Market Momentum: A Bullish Close to 2024 Fuels Optimism for 2025 But Challenges and Risks Deserve Our Attention

December 11, 2024

Let's chat about the market's latest moves and why we're feeling optimistic about 2025. While we're pleased with our risk-adjusted performance this year, as your Portfolio Manager, we always maintain a steadfast focus on potential risks to your hard-earned assets.

 

The U.S. stock market has been on a roll this December, wrapping up a solid year led primarily by the Magnificent 7 stocks – Amazon, Apple, Alphabet (Google), Meta (Facebook), Nvidia, Microsoft, and Tesla. This surge is thanks to strong economic fundamentals, easier monetary policy, and most importantly, a huge boost from AI innovation. However, the oversize impact of just seven stocks is a concern. Going forward, we do anticipate a broader market, barring any unforeseen events.

 

Recent Market Movements

Here's the scoop on what's been happening lately:

  • Indices Performance : The S&P 500 and the Dow Jones Industrial Average remain strong, showing signs of a broader market rally. Meanwhile, the Nasdaq took a tiny step back due to some profit-taking in tech stocks.

  • Sector Winners and Losers : Financials, industrials, and small company stocks have been strengthening since the election. Tech stocks, especially AI-focused ones like Nvidia, have been on fire, though they're cooling off a bit now. We do note that our Affinity Capital Portfolios have been weighted towards technology for most of 2024.

 

Factors Driving the Market

So, what's fueling this market magic?

  1. Economic Strength : The U.S. economy grew by 2.8% in Q3, thanks to strong consumer spending and positive vibes from indicators like the NFIB Small Business Optimism Index. However, the reliance on government job creation and overall government spending to power the economy remains a concern.

  2. Stock Buybacks : Stock buybacks occur when a company buys back its own shares from the marketplace. This reduces the number of outstanding shares, often leading to an increase in the stock's price. However, there are concerns about their long-term impact and potential for short-term market fluctuations.

  3. Fed Policy : The Federal Reserve cut rates by 75 basis points this year, with another cut likely in December. Lower interest rates make borrowing cheaper and boost stock valuations.

  4. Post-Election Stability : A clear presidential election outcome has boosted confidence. The market loves the new administration's pro-business policies, including potential tax cuts and regulatory easing.

  5. AI Boom : The AI revolution is still going strong, with stocks like Nvidia and Tesla leading the way. It's not just tech; other sectors like utilities and consumer discretionary are also getting in on the action. Look for Affinity Capital portfolio rebalancing to reflect broader market activity.

 

Challenges and Risks

Of course, it's not all sunshine and rainbows:

  • Valuation Concerns : The S&P 500’s forward P/E ratio (Price to Earnings) is up to 25.6, which might limit further gains. The long-term average P/E is 16.8. While statistics tend to revert to their mean, these valuations can stay elevated for significant periods.

  • A Market Correction : During any bull market cycle, market corrections averaging (10%) are normal and healthy. While there have been periods of numerous volatile sell-offs since 2008 where we have made major moves to cash, we believe any sell-off would more likely be an opportunity to rebalance our portfolios. 

  • Cooling Labor Market : While unemployment is low, job creation has slowed, which could impact consumer spending. The high percentage of government job creation versus the private sector remains a concern.

  • Global Risks : Geopolitical tensions and global growth uncertainties are still wildcards as we head into 2025.

 

Outlook and Implications

Looking ahead, the market seems set for more gains in early 2025, thanks to positive economic momentum and supportive Fed policy. But let's not get too comfy—valuation risks and potential external shocks are still out there. A balanced portfolio with a mix of growth and value stocks, plus diversified sector allocations, can help manage risks while still seizing opportunities.


While 2024's bullish momentum has set a high bar, the foundation looks solid for more growth, even if it's a bit more measured.


At Affinity Capital, we're all about keeping an eye on economic trends and how they might affect your investments. We regularly review your portfolio and make strategic adjustments to keep your investment plan aligned with your financial goals and risk tolerance.


Got questions or concerns about the markets or your investment strategy? Don't hesitate to reach out. We're here to provide clarity and guidance whenever you need it.

Markets, Geopolitics, and Recent Volatility

January 21, 2026
Recent market headlines have been driven less by economic data and more by geopolitics. In particular, renewed discussion around Greenland and its strategic importance has introduced a new layer of uncertainty into global markets. Greenland matters not because of its size or population, but because of its location and resources. It sits at a critical crossroads between North America and Europe, plays an increasingly important role in Arctic shipping routes, and holds significant reserves of rare earth minerals that are essential for technology, defense systems, and energy infrastructure. As global competition for these resources intensifies, Greenland has become a focal point in broader strategic and trade discussions. Markets reacted quickly to this uncertainty. U.S. stock indexes moved lower in a broad selloff, with technology shares leading the decline. At the same time, investors shifted toward more defensive assets, pushing volatility higher, lifting gold prices, and pressuring risk-oriented assets such as cryptocurrencies. Similar caution was reflected in overseas markets as well. When geopolitical issues intersect with trade policy, markets tend to respond swiftly. Even the possibility of changes in tariffs, trade relationships, or diplomatic alignment can influence assumptions about global supply chains, corporate earnings, and economic growth. That is what markets have been digesting. These developments are now a regular part of the global environment. Markets today must absorb not only interest rates and earnings reports, but also geopolitical strategy, resource security, and shifting alliances. This can create short-term market adjustments as investors reassess expectations. Geopolitical uncertainty does not automatically translate into lasting economic damage. Markets have navigated trade disputes, diplomatic standoffs, and strategic realignments many times before. Over time, clarity emerges, negotiations evolve, and economic activity adapts. We continue to watch these developments closely and view them as part of the broader global backdrop in which markets operate. While the headlines may feel new, the underlying dynamic of markets responding to geopolitical uncertainty is familiar and expected. If you have questions about how global events fit into the bigger picture, we are always available to talk them through. Understanding the context behind the headlines is often the most effective way to stay grounded when markets react to evolving global issues.

The Policy Pivot: Key Takeaways for Investors

December 11, 2025
The body content of your post goes here. To edit this text, click on it and delete this default text and start typing your own or paste your own from a different source.

Finishing 2025 Strong: Key Trends to Watch

December 1, 2025
As we move into the final month of 2025, markets are adjusting to a new mix of encouraging economic trends and lingering uncertainty. November ended on a softer note, but December has opened with improved sentiment, clearer expectations around Federal Reserve policy, and a more confident tone in both equity and fixed income markets. Investors are watching these shifts closely, and the weeks ahead will help determine how the year ultimately finishes. At Affinity Capital, we continue to see an environment supported by quality leadership, steady earnings, and more attractive income opportunities. At the same time, late-cycle pressures and uneven economic data remind us that thoughtful risk management remains essential. A More Constructive Tone to Start December December began on firmer footing after several weeks of mixed performance. The most significant driver has been the market’s growing conviction that the Federal Reserve is getting closer to the start of a rate-cutting cycle. Current pricing suggests a meaningful chance of a cut in the near term, which has helped lift sentiment across equities and high-quality bonds. This optimism has also supported areas that tend to benefit from lower yield expectations, such as precious metals and rate-sensitive parts of the market. While not a guarantee of what comes next, the shift toward more accommodative policy expectations has created a more balanced backdrop than we saw earlier in the fall. Economic Data Remains Mixed Despite the improved tone, the incoming data continues to show pockets of weakness. Manufacturing activity has contracted for another month, hiring momentum has slowed, and consumer spending has moderated from its pace earlier in the year. The recent government shutdown delayed several economic releases, and the catch-up process has added some short-term noise to the data stream. What stands out is the contrast between a resilient corporate earnings picture and a softer macro environment. Many large companies continue to report healthy margins and steady demand, yet the broader economic indicators suggest that growth is losing some steam. This type of divergence is typical in late-cycle phases and often results in more frequent market swings. Volatility Has Picked Up After months of historically low volatility, markets have begun to experience more frequent fluctuations. Concerns around artificial intelligence valuations, regional banking stress, and geopolitical developments have all played a role. Volatility is not necessarily a sign of structural weakness, but it is a reminder that investors should expect a less predictable finish to the year. For diversified portfolios, these swings can create opportunities to rebalance, harvest gains, or add exposure to areas that have repriced more attractively. They also highlight the importance of high-quality holdings that can withstand periods of uncertainty. Opportunities Across Equities and Fixed Income Even with the mixed data backdrop, the overall investment environment remains constructive for long-term investors. High-quality U.S. companies with strong balance sheets and consistent earnings continue to provide stability at the core of portfolios. Select small-cap and mid-cap companies have also begun to show signs of improvement as rate expectations shift. In fixed income, today’s yields offer significantly more value than they did for much of the past decade. Bonds once again contribute meaningful income, and the possibility of lower rates in 2026 creates potential for price appreciation in high-grade credit. This combination strengthens the case for balanced portfolios that include both equities and fixed income. Positioning Into Year-End Given the current landscape, we believe the market is moving toward a finish that is neither overly exuberant nor overly cautious. Several key themes are likely to guide performance over the coming weeks. Quality leadership continues to play an important role, especially in sectors tied to innovation, cloud infrastructure, and digital transformation Broad market exposure remains valuable in capturing the benefits of seasonal strength and earnings resilience Dividend-oriented and defensive holdings support stability in late-cycle environments High-quality bonds offer attractive income and diversification benefits Small-cap and mid-cap allocations may provide long-term upside as rate expectations shift Looking Ahead As the year comes to a close, investors are balancing two realities. On one side, there is growing optimism around potential rate cuts, resilient corporate earnings, and improving seasonal patterns. On the other side, there are signs of slowing economic momentum, higher volatility, and continued geopolitical uncertainty. The result is a market that rewards discipline, diversification, and a focus on long-term goals. At Affinity Capital, our approach remains steady. We continue to emphasize high-quality holdings, balanced allocations, and thoughtful adjustments based on data rather than emotion. The coming months will bring new information, but the principles that guide long-term success remain unchanged. We are here to help clients stay aligned with their plans and positioned with confidence as we move into a new year.