My Gut Feeling For 2025

Scott Rothbort

January 15, 2025

Another year has come and gone. Now that the ball has dropped in Times Square, it’s time for me to publish my expectations for 2025. I was prepared to release My Gut Feeling for 2025 a few days ago, but I had to give it a second thought given the conflagration in the Los Angeles area of California. Clearly this is an event of dramatic proportions and consequences which will be felt not only in 2025 but for years to come.

My overall thoughts are that besides the unfortunate human and property costs, we are going to see the secondary and tertiary impact to lives and the economy for some time. I must take that all into account in My Gut Feeling for 2025 (and beyond).

So, here it goes:

Working off a base estimate of S&P 500 (SPX) Earnings per Share (EPS) of $271, which implies about a normal 8% growth rate year-over-year, I made some adjustments:

a) An additional 11 dollars of EPS in anticipation that the 2017 Tax Cuts and Jobs Act will not only be extended but will include several other modifications such as: i) an increase of the SALT deduction (or possible elimination of the SALT deduction ceiling; ii) promised elimination of taxation on Social Security and tips; iii) further reduction of corporate tax rates; iv) increased incentives for domestic manufacturing; and, now the “External Revenue Service” initiative.

b) A reduction of 2 dollars because of the immediate economic impact of the California fires, though note, once the rebuilding begins later in 2025, those lost earnings will be made back beyond 2025, with perhaps even more as the 2028 Summer Olympic preparations swings into full gear.

c) A reduction of 1 dollar from reduced fiscal expenditures related to DOGE (Department of Government Efficiency) efforts. Though, DOGE efforts will have long-term benefits to the national debt and future economic growth, we can worry about those in the future.

All told, my revised SPX earnings for 2025 will be $279. Carrying forward the same PE multiplier of 24 from 2024, my SPX price target for 2025 will be 6,696. Let’s call it an even 6,700 implying a 13.9% increase from the end of 2024.
The Federal Reserve Open Market Committee (FOMC) telegraphed two quarter-point rate cuts in 2025 in its December 2024 meeting. The markets accepted that by selling off the stock market and the longer end of the Treasury curve. Given the mutual distaste of President Trump and Federal Reserve Chairman Jerome Powell, I don’t see the FOMC cutting more than a quarter-point twice this year. However, the question remains: Can and will Trump fire Powell? Trump will certainly try his best.
Long rates for US Treasury securities and bonds in general began to drift higher late in 2024 (see #2 above). The good news is that the curve is disinverting which is a welcomed development. As the 10-year gets close to 5%, which might be a possibility, there will be fear in the stock and real estate markets, resulting in a much-needed stock market correction. Still that does not change my SPX predictions in #1 above. However, at the end of the day, the much watched 2-10s (spread between the 2-year and 10-year US Treasury rates) will be healthy and while the 10-year may flirt with 5%, at the end of the year it will settle in a range of 4.5% to 4.75%.
Economic growth is going to be an important factor in all that I talk about. The Federal Reserve projects (as of December 2024) for 2024, change in Real (inflation adjusted) Gross Domestic Product of 2.5%. For 2025 the Fed projects real GDP of 2.1%. I would note that going out for the next two years and the longer run it projects real GDP in the range of 1.8% to 2.0%. These lethargic estimates are due to lingering inflation and lackluster real domestic economic growth over the past few years. I believe this backward impact on growth and inflation will continue into 2025, at least in the first half of the year. Tax and other new economic policies (see #1 above) will kick in the last half of the year, and I believe result in higher-than-expected real GDP for 2025, closer to 2.5-2.7% in the back half of the year, resulting in an annualized real GDP of 2.3-2.5%. Inflation will be the wild card, and I will discuss that later (see #8 below).
It’s hard to believe that Growth stocks not only had a repeat of 2023 and, in many instances, outperformed 2023. Artificial Intelligence (AI) continued to be the engine which fueled Growth stocks in 2024, especially the Magnificent 7 stocks: Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). In 2024 there was a widening out of the AI revolution as secondary AI stocks such as Constellation Energy (CEG) and Palantir (PLTR) performed like the 1972 Miami Dolphins (I recently purchase a signed team picture of that team carrying Don Shula off the field after the Super Bowl for my collection). Though, as we entered 2025, I cut back on PLTR which got too much over its skis. This theme will continue as the non-chip AI stocks will begin to accelerate in earnings and prices. We have a few on board and others ready to purchase. That is not to say that NVDA and Broadcom (AVGO) should be dumped into the dustbin; but just don’t expect those stocks to double again in 2025. A nice increase of 20-30% will make us quite happy.
We have been suggesting to certain clients who benefited from the two-year surge in Growth stocks to allocate some of those assets to Dividend / Value stocks in 2025. Of course, we must consider the tax impact of such a shift and for the most part, we are performing that reallocation in retirement accounts. The challenge in a declining interest rate environment will be to seek out stocks that help to maintain our targeted dividend yield of 4.50% to 5.00% without taking on additional risk. We are not alone. I also expect that, on a selective basis, there will be opportunities in the Real Estate Investment Trust (REIT) sector in 2025, though be careful to avoid retail and commercial office REITs.
Consumers were challenged in 2024 suffering from declining real wages and job losses to overseas and/or illegal aliens who are willing to work cheaper or off the books. Retail chains and smaller establishments have been closing stores or went out of business at rates indicative of recessionary times. Consumers are smart and are redirecting their discretionary expenditures more and more. Amazon (AMZN), Costco (COST) and Wal-Mart (WMT) will pick up the slack in retail. Furthermore, consumers will travel more, creating opportunities in the travel and hospitality space. However, avoid at all costs any stocks having to do with airlines or airplane construction. Lastly, consumers will keep their old automobiles causing an even greater inventory issue at new car dealers, especially for electric vehicles which are too expensive and are being shunned by the average automobile consumer. Two of my children bought cars in the last few months and I cannot tell you how hard dealers are trying to push EVs while salesman with whom I have a long-standing relationship won’t in good conscious sell us an EV.
Core PCE Inflation is expected to be about 2.8% in 2024 and 2.5% in 2025. I think that the Trump administration will drive the US cost of gasoline (according to the EIA) down from an average $3.00 per gallon at the end of 2024 (which was only about 2 cents less that the prior year) to closer to $2.50 by the end of 2025. That is all except the West Coast which will suffer consequences from the California fires. All told, lower gasoline prices will spread throughout transportation costs and the entire domestic supply chain bringing inflation down closer to 2.3% by year end 2025.
In Politics I have a few expectations / surprises (this section is always meant to be speculative and controversial, so if you don’t like it, get a sense of humor):

Joe Biden will be put into at-home assisted living and/or memory care. He will fade from public view after leaving office.
Karen Bass, Los Angeles Mayor will be recalled from office or forced to resign.
Kentucky’s Congressional representatives, Republican Mitch McConnell in the Senate and Thomas Massie, House Republican from Kentucky will both announce that they will not run for reelection in 2026.
Barack and Michelle Obama will announce that they will separate but remain married living apart. Barack will cozy up to Donald Trump along with his buddies such as Meta’s Mark Zuckerberg. Expect Barack to hit the links with Trump at Mar-a-Lago.
Chuck Grassley of Iowa will suffer a major medical episode resulting in death or resignation.
In communications (which is pseudo-political), National Public Radio (NPR) will be defunded, thanks to DOGE. Unable to sell MSNBC domestically, Comcast (CMCSA) will either sell it to a Latin American communications company or package it with debt and spin it off to existing shareowners. Don’t touch anything that has to do with MSNBC.

10. In sports, the Los Angeles Dodgers will be favored to win the World Series. However, Shohei Ohtani will be injured mid-season and miss the playoffs. The New York Mets, despite signing Juan Soto will not be the National League Champion. Rather the Philadelphia Phillies will face the Cleveland Guardians for the World series with the Phillies taking the title. The Detroit Lions will face the Buffalo Bills in the Super Bowl with the Lions winning the franchise’s first title since 1957. On the ice, the Toronto Maple Leafs will better the Winnipeg Jets for Lord Stanley’s Cup, making the first cup victor for a Canadian team since the Montreal Canadiens won in 1993 and the first cup victory for Toronto since 1967. In the NBA, the Oklahoma City Thunder will best the Cleveland Cavaliers in the NBA Final. In the NCAA Men’s Basketball Tournament, the Florida Gators will win the title. In the women’s tournament, with Caitlin Clark in the WNBA, I could care less.

Best wishes for a Happy and Healthy 2025. As always, please contact me if I can help you with your investment needs or for media appearances. Also, feel free to post your comments / questions to My Gut Feeling and pass it on to relatives, friends, and colleagues throughout the year. Also don’t forget to read Carly Rothbort’s My Two Cents.

______________________________________________________________________

Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was long AAPL, AMZN, AVGO, CEG, COST, META, MSFT, NVDA, PLTR, SPY, QQQ & WMT, - although positions can change at any time. The mention of stocks are not recommendations and may not be suitable investments for your individual situation.

Scott Rothbort is the President & Founder of LakeView Asset Management, LLC, (LVAM) an investment advisor representative, specializing in high-net-worth private wealth management. LVAM is a separate entity of Osaic Advisory Services, LLC, a registered investment advisor.

For more information on investing with LakeView Asset Management, LLC call us at 702-749-9343 or request more information by clicking on the contact button on the top right-hand corner of the website or by emailing Scott at scott@lakeviewasset.com or Carly at carly@lakeviewasset.com. LakeView Management, LLC is a Nevada LLC, with its principal office located in Henderson, NV and branch office located in Millburn, NJ