Author: Randy Watts

Key Points:

• Looking at stock market performance across presidential terms (1953–2025), the median S&P 500 return is +33% from inauguration to the end of the term.
  • Obama, Clinton, Eisenhower, and Trump have the largest four-year gains, ranging from 70–85%.
  • Only two of 13 presidents posted negative returns, Richard Nixon and George W. Bush.
• Going back further (1900–2025 on DJIA), and looking at annualized returns,
  • Calvin Coolidge (1923–1929) is far and away the leader, with a 25% annualized return over one and a half terms.
  • Several others including Clinton, Obama, Trump, and Reagan are bunched together from 11–15% annualized gains.
  • Hoover presided over the 1929 market crash and the beginning of the Great Depression and is worst with a -25% annualized return.

As the year comes to an end, we want to look ahead to some of the possible major investment themes for 2025. These themes are from the research work by William O’Neil + Co.’s experienced equity analysts. Some of the themes are new and others are continuations of trends we saw in 2024.

The November elections ushered in a new administration and a Republican sweep of the federal government with the party winning the White House, the House of Representatives, and the Senate. Investors, investment bankers, and private equity have viewed the change in Washington as heralding a possible improvement in both mergers and acquisitions activity as well as public equity issuance.

Artificial Intelligence (AI) is the next major technology wave. According to IDC, spending on AI will be in excess of $631 billion by 2028. With the ever-increasing interest and spending in AI, there are a rising number of ways to invest in the theme. This month’s Strategy View examines some of the ETFs, industry groups, and stocks that are likely to benefit from this massive global theme.

The U.S. Federal Reserve began its long-awaited interest rate easing cycle on Wednesday, September 18 with its first 50
basis points cut since 2008. Figure 1 shows the post-war history of Fed easing cycles. It demonstrates that starting with a
50-basis point cut is roughly the average cut from the Fed initially. The table below also highlights that interest rate cuts are
like potato chips, you almost never have just one. Indeed, the new Fed “dot plot” is for an ending Fed Funds rate of 3.4%
at the close of 2025.

Attached is the latest Strategy View–Yield Curve from Randy Watts, our Chief Investment Strategist, and Global Sector Strategist Kenley Scott.

Key points:

• This week’s selloff sent major indices to more than 10% off highs, just a few trading days from all-time highs. In this report, we detail past 10% or greater corrections in both bull and bear market scenarios.
  • In bull scenarios, the median depth is ~12% over 36 days. The next leg higher is typically a weaker-than-normal (11%), at up just 9%. This makes sense as the tendency after such a shock is to sell into strength.
  • In bear scenarios, the median depth is also 12%, and the bounce is even weaker, at just 7%.
  • We would not suggest buying the weakness and need to see several days with lows established at a minimum before becoming more constructive.
• With earnings season mostly complete, the good news is that Q4 earnings surprised to the upside, as is typical. The bad news is that 2020 estimates are still too high and continue to steadily decline.

Key points:

• Surprisingly, given the fact that the U.S. is by far the largest market (~54% of the developed market cap and ~40% of the global market cap), the top 20 U.S. market cap stocks are also growing faster than the top 20 stocks elsewhere.
  • The 18% median EPS growth rate over five-years for U.S. stocks is the best in the developed world, and second to only Russia/Turkey across all 47 developed/emerging markets.
  • In the developed world, the top 20 U.S. market cap stocks also have the second highest five-year sales growth rate and pretax margins are tied for the fastest projected earnings growth rate next year and highest ROE.
  • Compared to the emerging world, the top 20 U.S. companies are tied for second in pretax margins and remain first in ROE.
• Given the superior growth and low interest rates which have fueled valuations, it is no wonder the U.S. market is among the best performing over five years.
• On valuation (forward 12-mo P/E), the spread between the S&P 500 and Asia/Europe/Emerging is at ~15-year highs.
• While the setups argue for a reversion trade, similar to the value/small-cap trade in the U.S., a reversion in favor of international markets that lasts longer than a couple of months is unlikely without a pickup in growth relative to the U.S.

Key points:

• Median S&P 500 sales are expected to grow 4% in Q4 2019, roughly in line with Q3. EPS is expected to grow 4%, versus 6% in Q3, but given normal ‘beats’ of 3%, we expect growth of 6–7%.
  • Health Care is once again expected to have the best growth. Six sectors including Technology and Cyclical are expected to show EPS declines.
• S&P 600 growth is lower, with sales and EPS expected at 3% and -1%, respectively. Further, more than 100 small caps could show negative earnings, so the true growth number would be closer to -5%.
  • No sectors are expected to show particularly strong earnings growth, but Financial and Health Care have solid sales growth estimates.
• Estimates continue to fall.
  • Q4 2019 actual (operating) earnings are expected at -2% versus +8% six months ago.
  • Q1/Q2 2020 estimates have come down sharply over the period as well.
  • However, full-year 2020 estimates have only fallen from 11% to 9%, implying a sharp Q3/Q4 2020 rebound.
  • We think the 2020 number is too high, but also think the market is clearly pricing in a rebound.
• Indices are extended currently. The S&P 500 is 10% above its 40-WMA. When it gets this far extended, it typically pauses or falls a bit over the forward four weeks but is higher still further out.
• We remain extremely positive in terms of sentiment given a sharply higher number of leaders (USFL count at a six-year high) and strong action in growth leaders. Still, we would trim very extended ideas ( AMD, NVDA, etc. ) and keep purchases to stocks coming out of new bases ( BL, NOC, PYPL, QCOM, AVLR, CMG, EL, etc. ).