Are you a Bull or a Bear?

In any market environment, there are investors who have a positive or “bullish” outlook on the market. We call them bulls.

And there are investors who have a negative or “bearish” outlook on the market. We call them bears.

These terms have been around for a long time, and you have no doubt heard of them before. In a market environment like the one we are in now, the debate between bears and bulls tends to heat up as investors and analysts on both sides make their case for where the markets are headed.

Since the second half of 2022, we have seen incredible growth in the markets and have officially been in a bull market since June 2023 according to Yahoo Finance. This bull market has led to multiple new all-time highs in major U.S. market indices including the S&P 500 topping 6,000, the Nasdaq topping 19,000, and the Dow Jones Industrial Average briefly topping 45,000, as of Dec. 3.

This bull market has been driven mostly by an explosion of interest in artificial intelligence and a very resilient economy in the face of high inflation and growing geopolitical risk. If you have had any equity exposure over the last couple of years, you have likely benefited from this bull market.

The question we face as we head into 2025 is: Where do we go from here?

Will this bull run continue, or will we have a correction—or even a recession—in the next calendar year?

There is both a bull and a bear perspective on this heading into 2025.

The Bulls

There are a couple of factors driving bullish sentiment.

The first is an overall strong economy with an economically friendly administration soon to assume control in January 2025. They point to solid growth in gross domestic product, low unemployment, lower inflation, and consumer sentiment as reasons for confidence.

*GDP is expected to grow at 2% next year according to the International Monetary Fund. This number is below the historical average of 3.14% but still a modest growth rate for a developed country and certainly not a sign, at least from the bull’s perspective, of an impending recession.

*The average unemployment rate for 2025 is projected to be 4.4%, which is well below the historical average of 5.69%, and would imply a continuing strong labor market.

*Inflation is projected to be 2.5%, which is continuing to grow closer to the Federal Reserve’s goal of 2% inflation.

*Consumer sentiment is up 17% from November 2023, which speaks to a level of confidence consumers have about the state of their finances and the overall economy.

Another area bullish investors or analysts point to is momentum. Momentum in the stock market, momentum in consumer spending, momentum in earnings. They point out continued market growth evidenced by the multiple all-time highs we have seen this year, a strong consumer bolstered by a strong labor market, and continued growth in earnings with projections that suggest the trend will continue into 2025.

There is data to back up each of these points, but the “momentum” argument tends to be a little anecdotal by nature—a rationalization that “It will continue because there is nothing significant in the way to slow it down.”

To illustrate this momentum mentality, one analyst said recently, “Unless you can make a convincing argument as to why U.S. equities are going to immediately turn south, the medium-to-long-term trend is suggesting a continued move higher.”

The Bears

The more bearish investors and analysts, on the other hand, focus on data points that suggest there are growing signs in the markets and economy that could lead us into an economic slowdown, and possibly even a recession.

They point to record high equity valuations, historic high corporate executive stock sales, rising credit card debt, car loan delinquencies, and anecdotal evidence from whale investors like Warren Buffet.

*The forward price-to-earnings ratio, which is a valuation metric that compares the current stock price to its forecasted earnings, for the S&P 500 is 23.98 to 1 as of Dec. 1. Historically, that's a high level.

*Corporate executive sales of stocks is what we call a leading indicator. It signals to us a diminishing conviction corporate executives have in their own company’s future earnings. According to analyst Jesse Felder, the ratio of insider sales-to-insider buys has hit a record high for any quarter in two decades.

*U.S. consumer credit card debt is at an all-time high of $1.17 trillion dollars, according to the Federal Reserve Bank of New York. Of that debt, about 11.13% is more than 90 days delinquent. Historically, this has been seen as a troubling sign.

*Auto loan delinquencies also rose over the last quarter to 4.59%, according to the same report from the Federal Reserve Bank of New York. This is the highest we have seen in more than 12 years. Both of these data points would suggest that the consumer is weakening, which is often seen as a leading indicator.

Cautious Optimism

As you can see, there is data on both sides of the argument that investors are using to make their cases for where markets are headed. No one truly knows what 2025 will hold, and we remain cautiously optimistic of the future. One of our favorite analysts recently said, “It’s important to ride the wave as long as you can, but you don’t want to be the furthest one from the door when someone yells ‘fire’ in the theater.”

As we close out 2024, whether you are a bear or a bull, our team believes there are three things that you can do. First, develop a long-term plan driven by your goals. This in turn determines a personal investing philosophy that allows you to stay disciplined regardless of market conditions. Second, develop a well-diversified portfolio that allows you to participate in up markets and may help protect, as best as possible, in down markets. Third, buy quality companies. We believe from experience that these three ingredients contribute to financial success.

Regardless of your outlook for 2025, make sure you aren’t the furthest one from the door if, or when, a fire starts.

 John Graham is a Spokane-based financial adviser with Stifel, Nicolaus & Co. and can be contacted at 509.570.5722.