Market Reality Check: Post-Holiday Trading Outlook for 2025
The holidays are behind us, and it’s time for the rubber to meet the road in the financial markets. The post-election euphoria that carried us through the end of 2024 has noticeably worn off as reality sets in about the Republicans’ ability to push through their legislative agenda.
Congress is poised to dominate the financial scene, but the bigger question mark hanging over the markets is the Federal Reserve’s next move. Remember all that confident talk about four or five rate cuts in 2025? Well, based on current data, we might not see a single cut for the next couple of meetings.
Despite all the doom and gloom rhetoric, the economy isn’t actually in terrible shape. The jobs market remains surprisingly resilient – we’ll know more after this week’s jobs opening reports and Friday’s employment numbers. It’s worth noting that legal immigration has helped prevent wage inflation from becoming an even bigger headache by easing some of the labor market pressure.
Consumer spending has held up well, and optimism has been steadily climbing since the election, a stark contrast to the depression-like sentiment we saw before the clear winner emerged. Small business optimism is rebounding, and CapEx spending plans are improving. Yes, the bottom 25% of the economy is struggling, particularly with inflation, but the rest of the economy is hanging in there.
The Inflation Wild Card
Now, here’s where it gets interesting. Anyone who claims they know exactly how inflation will play out is either lying to themselves, to you, or both. If Donald Trump returns to office and implements his proposed tariffs, using that revenue for spending and tax offsets, will it be inflationary? History suggests yes, but are circumstances different this time? The smartest people I know look me in the eye and say, “I don’t know” – and I’m joining that chorus.
The market has already started pricing in this uncertainty. We’ve pulled back from the highs, with many indices testing their critical moving averages. The S&P 500 is hovering around its 20-week moving average, while the Russell 2000 is already below its 50-day. Marty’s two golden rules – don’t fight the tape and don’t fight the Fed – are worth keeping in mind here.
Portfolio Implications
For momentum portfolios, this environment calls for increased vigilance. While a handful of stocks might buck the broader market trend, we may need to consider tightening up our stops and playing more defense if the longer-term trend turns negative. We’re not there yet, but the warning signs are flashing.
The market darlings, particularly Nvidia, Amazon, and recent high-flyers like Palantir and Vistra, are priced for perfection. Any stumble during the upcoming earnings season could spell trouble.
Market News and Notable Events
The passing of President Jimmy Carter will result in the NYSE closing this Thursday for his state funeral. Carter, arguably the best man we ever put in the Oval Office (which perhaps disqualified him from being a great president), will receive proper honors.
In a surprising move that signals shifting trade dynamics, President Biden is blocking Nippon Steel’s takeover of Bethlehem Steel. As a libertarian-leaning free trader, I’m not thrilled with this decision. Bethlehem Steel could benefit from Nippon’s deeper pockets to handle business cycles and pension liabilities. The political theater around this decision is particularly interesting, as Biden’s “America First” stance has Republicans scrambling to find ways to oppose it.
Portfolio Review and Analysis
Let’s dive into our current holdings and see how they’re positioning themselves for the challenges and opportunities ahead.
Strong Performers and Core Holdings
KKR continues to demonstrate why it’s one of the finest companies in the financial sector. They’re executing brilliantly across private equity, real estate, and private credit. With cheap capital still available and institutional money flowing into private investing, KKR stands to benefit from multiple tailwinds. Their earnings surprises have been consistently positive, and we expect this trend to continue. The stock maintains a strong uptrend with no signs of weakness on the horizon.
Idaho Strategic Resources is starting to attract attention, and rightfully so. The substantial insider ownership tells us management has serious skin in the game. Their strategic minerals and rare earth elements properties become more valuable by the day as China gradually restricts supply. Any positive surprise could send this stock shooting higher, and we’re positioned to benefit when that happens.
Healthcare and Technology Positions
Oscar Health showed signs of life this week, particularly during Friday’s session. The fundamentals here are outstanding, with significant earnings increases projected for both 2024 and 2025. The stock trades at reasonable multiples on both price-to-sales and forward earnings bases. As a tech-forward insurance company, Oscar is perfectly positioned to address ongoing healthcare challenges, regardless of the Affordable Care Act’s fate. We’re seeing institutional buyers return to the name.
Zeta Global is coiled like a spring, waiting for a catalyst. Despite some bearish newsletter coverage, Wall Street analysts remain bullish, maintaining their positive ratings. The heavy insider ownership gives us confidence, and the company’s positioning is solid. One piece of good news could send this stock significantly higher, and we expect that news to come with their February earnings report.
Industrial and Service Sector Holdings
FlexSteel has seen some profit-taking, but the fundamentals remain excellent. We’re maintaining our position pending the next earnings report, as long as the fundamental story stays intact.
Baker Hughes is benefiting from increasing drilling activity, with signs pointing to continued growth. The stock maintains its upward momentum, and we like the positioning here.
Front Door maintains its strength despite some recent consolidation. Analyst sentiment remains positive with consistent outperform and buy ratings. Revenue growth continues, and the stock trades at reasonable multiples given the expected earnings growth and capital returns.
Financial Sector Positions
Northeast Bank is executing exactly as we anticipated. We see them as a potential consolidator in New England, possibly expanding their footprint down the Mid-Atlantic coast. The more favorable banking environment should continue to benefit their business model.
Green Light Capital shows strong momentum while trading at remarkably attractive valuations. At roughly 5 times earnings, less than 75% of book value, and a discounted price-to-sales multiple, this reinsurance company looks significantly undervalued. With a $500 million market cap, don’t be surprised if a larger reinsurer makes a move to acquire them.
Growth and Expansion Plays
Nu Holdings represents massive potential in the Latin American digital banking market, where they already hold a dominant position. Their growth rate remains impressive, and the fundamentals support the current valuation given the massive opportunity ahead.
BrightView Holdings continues its consolidation phase, but the business remains solid. The current political and economic environment favors dealmaking, which plays right into their strengths. We expect them to continue delivering positive surprises.
Accelerate Energy maintains its upward trajectory, attracting institutional interest. With earnings estimates due in early to mid-February, analysts are projecting substantial gains for the year. The stock’s strength and institutional buying interest validate our thesis.
New Addition to the Portfolio
Our newest addition, TrueBridge (TBRG), presents an exciting opportunity in healthcare technology. They’re the leading provider of revenue cycle management systems for small healthcare organizations, with a proprietary platform serving 1,600 customers. With a 95% customer retention rate, recurring revenue model, and multiple growth avenues through cross-selling and acquisitions, TrueBridge looks promising. The stock is hitting new highs even as other sectors pull back, suggesting strong institutional interest.
For TBRG, we’re setting a maximum entry price of $23, about 15% above current levels. Risk-averse investors might consider a stop around $17, though the fundamentals support a more patient approach.
Looking ahead, keep your eyes on this week’s job reports, Fed minutes, and remember – in this environment, unexpected volatility isn’t just possible, it’s probable.