JAN 2025: Buckle Up
An appropriate wind hold metaphor at Mt Rose Ski Area.
Not investment advice. See full disclosure below.
There is much to ponder across the market as the calendar turns to 2025. Be sure to double check positioning, risk exposures and time frame. Rates are inching higher and it’s a good time to reload a laddered bond allocation of Treasuries. As for equities…buckle up and have a plan take advantage of the volatility and buy on weakness.
Equity Volatility
As evident since the election, volatility is up. Both upside and downside moves have been significant. The Russell 2000 (small caps) have had multiple 3%, 5% and 10% up/down moves in 2024. The equal weight S&P 500 has also experienced high volatility…the MAG 7 by contrast, has been the safe haven. I continue to maintain exposure across the US equity market and expect to add more throughout the year.
Rate Volatility: Debt Maturity Walls
There are three enormous debt walls to manage in 2025 and onward, Government debt, Commercial Real Estate debt and Small Cap debt in the Russell 2000. No predictions here (everyone one knows this) and it’s not an overnight surprise. The private and corporate markets will probably manage themselves just fine with various borrowers / banks under pressure and defaults being digested at a measured paced. The true wild card is how the US Treasury bond market does…refinancing trillions in short-term government debt from record low interest rates to much higher rates is a “worst case” reality. Somebody needs to “buy them treasury bonds” and the Treasury Department will be at the mercy of the market / inflation and this will feed into interest rate volatility (and probably higher rates). Laddered Treasury bonds continue to be the path of choice for WLA’s fixed income exposure.
Status Quo Volatility
Team Trump will be aiming to break the status quo and this is certainly another wild card for the market - he will have to overcome many obstacles. For as much controversy as Trump generates, let’s watch and see what he can get done. Despite a volatile US Equity and rate environment for 2025 – a few common sense moves and we’re back to US Exceptionalism – and don’t doubt Trump’s interest to maximize US economic strength.
The Charts:
Record Concentration Risk in the S&P 500; the top 10 Names are nearly 40% of the S&P500.
Happy New Year.
Best,
Jon Fritzinger
Founder / CEO
Western Level Advisors LLC
Hello@westernlevel.com
About Western Level:
Western Level Advisors LLC is an independent Registered Investment Advisor. The firm provides investment management and long-term financial planning services for individuals. All services are provided on a fiduciary and fee-only basis. Western Level’s only purpose is to establish a clear pathway for each client to help them manage and compound their wealth.
The information provided in this commentary is intended to be informative and not intended to be advice relative to any investment or portfolio offered through WLA. The views expressed in this commentary reflect the opinion of the author based on data available as of the date this commentary was written and is subject to change without notice. This commentary is not a complete analysis of any sector, industry or security. This commentary is not intended to be a recommendation to buy or sell any investment. Please contact WLA with any questions regarding your accounts. The information provided in this commentary is not a solicitation for the investment management or other services offered by WLA. References incorporated into the commentary from third party sources are as of the date specified and are believed to be reliable. WLA is not responsible for errors in the third party data. Source information is provided under each chart. Additional disclosures are available at www.westernlevel.com.