| Welcome to the first issue of the Select Wealth Management Dashboard Newsletter for 2025. At the beginning of 2024, I heard of lot of businesses use the phrase "survive 'til '25" - an indictment of how challenging the environment was a year ago. This year, I'm hearing "thrive in '25" - so clearly there is a lot more optimism in the market than a year ago... Let's hope this optimism is well placed and we have a bumper 2025! It has certainly started well. As I write, news breaks of a ceasefire deal between Israel and Hamas - welcome news indeed!
It's that time of year again where I embark on the fool's game of trying to make some forecasts for the year ahead. My historic record is average at best, but a reasonable year last year has me brimming with (no doubt false) confidence. To illustrate how difficult forecasting is, think back to 25 March 2020 - the eve of lock down. If I asked 100 economists what they forecast the American share market to do over the next 5 years, I'm certain most of them would have been filled with doom and gloom. Afterall, the world was in the midst of a global pandemic and facing unprecedented trading restrictions. Yet 5 years later, here we are with the S&P 500 up about 140%. Not a single forecast would have even entertained this outcome. So with that expectation set, here goes... Prediction 1 - "MAG 7" underperform The MAG 7 refers to the 7 biggest companies in the S&P 500 - Apple, Nvidia, Microsoft, Amazon, Meta, Alphabet and Tesla. These 7 companies have grown exponentially over the past 5 years - significantly more than the other 493 companies in the S&P 500.
If you were invested in these 7 companies over the past 5 years, you did well. If you weren't, you went nowhere. My prediction is that 2025 is the year this trend reverses. I predict that the other 493 companies perform better than the MAG 7 this year. To measure this, consider that today the MAG 7 make up 33% of the total S&P 500 (i.e. the MAG 7 are worth 33% of the whole S&P 500, and the other 493 companies are only worth the balance of 67%). I predict that by the end of the year, they will be worth less than 33% (i.e. the other companies will grow more than the MAG 7). Prediction 2 - NZ share market outperforms peer global share markets The New Zealand Share Market (as measured by the NZX 50) has been a laggard relative to most of its peers over the past 5 years.
New Zealanders have been doing it tough for a while now. High interest rates, falling house prices, redundancies, negative business sentiment, the list goes on. But I believe the worst is behind us now, and interest rate relief will kick in this year. Share markets are forward looking, and so I predict that the NZX50 outperforms the majority of the above list of peers over the next 12 months. Prediction 3 - S&P 500 returns greater than 10% The average return of the S&P 500 over the past 50 years has been 12% per annum. That's a handy return! The thought of investing in "the share market" can be quite scary. But it's important to remember that you are actually investing in companies (like Apple, Nvidia, Microsoft, Colgate, Nestle, Johnson & Johnson, etc., etc.). So long as these companies are producing and selling their goods and services, your investment is sound. When unemployment is low, interest rates are falling, and growth is robust, companies tend to prosper. Throw in the possibility of some tax cuts and deregulation from the new administration, and I believe we have a recipe for at least average returns. Prediction 4 - Despite prediction 3 above, S&P 500 has a correction of greater than 10% Share markets are traditionally volatile. A correction of 10% or more is actually quite common (in fact it typically happens every other year in the S&P 500). So this prediction is hardly outlandish - I have a 50 / 50 chance of being right based on historical averages... But I believe the probability of a correction of 10% or more during the year is higher than usual, mainly because of the very high concentration of the MAG 7 now. As I mentioned, these 7 companies make up 33% of the S&P 500. If they faulter, the whole market feels it. And given their incredible returns over the past 5 years, it's entirely reasonable to expect a pull back at some point. Prediction 5: - Bitcoin displays extreme volatility (3x) WOW - I'm really sticking my neck out on this one. To say "Bitcoin will display volatility" is like saying "fire is hot". It goes without saying. Despite my best efforts, I have never fully understood Bitcoin. I don't understand its real world application, nor its intrinsic value. But it has been an undeniably good investment for the early adopters. However, it has been volatile! In the past 10 years, when compared against 6 other asset classes (including shares, bonds, gold and commodities), Bitcoin has either been the very best or the very worst performing asset in any given calendar year, with returns ranging from +1,300% to -73%. It's either "Syndey or the bush" with Bitcoin - there is nothing in moderation. Bitcoin's current price is US$99,761. I have no idea where it ends in a year's time. Maybe $200,000, maybe $20,000. But my prediction is that it will display 3 times as much volatility as the S&P 500 - particularly on the downside. That is to say, if the S&P 500 falls by 5%, I predict Bitcoin will fall by 15%. 10% fall in the S&P 500 = 30% fall in Bitcoin. 20% fall in S&P 500 (heaven forbid) = 60% fall in Bitcoin. Prediction 6 - NZ$ strengthens a bit against the US$ The long term average exchange rate between the US$ and NZ$ is about $0.66. The current exchange rate is $0.56 - a full 15% below the long term average. So it would be easy to think that the NZ$ could revert back to the long term norm and increase by 15% back to $0.66. This is likely in the medium term, but I don't believe that it will happen in 2025. The US economy is looking healthy and robust, so interest rate cuts there are likely to be slower than here in New Zealand. This makes the NZ$ look less attractive to foreign investors. So I think we strengthen a bit, but don't get close to the long term average. My guess would be somewhere between $0.58 and $0.62. Prediction 7 - Liam Lawson finishes in the top 3 Liam Lawson has been confirmed as a Formula 1 driver for the Red Bull team in 2025. He joins a very exclusive list - only 9 other New Zealander's have ever had the honour. F1 is a cut throat environment, combining speed, skill, engineering excellence, and strategy. In a field of only 20 every year, just to be there is an achievement. Scoring points is a bonus. Finishing in the top 3 is rarified air. But I think he's got the goods. Go you good thing, you Kiwi! So that's my predictions for the year ahead. Having been doing this for 15 years, I have to say that there is a distinctly "eerie" feel about 2025. Normally when I do my research at the beginning of each year there is always outlandish, weird, scary, funny, or left field forecasts / predictions out there. They hardly ever come to fruition of course, but they are there, and some people believe in them. This year there are none - nothing that pricked my ears. That distinct lack of imagination has me a bit on edge - it feels a bit like complacency. So perhaps my closing forecast is that 2025 will deliver something extremely left field (either positive or negative) - something that wakes us from our sleepwalk through the motions. (Perhaps something as crazy as my beloved Phoenix winning the league...). In terms of the markets, here are the numbers for the past 30 days. You may notice a few small changes. I have added BNZ and Kiwi Bank to the list of banks deposit and mortgage rates, included the Bitcoin price, and changed the DOW to the S&P 500. |
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In terms of your Select Wealth Management portfolio, you will be receiving the December performance reports soon (if you haven't already). Returns for the quarter were reasonably strong. Global share markets lead the way, but property markets were weak. Global fixed interest was weak, but New Zealand fixed interest delivered solid returns. All said and done, a solid quarter which rounds out a very strong year. If you have any questions about your performance report, please do not hesitate to contact us - we are here to help. Finally, a quick update on the Giving Back campaign. Our campaign for Life Flight came to an end at the end of last year, and I am stoked to confirm that Makowem & Isaacs Financial Planning was able to make a donation of $2,075 to this great cause. For our new Giving Back campaign for the first half of 2025, we will be raising funds for Hutt Valley Woman's Refuge. It saddens me that this service is even needed, but Women's Refuge is the country's largest nationwide organisation that supports and helps women and children experiencing family violence. They provide a 24hr crisis-line, a wide range of education programmes, advocate for policy change and conduct original research. Women's Refuge advocates help across a wide spectrum, ranging from help accessing healthcare and counselling, support with MSD and budgeting advice, obtaining a protection order and legal assistance, finding a place to live, helping to fund activities for tamariki and establishing relationships with schools and teachers, even meeting basic needs like food, clothing, and much more. To learn more about Hutt Valley Woman's Refuge, visit https://www.huttwomen.org.nz Makowem & Isaacs Financial Planning is proud to support this fantastic charity and the great work they do. As always, thank you for the referral of family and friends which enables us to continue this initiative. To keep track of the Giving Back program visit https://mifinancialplanning.co.nz/giving-back.html to learn more in the meantime. That's all for now. Chat again soon Warm regards Dave and the team at Makowem & Isaacs Financial Planning dave@mifinancialplanning.co.nz |
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This newsletter is intended for general distribution and does not constitute personal financial advice.