The $1 Trillion Problem No One's Talking About  | | Shah Gilani
Chief Investment Strategist | 2024 was a remarkable year for equity markets. The S&P 500 soared to new heights... and logged an impressive 57 record highs. That number speaks to the tremendous power of the stock market, driven in large part by what's come to be known as the "Magnificent Seven" stocks: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. Of course, as we head into 2025, the dynamics driving this growth raise important questions about whether the rally can last. The question that many investors need to ask themselves as they look into 2025 is whether the Magnificent Seven party will continue... or if the volatility we've seen in the bond market will become a significant headwind for equities. It's easy to get caught up in the excitement of the stock market's rise, but as I always say, "It's all good until it isn't." In other words, we can never get too comfortable with all-in good times. There's always something lurking that could upset the apple cart... And in 2025, the looming bond volatility could be that something. Debt Matters Bond yields have been climbing, and the bond market is experiencing significant volatility.  | | Source: Federal Reserve, CNBC | | |
One big reason for this is the growing interest costs on the national debt, which are projected to soar as high as $1 trillion annually. The U.S. government is borrowing at an unsustainable pace. The implications for investors in both bonds and stocks are significant. If interest rates continue to climb in response to mounting government debt, bond prices could fall, leading to a period of heightened market volatility. An early wildcard for 2025 lies in the debt ceiling crisis. Every year, we face the threat of the government running up against its borrowing limit. In 2024, it felt as if the market had largely dismissed the risk, but in 2025, the tension surrounding the debt ceiling in a tight Congress could be more acute. If the debt ceiling isn't raised in time or if there are delays in negotiations, it could rattle the markets and put a serious dent in the bullish sentiment that has carried stocks higher. The Reckoning While 2024 was a stellar year for stocks, thanks to the Mag 7 and their dominance over major indexes and ETFs, we must remain vigilant. With interest rates still on the rise and the debt ceiling issue looming large, it's essential to prepare for potential headwinds. My advice remains as relevant as ever: "It's all good until it isn't." The party may continue into 2025, but investors should be prepared for turbulence. The same forces that have driven stocks higher could also face pressure as the macroeconomic backdrop changes. So, enjoy the ride while it lasts, but keep your seatbelt fastened. 2025 could be a bumpier road ahead. Cheers, Shah Want more content like this? | | | | | | 
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