KF Update – Wrapping up 2024 and Looking Ahead to 2025

6 Minute Read 
 
Good afternoon, we hope this email finds you well and you had a great Thanksgiving holiday.  We wanted to put a bow on 2024 and look ahead to 2025.  We hope you find this information helpful. 
 
Markets & Economy 
Here are the 2025 year to date returns of several notable asset classes: 
 
Dow Jones – Large US Value Companies – 17.14%
S&P 500 – Large US Companies – 29.24% 
Nasdaq – Large US Growth Companies – 33.46% 
Russell 2000 – Small/Mid US Companies – 19.61% 
MSCI EAFE – Large International Companies – 7.19% 
Barclays Bond Index – Aggregate US Bonds – 2.76% 
Gold – 30.17% 
Silver – 33.25%
Bitcoin – 138.47% 
*source Kwanti as of December 11th, 2024
 
US blue chip companies continue to have a fantastic year, with the S&P 500 up over 29% year-to-date.  International stocks continue to lag the US market with the EAFE up just 7.19% year-to-date.

While we do hold international stocks in client portfolios, we have always been overweight US relative to International with 80% allocated to the US market.  With international stocks lagging the US market once again, it begs the question “why hold international stocks at all?”

The Makeup of the World Economy
Let’s start with context, the US represents roughly 4% of the worlds population, approximately 10% of the worlds publicly traded companies, and 24% of the worlds economy.
*Source Calamos WM White Paper February 2021
 
While the US remains the dominant economy in the world, there are many great companies outside of the United States that are worth investing into.

Valuation
The most common way we determine valuation is price to earnings ratio, ie how many times earnings do you have to pay for a company?  The S&P 500 is currently trading at 31.15 times its trailing 12 months earnings (*Source multpl.com as of December 11th, 2024), while the EAFE index is currently trading at 15.96 times its trailing 12 months earnings (*Source ishares.com EAFE ETF as of December 11th, 2024). 

For context, the S&P 500 has historically traded at 15-20 times its trailing 12 months earnings.  While US companies can lower that PE ratio with strong 2025 earnings, valuation metrics are making a strong case for international equites as part of a diversified portfolio.

The Dollar
A weakening dollar boosts returns of international equities.  Many factors can cause the dollar to weaken, but one of the main causes is too much debt.  If we continue on this trajectory of budget deficits, massive spending and borrowing, it could have negative long-term effects on the dollar.  

Looking Ahead to 2025
The top item on our list for 2025 is monitoring any changes to tax laws.  The 2017 Tax Cuts and Jobs Act is set to sunset on January 1st, 2026.  There is already a lot of noise about potential changes to the tax code, but I want to wait until it passes into law before providing an in-depth analysis to clients.

Some other items of note for 2025:

• Individuals ages 60, 61, 62, and 63 are eligible for a special catch up in company sponsored retirement plans.  Instead of $7,500, those individuals can contribute $11,250 for a total limit of $34,750.
• IRA limits remain the same, $7,000 for individuals under age 50, $8,000 for those over age 50.
• 401k and 403b limits increased from $23,000 to $23,500.
• Many employer sponsored retirement plans (401ks, 403bs, etc.) will begin auto enrollment for 2025.  This means if you are not already enrolled and contributing, your employer will automatically begin deducting contributions unless you sign an opt out form. 

We hope you find this information helpful, and you have a great holiday season! 
 
Best, 
Clint, Renee, & Kristi