As we get into the new year, it's time to start fresh. PnLs are back to $0 while it's a great time to set your goals for the new year in your personal life along with your financial outlook. During this time of year, I tend to spend my time recapping prior business plans while setting goals for the year ahead. Reflecting on the market this year, it surely had its highs and lows.
The S&P 500 finished the year with a solid 16% return, which sounds like an above average year as the historical returns tend to land around the 7-10% range including dividends.
But we are quick to forget how crazy the market was back in March and April. Even though the overall return was "only" 16%, the market had an insane overall swing of 40% from the market bottom in April until the current market top at the close of the year. Going from sub 500 to nearly 700 in the S&P 500 by year end is something that does not happen all that often.
Over the last few months of the year, the market and most sectors have done an impressive job at holding this rally up near highs and consolidating. Yet when the market does this, it is hard for the market to really rally and push higher. It needs that knee jerk reaction lower to propel the market higher.
We've had two or three 5% pull backs, but we should be open minded to the fact that a correction will be in the cards for the new year. One we should welcome, we know 650 is the real out for now. Our risk is 4% up here, while once that breaks we can side step the correction to come.
Each new correction or bear market is often from a new fear. Over the weekend, Venezuela's dictator was captured and brought to the US. My skill set is not geopolitics, however with that being said. Energy names might bounce around this week on the news, but this will not be a catalyst for concern related to the markets. If it magically becomes one, I will be looking to buy any pull back.
Looking at the markets and trying to project it out a year is often as reliable as a flip of a coin. However having some idea does help remove the guess work or fear. Looking at where the market is starting the year, reminds me very much of the start of 2021 and 2023.
From 2020 to 2022, the market rallied for nearly 2 years. 2021 the market started the year at highs and continued to climb higher for another year. 2021 was also a year like 2025 where there was a steep sell off that occurred.
2023 was a year that also started out the year at all time highs and like the 2020 to 2022 rally, had another year in the tank before it topped out.
We have seen these 2 year long rallies twice in the last 5 years. We are currently a year into the present rally. History doesn't repeat itself, but it often does rhyme and the rhyme would be continuation higher in 2026.
As much as the market feels extended as it often does at all time highs, where the wall of worry is pressing. The longer the S&P 500 can stay above 650, the better the odds that the market sets its sights on 700 and then by year end 800 in the S&P 500. If that is not the case, then we will know if 650 breaks and then we can reassess. Let’s take a look at the the 2025 performance of the major indexes and sectors:
Bio Tech 25%
Telecom 21%
Tech 20%
Nasdaq 17%
Industrial 17%
SPY 16%
Dow Jones 15%
Financials 15%
Utilities 15%
Healthcare 13%
Small Caps 12%
Materials 11%
Energy 8%
Mid Caps 7%
Consumer Discretionary 6%
REIT 0%
Consumer Staples 0%
If there is one thing I have learned from the Big Picture model and rebalancing over the last decade of using it. It's this, the worst sectors tend to be the better performing sectors in the year ahead. Bio Techs were one of the worst performing sectors at the start of the year and turned it around to be one of the best performing names by the end of the year.
Going into the year ahead, chart wise, Consumer Discretionary, Healthcare and Small Caps look the most poised for strong moves higher. With the laggards such as REITs and Consumer Staples starting at the back of the pack, have the most room to play catch up in the new year as Smart Money looks to rotate out of there big winners.
The next year of trading is going to happen and there is nothing you or I can do to change it, other than our own game plans. For myself trading wise, I will continue to focus on finding breakeven losses for the trades that are not working while letting the winners take care of themselves.
Going into the new week, as people get back to work and off of vacation, the quiet stock market should start to wake up a bit more than what we have seen these past few weeks. My main focus for the week ahead is this ORCL.
Macro Rotation Outlook
BYD
NFLX - avoid
ORCL
SMCI
SOFI
WST
