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

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.

Signals from the Fed: Inflation, Growth, and What Comes Next

August 22, 2025
It was a Fed-heavy week, with three major developments that matter for markets and the economy. FOMC minutes (July 29–30) — released Wednesday (Aug. 20). The minutes reinforced a data-dependent stance : participants saw continued progress on inflation but noted that risks aren’t one-way, citing pockets of labor-market cooling and the growth impact of tighter financial conditions. Policymakers emphasized flexibility and the need to see inflation moving durably toward 2% before declaring victory. For investors, the takeaway is that the bar for rapid policy shifts remains high, but the Committee is clearly keeping both sides of the mandate in view. Weekly balance sheet (H.4.1) — released Thursday (Aug. 21). The Fed’s weekly statement showed the usual moving pieces: securities holdings, reserve balances, and program usage. While week-to-week changes can be noisy, the release remains a useful pulse on system liquidity and the runoff of the Fed’s portfolio under quantitative tightening . Markets watch aggregate reserves and Treasury General Account flows because they can nudge front-end rates and funding conditions at the margin. Jackson Hole — Chair Powell’s Friday address. At the Kansas City Fed’s annual symposium, Chair Powell underscored that policy decisions will continue to be guided by incoming data . He highlighted the balance between sustaining expansion and finishing the job on inflation , noting tariff-related price pressures and supply-chain considerations among factors being monitored. The message: no preset path, but openness to adjust as evidence accumulates. Historically, Jackson Hole is more about long-term framework and risk management than near-term moves, and that tone held this year. What it means for the days ahead Near-term market drivers will be how inflation and labor data align with the Fed’s “proceed carefully” posture. • If inflation continues to edge lower while growth holds steady, the door stays open to gradual policy easing later this year. • If price pressures re-accelerate—or if hiring slows more sharply than expected—the Fed may extend its wait-and-see approach. Liquidity dynamics from the Fed’s balance sheet runoff will remain a background factor , but the central story is still inflation’s glide path and the durability of demand . Investors should expect choppy trading around key data releases , with markets pricing probabilities rather than certainties. As always, we welcome your questions and are here to support you . At the heart of everything we do is our commitment to “ Wealth Management for Life ”—providing enduring guidance for you and your family’s financial success.

Fed Moves and Market Trends | Affinity Capital

August 6, 2025
Markets entered the week with a boost of optimism, fueled by softer labor data and growing chatter that the Federal Reserve might be leaning toward a rate cut this fall. But that optimism didn’t last long . As the week unfolded, economic uncertainty returned to center stage: fresh concerns about tariffs, underwhelming corporate earnings in some sectors, and signs of consumer fatigue in key parts of the economy tempered the early enthusiasm.

Weekly Market Update: Stability Amid Data and Tariff Jitters | Affinity Capital

July 17, 2025
This week’s stock markets were marked by tight trading ranges, record-setting highs in tech, and a backdrop of macro uncertainty. The S&P 500 (through SPY), Nasdaq (QQQ), and Dow (DIA) eked out modest gains, shrugging off headline volatility tied to Fed independence concerns and escalating tariff threats.