Trend-Spotting 2025: The HCM-BuyLine® Says “Go Long!”
Chart: VIX 1-year daily
The HCM-BuyLine® is positive, and any pullback should be viewed as buyable. The trend is more important than just about any data that will be coming out. Last week’s 4% selloff was sharp and fast and, in our opinion, took some steam out of the market. We have 2 more trading days left in 2024, and with a bit of year-end luck, the market will hold its ground. We have had two back-to-back 20% plus years on the S&P 500 and a lot of folks are asking if and when it will end. My answer is the same as always: “Who knows?” That’s why you look at the trend and let it be the guide. Even with two 20% years you must remember that 2022 was a secular bear market rather than your run-of-the-mill bear market. Most bear markets last 8-9 months, but a secular bear lasts about 16 plus, and that is what we got in 2022. I have observed that markets like to move higher for about 3 years, with a break in year 4. 2025 would put us in year 3, so look for the markets to move higher, but 10-12% should not be unexpected at the end of 2025. The VIX has dropped back down to a level where volatility should calm down.
At the beginning of the year, cash in money funds stood at $6 trillion. Today, it totals $6.75 trillion, an increase of 13.2%. With 3-month T-bill yields averaging 5.00%, that implies a net inflow of nearly $0.5 trillion! Rates have been moving higher even as the Fed is lowering rates.
There are two conditions when you should look to buy bonds:
- When there is an imminent recession.
- When inflation is collapsing, trading bonds is a much better strategy than buy and hold. When inflation starts to go down, you should see the price of bonds move higher.
The economy was a key driver of President-elect Trump’s victory in the 2024 election, with voters particularly concerned about inflation. But the economy is in solid shape, with a strong labor market, good conditions for consumers, and slowing inflation. With solid fundamentals and the Federal Reserve cutting interest rates, the economy should continue to do well in 2025, with further expansion and a low unemployment rate.
Another positive for 2025 is continued strength in business investment. With the tight labor market firms are investing in equipment, workplaces, and technologies to make their existing workforces more productive, supported by good corporate profitability and falling interest rates. And an undersupply of housing for the last fifteen years, along with lower mortgage rates, will support residential construction.
Chart: RL and CRM 1-year daily
There are two stocks that look attractive to us right now, one being my top pick for 2025, Salesforce, and the other being Ralph Lauren. In our opinion Salesforce should be a winner as it will be able to really use AI, and Ralph Lauren is breaking out as sales are continuing to grow.
