2025: What Did You Expect?

A year ago, Lamplighter set out a few of its expectations for 2024.

People who predict market, economic and financial outcomes notoriously suck at it. They’re not idiots, though. Economies, markets—these systems are complex. Small, unlikely things sway outcomes.

How'd we do?

Here are the predictions Lamplighter made and a running scorecard of whether we got it right or wrong.

"The market will probably be up or down more than investors think."

S&P 500 up 23%. Nailed it. Lamplighter can't find a single analyst that had the S&P up 23% at the start of 2024. Scorecard: 1/1

"Whether the market is up or down for the year, it will probably be down 10% or more at some point."

That's a miss. The biggest S&P drawdown of 2024 was 8%. Lamplighter didn't go out on much of a limb here and still got it wrong. In an average year, the market drops 10% at some point. The market doesn't like to hang out at average, though (see above). Scorecard: 1/2

"The things that will matter to the market in 2024 will probably not be the things investors expect."

Another miss. The things investors expected to matter to the market in 2024—growth, inflation, interest rates— were mostly the things that ended up moving the market. The lack of big shocks was a tailwind. Inflation didn't accelerate. A recession didn't happen. There wasn't a pandemic or a supply shock. The economy avoided many of the hiccups that could have knocked it sideways. And the speed bumps it did hit, didn’t seem to matter to investors. As risks faded, so did their grip on prices. Investors became more willing to pay up for things. After a few "unprecedented" economic years. 2024 was more "precidented." Scorecard: 1/3

"The market will over-hype AI or crypto or GLP-1s… or something.

2024's hype was mostly the same as 2023's hype. AI and crypto and GLP-1 excitement continued. AI became much more useful, attracted much more investment and looks likely to keep that up for a while. AI investments (i.e. Nvidia) did well. Crypto also did well. Novo Nordisk and Eli Lilly are the leaders in GLP-1s. Novo Nordisk’s share price fell by about a quarter in 2024 even as GLP-1 sales ramped up and the market soared. That counts as disappointing investor expectations. Scorecard: 2/4

"Other unexpected things will happen."

10-year treasury rates rose from under 4% to 4.5% over the course of the year. This dampened stock prices…wait… we already covered that: stock prices rose.

Unemployment rose from 3.8% at the end of 2023 to 4.1% by the end of 2024. The steady rise crimped people's spending and jostled investors…nope that didn't happen either. Spending expanded about 2.7%.

The Fed shrunk its balance sheet by more than $800 billion or 11% of its total assets. The flood of investments for sale pushed down the price of other investments…wrong again.

At the beginning of the year, analysts expected S&P 500 earnings to rise 11%. They only grew 9%. The stock market…didn’t care.

It's wrong to think from the results that these factors didn't impact financial markets. It would be a huge mistake to think that they won't impact financial markets at some point in the future. They just turned out to be relatively unimportant factors last year. Scorecard 3ish/5

Lamplighter got 3ish out of 5 predictions right. Fine. It’s one thing to have opinions on what will happen. It becomes a problem if you invest assuming you’re going to get it all right. Lamplighter was wrong about some things. It invested so that those misses didn’t matter too much.

What next for 2025?

Morgan Housel wrote a book called Same As Ever: A Guide to What Never Changes. His entire premise was: point out things that stay the same. Hardly novel. In this spirit, Lamplighter will recycle the same "predictions" from last year again for 2025. They're not real "predictions"—they're more just “guidelines for an average year.” These expectations work well most of the time.

We know more about smaller, less complex things than “the economy” or “the markets.” So we don't get bored, here are some predictions for Lamplighter’s book over the next year:

Come together

One or more companies in the Lamplighter portfolio will be acquired (one's that haven’t already agreed to a deal). There are a few attractive candidates for bids from buyout shops or larger companies. Investors and Lamplighter expect M&A markets to open up compared to the past few years. This means more activity.

Break apart

Last year, one company in the Lamplighter portfolio split into two. Lamplighter thinks that more than one will announce plans to use the same trick in 2025. Several holdings own valuable, growing, profitable businesses that can be split off from their stodgy, old parent companies. The idea is that they’ll attract more investors—and higher prices—separately than they do together.

Wave goodbye

Some companies that missed out on the AI wave this year will catch that swell next year. There are a few companies in the Lamplighter portfolio that benefit indirectly from exploding spending on AI. They aren’t the names in the news. So far, they've hit operating marks, but share price hasn't kept up. One of those things will have to give. Lamplighter thinks it'll be share price.

Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.