2025 Market Outlook: Party Like It’s 1999 or 90’s Redux?
A Reflection on Tech Bubbles, Market Growth, and Balancing Risks.
We’re runnin’ outta time, So tonight we gonna party like it’s 1999 – Prince
The exuberance of the late 1990s tech bubble might feel oddly familiar today. With the S&P 500 up over 22% in 2024—on track for its best year since 2013—and the “Magnificent Seven” AI-driven tech stocks dominating headlines, it’s tempting to wonder: Should we party like it’s 1999? Yet, just as Prince’s lyrics remind us to celebrate responsibly, investors must weigh the risks of an overhyped, overvalued market and the reemergence of inflationary pressures against the opportunities for disciplined, diversified growth in the coming year.
Our 2025 Market Outlook doesn’t forecast a repeat of the dot-com crash but explores why this “1999 redux” reflects a more mature, grounded reality. While tech valuations are lofty, they’re supported by earnings growth, strong fundamentals, and transformative investment in generative AI—a far cry from the speculative frenzy of the dot-com era, where the rise of the Internet and World Wide Web unleashed a flood of venture capital into thousands of tech startups long on ambition but short on sustainable business models.
The dot-com bubble was fueled by a correct belief that the Internet would transform industries. However, most first-wave internet companies lacked the execution to capitalize on this revolution, prioritizing market share and hype over profitability. When the bubble burst in 2000–2001, it wiped out massive amounts of capital and shuttered countless high-profile ventures, epitomized by Pets.com and other flameouts. Today’s environment, though heated, reflects a more mature tech sector poised to deliver sustainable value alongside transformative innovation.
S&P 500: Fly High, but Watch the Altitude
Before you start popping your champagne bottles this coming New Years Eve celebrating the S&P 500 run, consider that nearly 50% of these gains stemmed from just seven stocks that got a wee bit ahead of their earnings from the generative ai hype —the so-called Magnificent Seven—highlighting significant market concentration. Goldman Sachs research points out that historically, heavily concentrated markets often struggle to maintain their momentum, eventually giving way to broader-based returns.
That said, today’s tech boom is not built on speculation alone. Unlike the late 1990s, earnings for these leading companies are expected to grow by 28% over the next 12 months, compared to just 5% for the rest of the market. While valuations remain elevated – at 29 times forward earnings for the tech sector – they are supported by robust fundamentals, distinguishing this rally from the speculative frenzy of the dot-com bubble.
The Coming Decade: A Slowdown, not a Shutdown
There are always patterns in everything, there are patterns in books, there are patterns in human behavior, there are patterns in success, there are patterns in everything in life. You just need to pay attention to them. -Jordan Belfort
Over the past decade, the S&P 500 delivered a remarkable 13% annualized return, buoyed by low interest rates and economic growth. But Wall Street is signaling that the “party” may not last. Both Vanguard and Goldman Sachs projects annualized equity returns of just 5% over the next ten years as markets normalize and competition from bonds heats up. Again, we remind investors to take all forecasts with a grain of salt.
Why the slowdown? High starting valuations and increased market concentration are major culprits. For instance, the S&P 500’s price-to-earnings ratio of 22.3 is well above its long-term average of 15.7. This suggests future gains may be harder to come by, especially if the influence of Big Tech moderates and economic growth slows.
Yet, this doesn’t spell doom for investors. Opportunities may arise in equal-weighted strategies or sectors overlooked during the AI tech craze as part of the proverbial “S&P 493” as the bull market expansion broadens into year three. Various bond sectors with yields above 4%, could also play a stronger role in portfolio stability and income. Staying diversified will be critical to weathering these transitions and future volatility.
Lessons from 1999
History doesn’t repeat itself but it often rhymes. -Mark Twain
In our blog posts over the years, we’ve often drawn parallels between the present and the dot-com era. While the exuberance of 2024 might feel reminiscent of 1999, the differences are crucial. As we wrote in past newsletters, the late 1990s were a time of speculative excess, with sky-high valuations unbacked by earnings or business fundamentals. By contrast, today’s market leaders – Apple, Microsoft, Nvidia – are driving real economic growth through innovation in generative AI, cloud computing, and energy efficiency.
Still, the lesson remains the same: Overconcentration and unchecked enthusiasm can lead to painful corrections. The best defense? A long-term diversified strategy that prioritizes balance over chasing the hottest trends.
The message for investors heading into 2025 is clear: Balance is your best ally. By learning from the past, staying diversified, and avoiding the lure of market hype, you can navigate the challenges—and opportunities—of the year ahead. Let’s aim to party responsibly.
5 Insights to Achieve Portfolio Balance in 2025
If the past few years have been about extremes – the bear markets of 2020 and 2022, compared to the sharp rebounds in 2021, 2023, and 2024 – then 2025 should be about regaining balance. This is as much about investor emotion as it is about the economic data.
History shows that those who can maintain a disciplined, long-term approach are better positioned to achieve financial success. This will only grow in importance in the coming year. Stock market valuations are well above average, the path of interest rates is uncertain, doubts about artificial intelligence are emerging, and geopolitical risks are escalating. There will likely be many more unforeseen events that will heighten investor concerns.
Fortunately, the lessons of the past year can guide financial decisions in 2025 and beyond. Below, we present five important insights that can provide investors with perspective even when the world seems uncertain and other investors fear the worst.
1 A stronger-than-expected economy has supported all asset classes
A year ago, investors spent much of their time worrying about a “hard landing” as the Fed kept rates high to fight inflation. Fortunately, this never materialized. Instead, inflation is returning to pre-pandemic levels, the job market is healthy, and economic growth is steady. Few investors expected such a positive scenario twelve months ago.
The Consumer Price Index, a measure of inflation, has slowed to only 2.6% year-over-year. Unemployment remains low at only 4.2%, and 2.3 million new jobs have been created over the past twelve months. GDP growth, at 2.8% in the third quarter, has been stronger than many economists anticipated.
This economic expansion has helped to propel many asset classes as illustrated in the chart above with the balanced (60/40) portfolio moderating near 12% YTD. U.S. stock market indices are near all-time highs, international stocks have continued to rise, and bonds have performed better in recent weeks. Gold is near record levels due to demand from investors and central banks. Bitcoin has also risen to historic highs following the presidential election.
This does not mean there are no challenges ahead. Consumer spending could slow as excess savings are spent, and debt levels are high for both households and businesses. Assets that have risen sharply could experience greater volatility as well. In times like these, focusing on fundamentals such as earnings and valuations will be important.
2 Expensive stock market valuations underscore the need for portfolio management
One reason for higher stock prices is the strength of corporate America. Corporate earnings have grown 8.6% over the past twelve months, rising to $236 per share for the S&P 500.
However, the fact that the stock market has risen far more than earnings means that valuations have increased. The price-to-earnings ratio is 22.3, meaning that investors are paying $22.30 today for every dollar of future earnings. This is well above the historical average of 15.7 and is nearing the historic peak of 24.5 during the dot-com bubble.
Valuations matter because paying a higher price today means, all else equal, a lower return in the future. For investors, this has two implications. First, it’s important to construct portfolios by balancing stocks with other asset classes such as bonds and international investments. Second, with stock market indices at historically expensive levels, it’s critical to focus on more attractive parts of the markets.
For example, while artificial intelligence stocks have driven market returns over the past two years, many other parts of the market have performed well recently. Year to date, all eleven sectors have generated positive gains. Given that it is difficult to predict which sectors may outperform each year, having an appropriate allocation to many parts of the market can help to stabilize portfolios.
3 The Fed Cut Interest Rates but Hints at Fewer Cuts in 2025
The Federal Reserve lowered interest rates this past Wednesday by a quarter percentage point to a range of 4.25% to 4.5%. While this marks a full percentage point reduction since September, policymakers signaled caution about further cuts in 2025, citing persistent inflation risks. Markets reacted negatively to the news with a swift 1000+ point dive of the DJIA index, showcasing the “good news is bad news” dynamic as resilient economic data fueled concerns over delayed rate cuts.
This latest move makes borrowing for car loans, business financing, and credit card balances slightly more affordable, though the impact on longer-term rates like mortgages—tied to the 10-year Treasury—is more muted. The Fed’s future rate decisions will hinge on evolving economic data, leaving timing and magnitude uncertain. However, even a couple of cuts next year could shift monetary policy from a headwind to a tailwind, potentially stimulating economic growth and supporting corporate earnings.
Easing monetary policy also bodes well for bonds as inflation moderates and growth stabilizes. If short-term rates decline while long-term rates hold steady, bond prices could rise, creating opportunities for income-focused investors to capture attractive yields alongside potential capital appreciation.
For investors, the broader trajectory of rates matters more than any single Fed decision. With clearer guidance on monetary policy, markets may soon redirect their focus to fiscal strategies under the incoming Trump administration, shaping the economic landscape ahead.
4 Political focus will shift from the election to policy
Presidential politics also clouded markets leading up to election day in November. Since then, the stock market has rallied due to the lifting of policy uncertainty, and the hopes that the incoming administration under President Elect Trump will create a pro-growth environment. Of course, just under half of the country does not agree with the new administration’s policies. National politics have only grown more divisive in recent years, and it is often difficult to separate personal views from investment decisions.
While politics are important in our personal lives, the reality is that the economy and stock market have performed well across both Democratic and Republican presidencies over the past century. When it comes to investing, business cycles matter more than who occupies the White House, and they are driven by many factors beyond politics.
In 2025, investors should put politics aside as they construct their portfolios and financial plans. Taxes, for instance, are clearer after the election since it is likely that most provisions of the Tax Cuts and Jobs Act will be extended. This affects individual income tax rates, corporate tax rates, estate taxes, and much more. As is always the case, working with a trusted advisor is the best way to ensure that your financial strategy considers tax implications and changing market conditions.
This does not mean that politics will be out of the spotlight in the coming months. Issues such as trade wars and the budget deficit will continue to worry investors. On trade, the new administration is expected to raise tariffs across many trading partners, especially China. However, it’s important to remember that the worst-case predictions during the first Trump administration never materialized, and many tariffs were continued during the Biden administration.
When it comes to debt ceilings and the growing federal deficit, there are no simple solutions. The national debt has grown to $36 trillion with no signs of slowing. Without a sustainable path, interest payments on the federal debt will continue to rise, credit rating agencies may continue to question the quality of U.S. debt, and the role of the U.S. dollar as the world’s reserve currency could become uncertain. Without minimizing the severity of this topic, it’s important to recognize that we are not at a tipping point just yet, and markets have historically performed well regardless of the level of the deficit and national debt.
5 Long-term thinking will be key to success in 2025 and beyond
Perhaps the most important lesson of 2024 is that markets can perform well in spite of investors’ worst fears. For example, market pullbacks in April and August this year may have led some investors astray, despite positive gains throughout the year. Markets have shown remarkable resilience over the past twelve months, supported by economic growth, innovation, and positive trends across many asset classes. It’s important to celebrate these positive outcomes, while also remaining vigilant and focused on the long-term.
The accompanying chart shows the value of having a long-term perspective. History reveals that true wealth is created not over months, but over years and decades. Even for those already in retirement, having a longer-term perspective allows investors to put short-term events in context and make productive decisions.
The bottom line? As the year comes to a close, we can celebrate a strong year for markets. In 2025, investors should focus on finding balance in their portfolios. History shows that this is the best way to manage unforeseen events, while staying on track to achieve long-term financial goals.
For more information on our firm or to request a complementary investment and retirement check-up with Jon W. Ulin, CFP®, please call us at (561) 210-7887 or email jon.ulin@ulinwealth.com.
Note: Diversification does not ensure a profit or guarantee against loss. You cannot invest directly in an index.
Information provided on tax and estate planning is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
You cannot invest directly in an index. Past performance is no guarantee of future returns. Diversification does not ensure a profit or guarantee against loss. All examples and charts shown are hypothetical used for illustrative purposes only and do not represent any actual investment. The information given herein is taken from sources that are believed to be reliable, but it is not guaranteed by us as to accuracy or completeness. This is for informational purposes only and in no event should be construed as an offer to sell or solicitation of an offer to buy any securities or products. Please consult your tax and/or legal advisor before implementing any tax and/or legal related strategies mentioned in this publication as NewEdge Advisors, LLC does not provide tax and/or legal advice. Opinions expressed are subject to change without notice and do not take into account the particular investment objectives, financial situation, or needs of individual investors.
