The Compound: Something’s Going to Break, We Don’t Know What
While the market has trended higher since the election, some sectors have fared better than others. Investors generally expect inflation to continue to run above the Federal Reserve’s target rate. That’s why assets like gold and bitcoin have been big winners.
And while economic data looks strong, there have been a few yellow flags for investors. And any one of those potential dangers could cause the market to tip over into a bear market in 2025.
For instance, the housing market has been out of whack for two years. Rising mortgage rates have kept homeowners from moving out of homes with a low rate. But home prices have continued to rise due to ongoing demand.
The end result? A high price to income ratio to buy a home. That’s resulted in homeownership slipping out of reach for middle class Americans. Today, only those with significant income and assets, and increasingly older Americans have joined the ranks of homeowners.
Meanwhile, 2025 will see Donald Trump return to the White House. Markets are likely unable to fully price in the impact of any changes on tariffs. That’s because changing tariffs can lead to retaliatory actions by foreign countries.
As new tariffs unfold, the economy could see a slip in both imports and exports. Slowing global trade could easily put some fear into the stock market.