12/30/2024

2024 end of year report

Happy New Year!

In our final issue of 2024 we have decided to write an end of year annual report. Its goal is to provide a summary of key financial drivers and events that transpired in 2024, while providing some insight into how they might develop into the new year. This will be an outlook for both the markets and the newsletter moving into 2025! Thank you again for reading. We hope you will have a great new year!

In today’s newsletter we will cover: 

• Markets

  • US Stock Market 

    • Sectors/Market Concentration

    • Stocks To Look Out For 

    • Stock Market Outlook for 2025 

  • Cryptocurrency Analysis 

    • Overview Summary

    • Crypto Market Fundamentals in 2025 

• Private markets

• The Macro Economy 

  • Inflation 

  • U.S Deficit 

  • Monetary Policy 

• Geopolitics 

• What to look out for next year

Markets 

Overall it has been a very interesting year to participate within the financial markets. We have observed and acted upon key drivers that have led to spikes in volatility and gains and losses across asset classes. It is these developments that will be the groundwork for 2025. 

US Stock Market 

• The year kicked off on a high note, with the S&P 500 Index ending the first quarter on a strong performance. This momentum was fueled by a resilient U.S. economy, easing inflation pressures, improving corporate profits, and growing anticipation of rate cuts by the U.S. Federal Reserve. 

• Investors have rallied behind the vision that artificial intelligence will bring massive increases in productivity within the economy, boosting the valuations of big tech and companies with this focus. The AI boom helped drive substantial gains across information technology and communication services. However, elevated interest rates and a Federal Reserve on pause kept a lid on broader market gains.

  • In September, the Federal Reserve ended its rate-hiking cycle with its first cut since 2020, shifting to a gradual, growth-focused monetary policy stance.

• In November, former President Donald J. Trump was re-elected, with Republicans gaining full control of Congress, prompting investor optimism over potential tax cuts and deregulation but raising concerns about tariffs, immigration, and fiscal spending.

Sectors 

• The AI boom fueled the charge within the technology sector, fundamentally changing the dynamics of the entire U.S stock market. By the end of 2023, the top ten American stocks had nearly doubled their weighting in the S&P 500, rising from 14% to 27%, driven largely by the five largest technology firms, pushing market concentration to its highest level since 1963, a trend that has only intensified in 2024. The top five Big Tech firms now represent approximately 25% of total U.S. equity value, a figure that climbs to nearly 30% when Meta and Tesla are included. (LINK TO REPORT by MS)

  • As we enter 2025, a key question is whether Big Tech earnings can justify their elevated valuations, which have been driven by speculative assumptions about the AI revolution—any of which, if proven wrong, could disrupt Big Tech's growth trajectory.

Stocks To Look Out For 

• Palentir (PLTR) posted the strongest 1 year gains out of the companies listed on the S&P 500, 352%. Palantir is a U.S.-based technology company specializing in software platforms that enable organizations to analyze data securely, gain insights, and make informed decisions while protecting sensitive information. Its clients include the U.S. military, NSA, companies and many others. The delivered strong earnings over the last three quarters, which has propelled the company to recorded highs. Investors rallied behind their real application of AI and pushed the valuation to extreme multiples, a 400 PE ratio. 

• Tesla’s stock (TSLA) has experienced significant gains over the past year, driven by a combination of robust financial performance, market optimism about EV adoption, and advancements in technology. In 2024, Tesla's share price benefited from increased investor confidence in its ability to maintain market leadership, expand into new markets, and deliver on ambitious growth targets. Investors also priced in Musk’s relationship to Trump within the share price.

• MicroStrategy (MSTR) saw an incredible surge in 2024, with its stock price climbing over 400% as the company aggressively expanded its Bitcoin holdings. This impressive growth even outpaced Bitcoin’s own rise, thanks to MicroStrategy’s strategic approach to leveraging its cryptocurrency investments. By December 2024, the company had accumulated roughly 444,262 Bitcoins at an average price of over $106,000 per coin, solidifying its reputation as one of the largest corporate holders of Bitcoin.

Stock Market Outlook for 2025 

• Strong economic conditions, near-normal inflation, expanding profit growth, robust technological trends, and growth-oriented fiscal policies could drive stocks higher in 2025, though periods of volatility are expected. However, much of this optimism appears already reflected in stock prices, leaving limited upside if conditions align with expectations and heightened downside risk if they fall short.

• Investors should brace for potentially turbulent markets in 2025, a sharp contrast to the relatively calm environment of late 2024. Elevated stock valuations, persistently high interest rates, and the possibility of slowing growth, should Fed or fiscal policies shift from supportive to restrictive, pose notable risks. After two years of strong S&P 500 performance, we question whether investors are prepared for a scenario where returns turn negative for a quarter or two, should the anticipated conditions fail to materialize.

Cryptocurrency Analysis 

• Overview Summary: In 2024, following the sharp downturn of 2022 and moderate recovery of 2023, the cryptocurrency market observed global market capitalization exceeding $3.2 trillion, fueled by Bitcoin’s unprecedented climb to an all-time peak of beyond $100,000. Although Ethereum retained its significance with a market cap of $400 billion, it fell behind rivals due to a reduction in its market share to 13.1%, underscoring its challenges in competing with other platforms like Solana and Avalanche.

Crypto Market Fundamentals in 2025

• Political Landscape & Bitcoin Strategic Reserve: In 2024, the crypto political landscape underwent a significant transformation as President Donald Trump's pro-crypto administration took office alongside 247 pro-crypto lawmakers in Congress. This shift was further marked by the resignation of SEC Chair Gary Gensler and the rise of influential crypto advocates such as Senator Cynthia Lummis (R-WY), Senator Ted Cruz (R-TX), and Senator Bernie Moreno (R-OH), who began driving legislative efforts to support the industry. Shortly after President Trump’s inauguration, the administration is set to introduce the Bitcoin Strategic Reserve, targeting the purchase of 200,000 bitcoins annually over five years to amass a total of 1 million bitcoins as a key strategic asset.

Image: Expected Timeline for Bitcoin Strategic Reserve in 2025 (Link)

• Institutional Investment: In 2024, the SEC approved Bitcoin ETFs in January and Ethereum ETFs in May, marking a major milestone for cryptocurrency adoption. Bitcoin ETFs now manage over $115 billion in assets, with $53 billion held in the iShares Bitcoin Trust. These ETFs contribute to a supply shock by locking up significant portions of Bitcoin, intensifying scarcity.

  • ETFs provide two key benefits to the public: they make digital assets more accessible by offering a regulated and user-friendly way to invest, and they charge competitive fees ranging from 0.15% to 0.25%. This eliminates the complexities of managing and securing cryptocurrencies, lowering barriers to entry and encouraging broader participation. These advantages position digital assets as a viable and mainstream investment option.

  • The increasing involvement of institutional investors is reshaping the financial landscape, elevating Bitcoin and Ethereum as credible strategic assets. The launch of ETFs by major players like BlackRock, Fidelity, and Franklin Templeton demonstrates growing integration with traditional finance. Institutional engagement enhances liquidity, stability, and confidence, further driving adoption.

  • Looking ahead, the success of Ethereum ETFs could pave the way for altcoin ETFs, with Solana and Avalanche seen as strong candidates for approval in the near future. These developments could further expand the market, opening new opportunities for investors while solidifying digital assets’ role in the global financial system.

Image: BTC Spot ETF Cumulative Flow (US$m) (Link)

• Corporate Adoption: As of December 2024, 94 entities, including public companies, private firms, ETFs, and governments, hold over 2.9 million BTC, accounting for nearly 14% of the total supply. Companies like MicroStrategy, with 400,000 BTC, and Tesla, with 9,720 BTC, lead the way in corporate adoption. Shareholder proposals, such as Amazon’s push for a 5% Bitcoin allocation, and discussions at Microsoft highlight growing interest in digital assets as financial tools. This corporate adoption stabilizes markets, reduces volatility, and supports the integration of digital assets into mainstream finance.

Investors interested in crypto assets can find more information in this US Crypto Investment Outlook 2025 by William Le.

Special thanks to William Le, an Accounting major from the Class of 2027 at Bucknell University, for providing valuable insights into crypto assets.

What's in store for alternatives and private markets in 2025

Private markets are poised for a dynamic 2025 and several key trends are expected to define the year ahead.

Sectors: Growth in technology, healthcare, and energy transition investments remains a cornerstone for private capital deployment. Infrastructure investing particularly in renewable energy and digital infrastructure is expected to rise, supported by global policy initiatives.

Recovery in dealmaking: Private equity is expected to ramp up selling activity in 2025. With significant capital tied up in aging portfolios, many general partners are turning to exits to provide liquidity and returns to limited partners. Improved market conditions, including stabilizing interest rates and recovering valuations, are likely to create a more favorable environment for increased exits and investments. Traditional Private equity investments rely on large amounts of debt. Lower interest rates, a stabilization in evaluations, and increased confidence in the resilience of the U.S. economy will likely spur greater investment activity. 

Fundraising: Private equity is expected to face a mixed environment in 2025. Fierce competition will reward larger firms with strong track records, niche strategies, and exposure to high-growth sectors. Institutional investors who have committed record funds recently are grappling with poor returns and liquidity constraints leading to a potential scale back in commitments. Private credit commitments are ballooning, but similar to PE larger firms with notable strengths will benefit the most.

Private Credit: This asset class is poised for another strong year in 2025, making it one of the fastest-growing segments within private markets. Private credit is increasingly attracting institutional and retail investor interest because of its ability to deliver stable returns and offer flexible financing solutions. 

As traditional banks face tighter regulatory constraints private credit providers are stepping in to fill the gap, leading the way in a shift in the capital markets.

Wall Street's increasing interest: Wall Street’s appetite for private markets will continue to expand in 2025, as banks and institutional investors seek higher returns and diversification beyond traditional asset classes. Investment banks are ramping up their role in private markets by structuring secondary transactions, facilitating co-investments, and launching dedicated funds to capture growing demand. 

Finance titans of the likes of Apollo, KKR, BlackRock, and Black Stone are leading the charge in this growth and have all experienced large increases in market capitalization. These firms aim to disrupt the traditional 60/40 portfolio by facilitating exposure to private markets to a variety of investor types. All of these companies have rapidly grown their lending activities to capture increased demand in private credit. For example, director lenders like Apollo are now originating their own loans instead of traditional investment banks. BlackRock has gone on a buying spree making it a massive player in private markets. In conclusion many major players in Wall Street are seeking to earn lucrative fees on an increased interest in alternative asset classes. 

Democratization of private investments: Traditionally only institutional investors and high networth individuals have had exposure to private markets. Retail investors have only recently been able to invest but have had to go through complicated processes to do so. Wall Street's increased interest stems from the opportunity to attract new investors. For example, in the U.S. almost $40 trillion is held in retirement accounts. A majority of that is traditional indexes. The liquidity in equities brings large amounts of volatility, which many investors with longer time frames do not require. This dilemma creates an opportunity for the firms offering exposure to comparatively illiquid and less volatile private markets. Increased access could mean new investment vehicles like private credit ETFs,  and access to Private equity. While this shift to more illiquid investments would be very transformative, changes in regulation are required.

The Macro Economy 

Inflation

Inflation remains above the Fed's 2% target and will remain prevalent in 2025. It is expected to moderate as central banks' tightening measures in recent years take full effect but remain “still uncomfortably high for the Fed” (Matthew Luzzett, Deutsche Bank) 

Easing supply chain disruptions, stabilizing energy prices, and decreased consumer demand are likely to bring inflation closer to target levels. However there are many large inflationary forces active domestically and abroad. For example massive amounts of spending on international conflicts, data center investments, and global green energy initiatives are all inflationary. Domestically Trump’s proposed tariffs, decreased taxes, and deportations could also be an inflationary force to watch out for. 

According to Bloomberg a majority of economists believe core PCE will reach 2.5% in 2025.

Investors should remain vigilant of inflationary forces because they can impact asset valuations and real returns. 

Monetary Policy 

The Federal Reserve will focus on balancing economic growth and price stability in 2025. In 2024 the Fed responded to a declining jobs market and stagnating growth with three rate cuts amounting to a 150 basis point reduction in its benchmark rate. However in 2025 the Fed is anticipated to remain vigilant of inflation and keep rates at their current level for the significant future. 

The median estimate for the benchmark rate, from FOMC participants, is 3.9% in 2025. 

The Fed is likely to maintain a cautious approach, keeping interest rates at restrictive levels while strictly adhering to monitoring data and not popular market sentiment. The Fed has not responded to how its predicted course would change in the Trump administration

(FOMC participants median projected rate) 

U.S Deficit

The U.S. deficit for fiscal year 2025 is estimated to be $1.9 Trillion on top of the already $36 Trillion in debt the U.S. holds. The cost of servicing U.S. debt will reach almost $1 Trillion in 2025 representing 3.5% of the U.S. GDP.

The Trump administration has made tackling the deficit a priority. Trump's nominated Scott Bessent for Treasury Secretary. He is a fiscal conservative who is alarmed by debt levels and is determined to tackle the deficit. Trump's proposed DODGE policy will attempt to reign in government spending but little is known about specific plans.

Investors may keep a close eye on potential impacts to Treasury yields, credit ratings, and broader economic stability. However despite the alarming size of  U.S. debt it's unlikely markets will react significantly and will likely continue to maintain their trust in the U.S.’s ability to pay.

In 2025 U.S. debt will likely dominate headlines with proposed changes in spending, a potential end to the debt limit, and a rapidly approaching debt limit in January.

Top Seven Geopolitical Issues to Watch in 2025

As we move into 2025, a mix of ongoing conflicts, shifting alliances, and the end of a global election supercycle, culminating with Donald Trump’s polarizing return to the oval office, promises to reshape the global political landscape. 

Here’s our top issues to keep an eye on:

The Future of Post-Assad Syria

The fall of Bashar Al-Assad's regime earlier this month has many experts asking the question: will Syria become a failed state? The country could unify under a coalition of opposition groups or remain fragmented, with Islamic groups seizing control of major territories. The trajectory of Syria’s recovery will have extreme effects for neighboring countries, including Turkey, Iraq, Jordan, Lebanon, and Israel, influencing broader Middle East stability. 

Iran’s Nuclear Ambitions

With its proxy forces weakened and defenses compromised by Israeli strikes, Iran could feel pressured to accelerate its nuclear program in 2025. Alternatively, Tehren could seek to de-escalate tensions through negotiations with the U.S. to curb European sanctions. 

Ukraine-Russia Conflict

As Russia’s invasion of Ukraine nears the two year mark, President-elect Trump promises to end the conflict, but significant challenges remain. Ukraine and Russia’s goals for peace contrast one another and escalations such as the assassination of a Russian general in Moscow and Russia’s use of a nuclear warhead capable missile in Ukraine could prolong the war. Domestically, tariffs and Russia’s slow economic growth may challenge Putin’s grip on power, increasing new uncertainties to the conflict. 

China’s Dual Foreign Policy Challenges: Taiwan and Russia

China’s aggressive military exercises near Taiwan reassert its determination to have control over the island. At the same time, Beijing’s alignment with Russia faces new pressures. As both nations navigate their relationships with the Trump administration, cracks could appear in their “no limits” partnership, established at the outbreak of the Ukraine war. These developments will test the resilience of China’s foreign policy.

Sudan and Broader African Instability 

The civil war in Sudan, now entering its third year, is creating the world’s most pressing humanitarian crisis. Outside meddling by regional powers like the UAE and Saudi Arabia exacerbates the conflict. Elsewhere in Africa, the ongoing disputes between the Democratic Republic of the Congo and Rwanda, northern Nigeria’s Islamist insurgency, and potentially corrupt elections in Côte d’Ivoire, Tanzania, and Cameroon could cause further unrest. 

Global Economic Risks and U.S.-China Tensions

The return of Trump has heightened economic uncertainties, from potential clashes with the Federal Reserve to the effects of new tariffs on China and U.S. allies. Meanwhile, the United States remains poised to lead in AI innovation, but the challenge lies in balancing regulation with technological progress. These economic dynamics will unfold in the climate of a deeply divided global order and mounting climate challenges.

Progress in Israel

Israel enters 2025 with both newfound strength and daunting challenges. Following a series of military operations in Gaza and strategic strikes on Iranian and Hezbollah targets, Israel’s government has grown increasingly confident in its security posture. However, the conflict has left Gaza devastated and fueled widespread humanitarian concerns. Israel faces mounting international pressure to address the crisis diplomatically while continuing to receive unconditional support from the U.S. The ongoing threat of regional destabilization, whether through renewed violence in the West Bank, tensions with Iran, or escalations with Hezbollah, makes the trajectory of this conflict a critical focus for 2025. The potential for renewed peace talks exist but remains fragile.

Special thanks to Jonas Sanchez, class of 2027, Bucknell University, for his Geopolitical Insights

We are two college students on a mission to immerse ourselves in the financial industry. We are eager to learn more and make new connections. Our goal is to share exciting and informative content that provides a broad picture of current events and offers valuable insights.

Authors: Ben Banchik, Zachary Singer

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