies are profitable
and that overall financial stability
is boosting confidence in the market.
Exactly, but Ocean Park does caution
that there might be risk hiding in plain sight.
They're particularly concerned about
how much growth is already priced into stocks.
Ah, so you're talking about earnings expectations.
What are analysts predicting for 2025?
They're actually pretty bullish fact set estimates
that earnings for the S&P 500 will grow
by almost 15% in 2025.
And that's on top of an estimated 9.4% increase for 2024.
Wow, those are some impressive numbers.
But there's gotta be a but coming right.
Of course, there always is.
The but is that this impressive growth
might already be baked into current stock prices.
The S&P 500 is currently trading
at a pretty high price to earnings ratio.
So if those earnings expectations aren't met,
the market could be in for a big disappointment.
Exactly, it's like setting the bar really high.
If you don't clear it, you're gonna face plant.
And to make matters even more complex,
all of this is happening within a global landscape
that has its own set of challenges.
Okay, so let's zoom out a bit.
What are some of the global risks
that Ocean Park is worried about?
They specifically mentioned two things,
escalating geopolitical tensions and economic slowdowns
in other parts of the world.
Okay, so let's break those down a bit.
Starting with geopolitical tensions.
What kind of conflicts are we talking about here?
Well, the tricky thing about geopolitical risks
is that they can be really unpredictable.
Things can erupt suddenly.
Ocean Park's report doesn't get into specifics,
but we know that ongoing conflicts, trade wars,
political instability in various regions,
all of these things can have ripple effects
across the global economy.
And those ripple effects eventually reach our shores.
What about those economic slowdowns overseas?
Are there any particular regions or countries
that we should be worried about?
Again, Ocean Park doesn't name specific countries,
but they're probably referring to some broader trends.
You know, Europe's been dealing with an energy crisis
and slow growth.
China's recovery hasn't been as smooth as some people hoped.
And emerging markets always have their own unique challenges.
So there are a lot of moving pieces on the global stage,
which just adds another layer of complexity
to the investment landscape.
Absolutely.
It's like trying to navigate a maze blindfolded.
And this brings us back to a crucial question
you raised earlier.
If both stocks and bonds are facing potential headwinds
in 2025, what does that mean for traditional investment
strategies?
It's the question that's been looming over this entire
conversation.
Traditionally, investors have relied on a mix of stocks
and bonds to balance risk and return.
But if both of those asset classes are looking shaky,
what are investors supposed to do?
That's where things get really interesting.
It might be time for investors to start thinking
outside the box and explore alternative strategies.
OK.
I'm intrigued.
What kind of alternatives are we talking about here?
Well, for starters, investors might
want to look into alternative asset classes, things
like real estate commodities, private equity,
or even digital assets like cryptocurrencies.
So basically, expanding your investment portfolio
and not putting all your eggs in one basket.
Exactly.
But it's important to remember that each of these alternative
investments comes with its own set of risks and considerations.
So do your research understand the risks
and maybe talk to a financial advisor
before making any big moves?
Great advice.
So it seems like 2025 is shaping up
to be a year that demands flexibility, adaptability,
and a willingness to think differently.
A year of potential pitfalls, but also exciting possibilities.
Exactly.
We need to be aware of the risks, but also
open to exploring new opportunities.
Well said.
Thank you for walking us through this.
It's been a really insightful conversation.
It's been my pleasure.
Remember, this is just the beginning.
We'll be back to explore those global risks in more detail,
and we'll also delve deeper into those alternative investment
strategies.
So stay tuned.
So before we get into those global risks,
I want to circle back to something we touched on earlier.
Those earnings growth projections for 2025.
Remember how Ocean Park highlighted those?
Yeah, I remember.
They were pretty impressive.
They're expecting companies beyond those big tech giants
to really step up in 2025.
Exactly.
They believe that the Magnificent 7, those dominant tech companies,
might actually be sharing the spotlight a bit more this year.
Oh, you mean like Apple, Microsoft, Amazon?
Right.
Google that crowd?
Yep.
Those guys, they're still expected to do well,
but analysts are anticipating that a broader range of companies
will be contributing to those earnings gains.
Interesting.
So it won't be just a tech-driven growth story anymore?
That seems to be the trend.
They're predicting that in 2024, the Magnificent 7
saw earnings growth of like 33%, while the rest of the S&P 500
companies only saw growth of about 4%.
But for 2025, that gap is supposed to narrow significantly.
Wow.
That is a big shift.
What's driving that change?
It's probably a bunch of different factors.
You know, some industries might be bouncing back
from the pandemic.
Others might be benefiting from new innovations
or changing consumer preferences.
And maybe some of those smaller companies
are just more adaptable to the current economic climate.
So if earnings growth is becoming more broad-based,
does that mean the market is less risky?
Well, it could mean that the market is a bit more resilient
because we wouldn't be relying on just a handful of companies
to drive gains.
But remember that risk-hiding and plain sight we talked about.
Right.
If everyone is already expecting this widespread earnings
growth, then they might be pushing stock prices up too high
too soon.
Exactly.
The market might be getting ahead of itself.
And if those high expectations aren't met,
or if something unexpected happens,
you know, like a sudden spike in inflation,
or a geopolitical crisis, or even like a new COVID variant,
well, the market could be vulnerable to a correction.
So it's not all sunshine and rainbows.
Even with this broader earnings growth,
there's still a level of risk that we can't ignore.
Absolutely.
And that's why it's so important to have
a solid investment strategy, one that carefully
considers both the potential rewards and the risks.
OK, so before we move on to those global risks,
let's talk about what all this means for the average investor.
Yeah.
What are some things our listeners should
be thinking about right now?
Well, first of all, don't let the headlines freak you out.
You know, it's easy to get caught up in the hype,
whether it's about record-breaking market highs
or doom and gloom economic forecasts.
So stay calm and focus on the long term.
Exactly.
Investing is a marathon, not a sprint.
And speaking of marathons, we still
have a lot more to cover in this deep dive.
We need to talk about those global risks
that Ocean Park highlighted.
And we also need to explore those alternative investment
strategies we mentioned.
All right, I'm ready for the next leg of the race.
What should we tackle first?
All right, so we've covered a lot of ground.
We talked about inflation and interest rates
and that tricky situation the Fed is in.
And we talked about those surprisingly strong earnings
projections.
But we can't forget about those global risks
that Ocean Park mentioned.
Right.
It's easy to get tunnel vision and focus on what's
happening here in the US.
But investing is a global game.
What happens in other parts of the world
can definitely impact our portfolios.
So let's zoom out and take a look at the bigger picture.
What are some of those global risks
that Ocean Park is highlighting?
They specifically mentioned two potential threats,
escalating geopolitical tensions and economic slowdowns
in other parts of the world.
OK, let's break those down.
Starting with geopolitical tensions,
it feels like there's always some kind of conflict going
on somewhere.
What are we most concerned about right now?
Well, that's the thing about geopolitical risks.
They can be really unpredictable, and things
can escalate quickly.
Ocean Park's report doesn't get into specifics,
but we have to think about things like ongoing conflicts,
trade wars, political instability in various regions.
All of these things can have ripple effects that
impact the global economy.
And those ripple effects can eventually reach our shores.
What about those economic slowdowns?
Are there any particular regions or countries
that we should be worried about?
Ocean Park doesn't name any specific countries,
but they're probably referring to some broader trends.
Europe's been dealing with an energy crisis,
and their economic growth has been pretty sluggish.
China's recovery from the pandemic
hasn't been as smooth as some people expected,
and emerging markets always seem to face
their own unique set of challenges.
But basically, there's a mix of good and bad news out there.
Some economies are performing well
while others are struggling.
And I imagine all of this uncertainty
makes it really difficult for investors to make decisions.
Absolutely.
There are so many factors to consider.
It's like trying to solve a puzzle with half the pieces
missing.
And this brings us back to that big question
we keep coming back to.
If both stocks and D bonds are facing potential headwinds
in 2025, what does that mean for those traditional investment
strategies?
The ones that rely on a mix of stocks and bonds
to manage risk and return?
Right.
That's the question that's been hanging over our heads
this entire episode.
If both of those asset classes are looking a little shaky,
where do investors turn?
This is where things get really interesting.
It might be time for investors to start thinking outside
the box and exploring alternative strategies,
or maybe even expanding their horizons
beyond those traditional investments.
OK, I'm all ears.
What kind of alternative strategies
are we talking about?
Well, there are a lot of different options out there.
For starters, investors might want
to consider looking into alternative asset classes,
things like real estate commodities, private equity,
or even digital assets like cryptocurrencies.
These types of investments don't always
move in the same direction as stocks and bonds,
so they can provide some diversification benefits
and potentially help hedge against certain risks.
So it's about diversifying your portfolio
and not putting all your eggs in one basket.
Exactly.
But it's really important to remember
that each of these alternative investments comes
with its own unique set of risks.
And things can get complicated pretty quickly.
It's crucial to do your research and really understand
what you're getting into before you jump in.
And talking to a financial advisor is always a good idea.
So as we wrap up this deep dive into Ocean Park's investment
insights, what's the key takeaway for our listeners?
What should they be thinking about
as they navigate this complex investment landscape?
I think the big takeaway here is that 2025
is shaping up to be a year that's all about flexibility
and adaptability and a willingness
to think outside the box.
It's a year of potential pitfalls, for sure.
But it's also a year of exciting possibilities.
We're facing some economic uncertainty,
and there are definitely some geopolitical risks out there.
But at the same time, we're seeing incredible advancements
in technology and a potential shift in earnings growth
that could create new opportunities.
Exactly.
It's a time for both caution and optimism.
We need to be aware of the risks, but also open
to exploring new approaches.
Well said.
Thank you for guiding us through all of this.
It's been an incredibly insightful conversation.
My pleasure.
And remember, this is just the beginning of your exploration.
Stay curious, stay informed, and most importantly,
stay engaged with the ever-changing world of investing.
And on that note, we'll wrap up this episode of The Deep Dive.
Thanks for joining us, and we'll catch you next time
as we dive into another fascinating topic.