Past, present, future: Here’s where we stand

Heading into the weekend, equities are higher, while bond yields are mixed.

The S&P 500 (+1.3%), NASDAQ 100 (+1.7%) and small caps (Solactive 2000 +2.7%) all posted gains.

Ninety-five percent of S&P 500 companies have reported their third-quarter earnings, including the largest, Nvidia, which reported earlier this week. The largest companies in the United States grew their earnings 5.8% year-over-year, beating Street expectations of ~3.5% prior to earnings season. The technology sector continues to perform, accounting for 30% of the index’s earnings growth.

In fixed income, yields movement was muted. The 2-year rose two basis points (bps), while the 10-year was lower by one basis point.

In commodities, gold (+4.2%, on track for its best week since April) and oil (+4%) both rose as geopolitical tensions increased. Reports this week confirmed that Ukraine fired U.S. and British supplied missiles into Russia for the first time as the conflict passed the 1,000 day mark. That, likely in combination with deficit concerns and the hopes of less regulation, pushed Bitcoin (+7%) to new all-time highs. The digital asset is less than 2% from $100,000/coin.

This coming week in the United States will feature lots of turkey, football, and for some families, a Thursday morning 5K. But this time of year also kicks off outlook season on Wall Street. Just this week, we released our 2025 Outlook: Building on Strength.

To get in the spirit, we wanted to reflect on what’s happened, what’s here and what might be coming.

What’s happened, what’s here, and what’s to come?

What’s happened? Markets have climbed the wall of worry in 2024. Investors were worried all year about recession, inflation, the U.S. elections and geopolitics. Where do we stand today? S&P 500 earnings grew +13%, multiples expanded by +11%, U.S. large-cap equities gained +25% and a global 60/40 allocation¹ delivered nearly 13% returns. High yield bonds (+8%), private credit (+11%), preferreds (+8%), Bitcoin (+125%) and gold (+30%) also delivered. Cash and bonds lagged risk assets.

Portfolios are closing out 2024 in a position of strength.

What’s here? A nascent recovery in dealmaking and a massive buildout of AI infrastructure to support it.

On dealmaking, the new administration is likely to bring significant changes that could further support the recovery in dealmaking and capital market liquidity. This could include replacing U.S. government agency leadership with personnel less inclined toward heavy regulation. Under President Biden, increased regulation hindered M&A. Currently, ~40% of the S&P 500 market cap is under Department of Justice anti-trust investigations. Trump’s administration may roll back or halt the expansion of regulations, including on AI, encouraging acquisitions.

It’s not just the AI modelers who will likely benefit, but also the suppliers of power. Today, about 70% of the transmission lines in the grid are at least 25 years old. Despite this aging infrastructure, the grid has been able to keep up, since U.S. electricity demand has been relatively stable. However, electricity demand is set to increase from here, given the data center buildout and the power demand they necessitate.

Large data centers can require about 100 megawatt hours of electricity (that’s roughly the same power it takes to power a city of ~100,000 households). Currently, data centers account for roughly 4.5% of total U.S. energy consumption. However, some estimates suggest that data centers should drive ~250TWh of new electricity demand through 2030, leading data center power demand to increase to 8% of total U.S. power demand over the same period.

We believe the buildout for AI, including the energy needed to power the technology, is a long-term theme.

What’s to come? 2024 was the year of elections. Globally, incumbents lost power, and anti-establishment candidates and parties gained vote share. This implies a demand for change.

In the United States, President-elect Trump’s and the Republican Party’s victory sets the stage for “Trump 2.0,” which could have important implications for markets and the economy. In 2025, we think the debate over taxes and government efficiency will be top of mind.

On taxes, negotiations to extend the provisions of the Tax Cuts and Jobs Act will take place in the second half of 2025, with the economic impacts likely to be felt in 2026. If Congress does nothing, individual tax rates will revert to 2017 levels, the alternative minimum tax will impact many more high-income individuals, the 20% deduction for pass-through business income will end (affecting many partnerships, S corporations and sole proprietorships), and the lifetime estate, gift and generation-skipping transfer tax exemption will be cut in half (from around USD 28 million to USD 14 million for a married couple). Importantly, the 21% corporate tax rate included in the TCJA was a permanent change. 

We expect most, if not all, of the temporary provisions affecting individuals to be extended for some time. That said, given the tight margins in the House and the Senate, it may require some compromise around areas such as the state and local tax deduction cap.

On government efficiency, President-elect Trump is expected to pursue an agenda that advocates for less red tape. Part of this includes a new Department of Government Efficiency (DOGE). We think the Elon Musk–led department, which aims to cut wasteful government spending, will have a difficult time doing so.

Why? The bottom line is that Congress controls government spending, and DOGE sits outside of Congress. The department can make all the suggestions it wants, but ultimately it’s the typical 60-vote majority in Congress that makes legislative changes. A key concern for investors in 2025 is what parts of the Trump 2.0 agenda will be emphasized and which ones will fade.

As we look toward the new year and what’s to come, your J.P. Morgan team is here to help.