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2024 was a good year. But rules will change in 2025

In 2025, the U.S. economy is a paradox: steady growth (2% GDP), tame inflation (3%), and lowering unemployment (4%). It’s the “Goldilocks” scenario economists dream about.

Act 1: 2025’s Delusion

1. The Goldilocks Mirage

The U.S. economy wears a crown — but it’s made of glass.

  • GDP Growth: 2% (steady, not spectacular).
  • Inflation: 2–3% (a slow burn, not a wildfire).
  • Unemployment: 4% (the calm before the AI layoff storm).

The Trap: Markets love stability — until they don’t. Under Trump’s MAGA 2.0, tariffs will test this fragile balance.

2. The Slow Climb

Imagine pushing a boulder up a hill — only the hill gets steeper each year. We expect for the year 2025:

  • S&P 500 Earnings: 5-10% growth (the engine, not the hype).
  • Nasdaq 100 Earnings: 10-15% (AI’s payoff arrives).

The Reality: After two years of 20%+ gains, 2025’s returns will drip like molasses. Patience is your new leverage — but patience alone won’t cut it.

Here’s the catch: Lower expected returns demand ruthless selectivity. In this grind, you’ll survive only by targeting companies that:

  • Print cash, not promises (free cash flow > earnings).
  • Raise prices without flinching (pricing power = inflation armor).

Forget chasing revenue rockets. Profits are the new growth metric.

3. The Volcano Beneath the Calm

Volatility isn’t coming — it’s already here. Three triggers could erupt:

  1. Trade Wars: Trump’s 10% global tariff = corporate profit craters.
  2. X (Twitter) Tantrums: A tweet can wipe $500B in minutes.
  3. Valuation Landmines: The S&P 500 trades at 20x earnings. One misstep…

Act 2: The 2025 Playbook

Rule #1: Be the Owl, Not the Squirrel

Squirrels chase acorns. Owls wait, strike, and feast.

  • Avoid FOMO: Let others buy the all-time high; you’ll buy the fire sale.
  • Dynamic Core Holdings: At S&P 500 FW P/E >22x, keep only 30–50% core positions — Nasdaq 100 (QQQ) as your anchor, with RSP (equal-weight S&P 500), IGV (software/cloud), and IJH (mid-caps) as satellites.

Deploy Cash Like a Sniper: When the S&P 500’s P/E hits:

  • 22x: Hold tight. Let gamblers overpay.
  • 21x: Buy stocks + sell puts (collect panic premiums).

Rule #2: Build a Fortress, Then Attack

Your portfolio is a castle. The foundation? Unshakeable ETFs:

  • Nasdaq 100 (QQQ): 30–50% of your kingdom (AI’s cash flows are royalty).
  • Equal-Weight S&P 500 (RSP): Escape the “Magnificent 7” bubble.
  • Mid-Caps (IJH): The market’s dirty secret (40% cheaper than large-caps).

Rebalance Ruthlessly: Trim winners quarterly. Greed builds castles; discipline keeps them.

Rule #3: Bet on AI’s Silent Revolution

Forget chatbots — the real money’s in AI’s plumbing:

  • Cost/Token: Dropping 90% yearly (profits surge as tech gets cheaper).
  • The AI 7: 7 stocks merging consistent sales growth + rising margins.

This isn’t speculation — it’s infrastructure.

Rule #4: Hunt Where Others Starve

Mid-caps and the S&P 493 (the 493 S&P 500 stocks excluding the “Magnificent 7” tech giants) are the market’s orphaned assets:

  • Valuation: Trading at historic lows vs. the S&P 500 (14x P/E vs. 20x).
  • Growth: Mid-cap earnings growth is converging with large caps — yet Wall Street hasn’t adjusted prices.

Rule #5: Turn Panic Into Paychecks

Volatility isn’t risk — it’s a tool. Master these signals:

  • Hedge at Valuation Extremes: When valuations hit upper limits, e.g. new high or near its peak (22.4x) — initiate hedging.
  • VIX >20: Short fear via SVIX.
  • VIX <14: Buy VXX.

Final Act: Your Strategy, Your Rules

The truth is, there’s no “perfect” way to invest.

  • The Indexer buys VOO and sleeps soundly.
  • The Trader hunts volatility like a hawk.
  • The Business Owner bets on cash-flowing mid-caps.

All can thrive — if they stick to their playbook. Will you be the wolf (exploiting others’ mistakes)? Or the prey (Copying what others do)?

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Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investing involves risks, and it’s important to conduct your own research or consult with a financial professional before making investment decisions.

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