Summary

The long-term trend in the US stock market has been higher. In the more than 40 years since Ronald Reagan became president in 1980, stocks have delivered profitable returns almost 80% of the time. The average annual gain has been 13%. This year was another winner as 2024 stocks extended a bull market that began in October 2022. The rally was ignited by falling inflation and has been fueled by interest rates lower, steady economic growth and rising corporate profit growth rates. But despite historical trends, there is no guarantee that 2025 will also be a steeple. The start of the year could be difficult as the Fed struggles with stubborn inflation, the labor environment may weaken from a historically strong position and geopolitical issues heat up. But earnings growth is expected to accelerate to a low double-digit rate year over year in the first half. And if inflation were to resume its downward march, giving the central bank more room to cut rates, the outlook for the second half should improve. We believe the stock market will take its cues from two sources in 2025. First, the Fed, which has been the driver of this second stage of the bull market since it pivoted on its rate outlook. The second will be profit growth, which is already solid but could get a boost in 2025 with Donald Trump’s new policies. It is at least a modest comfort that the