How do you make an omelet? Step one is  cracking the eggs and step two is beating the  eggs. It’s a volatile process to end up with a  palatable finished product. As we move into  2025, I think the same can be said for the  process of getting the United States of America  on better financial footing. More on that in a  moment.  

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The stock market is expensive. If there were no  other factors to consider, one would have to  temper their return expectations heading into  next year. The valuation of stocks and the  market in general are measured in a ratio of  PRICE versus EARNINGS, also known as the “P/E  Ratio”. The P/E of the S&P 500 is currently on  the high side of its historical average. This  doesn’t mean there’s an imminent market crash  on the way as “valuation” has never been a  great short term timing tool for the market.  There’s a saying in our business that goes: “The  market can remain irrational much longer than  you can remain solvent”. Expensive markets can  become much more expensive. And markets  can also become less expensive if the “E” or  “EARNINGS” in the P/E ratio grow significantly.  

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2025 is likely going to be a year of competing  influences on the market. On the bright side of  things, we believe recession risk has diminished.  Economic data in recent months had us more  concerned about recession in 2025. Things like  increases in credit card and auto loan defaults,  a rise in unemployment and huge reduction in  U.S. job openings were worrisome. That said,  the stock market move since the Presidential  election is likely creating what is referred to as a  positive “wealth effect” and could delay  recession out to 2026 or beyond. People feel  better and are more likely to spend when their  account balances are up.  

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term pain as it relates to  slower economic growth.  

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Then there are tariff concerns. First, keep in  mind, significant tariffs are levied against us by  foreign countries. It is NOT a level playing field.  President Trump had some missteps with tariff  policy during his first term where tariffs were  announced only to be modified or have  exceptions granted once unintended  consequences were recognized. That said, the  tariffs that were put on during that term were  never lifted by the Biden administration. Tariffs  can be utilized as a negotiating tool to try and  level the playing field for American businesses  and at this early stage, they seem to be working  as foreign leaders have been anxious to have a  dialogue regarding the issue. Xi Jinpin of China  has recently stated he hopes for dialogue  regarding tariffs and desires to have Chinese  markets open to American businesses. How all  of this will work out remains to be seen and can  be a significant variable moving forward. 

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Although tariffs can be utilized as an effective  tool to level what is currently an unlevel playing  field, they can also be inflationary and inflation  is the yet another element of uncertainty for  2025. 87% of all inflation cycles in the U.S. have  had two peaks. This current cycle has had only  one peak and although inflation is down from  its highs, it’s still far from the Fed’s target of 2%.  Different polices will have different impacts on  inflationary pressures. Tariffs = inflationary,  lower oil prices = deflationary, lower regulations  = inflationary, spiking unemployment due to  Federal layoffs = deflationary. We’ll be watching  all of these.  

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With 36 trillion in debt we need to grow our  way out of the hole we’re in. The Fed will need  to walk a tightrope trying to allow for healthy  growth while not letting inflation ramp up for  an ugly round two of higher prices. I’m starting  

to think that making eggs over easy without breaking the yolk is a better analogy than an  omelet.