As we enter the holiday swing and closing out another year, we find ourselves with back-to-back years of 20%+ returns in the S&P 500. This has happened five times in history and in every instance the first half of the next year was positive, but four out of the five years the second half was negative. The single outlier was 1997, when the S&P 500 returned a third consecutive year of over 20% return. Sanctuary Wealth’s CIO Mary Ann Bartels has drawn parallels to the mid ‘90s to today and Fundstrat’s Tom Lee also sees the possibility of upside risk next year with the market having another strong year. The historical presidential cycle year 1 also favors stronger first half returns.
At TOVA Wealth we continue to be bullish into next year and some of our top ideas for next year include Financials, Industrials, Small Caps and of course Technology on the continued AI momentum. We continue to favor the US over International and Emerging Markets. Our top themes have been Energy (including Nuclear) and Cybersecurity. These views remain unchanged as cybersecurity remains a top priority for companies, governments and families – especially with the growing concerns that AI could present. Energy demand should remain in the spotlight as growing needs continue from technology data centers and an aging national infrastructure.
Some risks that we are watching for next year include proposed threat of tariffs, meaningful decrease in government spending that hits GDP and sticky inflation coupled with higher interest rates. The flipside to a decrease in government deficit spending would be the potential for lower inflation and long-term interest rates.