2024 Market Recap

Investment Themes

Going into 2024, we published several themes influencing the direction of markets in the coming year. With any set of hypotheses, some pan out, some are inconclusive, and others warrant further exploration. Let’s recap these ideas:

Missed the Mark

• China exits recession:
  • We anticipated that China’s sluggish economy would have a turnaround in 2024, and we saw signs of that emerging at the end of October with the stimulus announcement.
    • The KWEB China Internet ETF rallied 54% in sympathy. However, the market quickly repriced, and KWEB corrected 25% by year-end as hopes for a turnaround in China faded and their economic conditions worsened.
  • China is potentially entering a debt deflation cycle. (Read more: Wikipedia)
• Healthcare and biotech outperform:
  • Neither sector outperformed. The sectors consolidated, trading sideways for most of 2024. Additional underperformance came late in 2024 with the nomination of RFK Jr. as Secretary of Health and Human Services and the United HealthCare Insurance CEO’s assassination and a 20% selloff in its stock through December, triggering broader sector selloffs. 
• Clean energy & Rivian:
  • There isn’t much to say other than this was a complete disaster. We believe Rivian is worth a premium, but it has been trimmed out of core portfolios to invest in better opportunities over the coming year.

Jury’s Still Out

• Rotation from mega-cap tech into the broader indices:
  • Throughout 2024, we saw signs of rotation. The S&P Equal Weight ETF had risen 25% into Thanksgiving week before seeing a healthy 7% drawdown into the New Year.
• Geopolitical risks remain:
  • Tensions in the Middle East and South China Sea continue, yet energy prices are subdued. We attribute a significant portion of this to China’s sluggish economy.

Spot On

• An underwhelming Federal Reserve Pivot;
  • Contrary to market participants, we expected 3-4 rate cuts totaling 75-100 bps in 2024. The Federal Reserve cut rates 3 times for a total of 100 bps.
• Technology continues outperforming:
  • Indeed, it did. The S&P Growth ETF soared 38%.
• Bitcoin adoption accelerates:
  • Unsurprisingly, our best-performing asset this year was Bitcoin by a wide margin. Our Grayscale Bitcoin Trust (GBTC) holdings surged 120%.

The S&P 500 vs. The Plebdex

The S&P 500 index rose roughly 25%, with dividends reinvested in 2024, whereas the Plebdex underperformed the S&P 500, returning 17.8% to investors. It is important to keep underperformance in context.

• The average market return since 1980 has been roughly 10%; anything above that should be celebrated.

Additionally, this is the second year of the Plebdex. Let’s compare the cumulative return for the 2023-2024 period, given an initial investment of $10,000 at the beginning of 2023.

• The Plebdex returned ~41% in 2023 and 17.8% in 2024, a cumulative return of 66% over the last two years.
  • A $10,000 investment would be $16,600.
• The S&P had back-to-back 25% years for a cumulative return of 56%.
  • A $10,000 investment would be $15,600.

It is important to remember, there will be years of underperformance and outperformance relative to our S&P 500 benchmark, but we remain optimistic about our long-term strategy to deliver outperformance. This strategy is simple, and if you’d like to take it for a spin to identify companies you’d like to invest in – try it out.

You should look to:

• Invest in sectors with great growth trajectories and secular tailwinds.
• Invest in businesses with well-known brands, great cash flows, and outstanding leadership.
• Consider macro and micro market trends and outlooks.
• Invest in companies that distribute excess cash through R&D, dividends, and buybacks.

Over 2025, we will publish a few articles exploring how to apply these concepts further. However, let’s look at the newly updated Plebdex without further delay.

The 2025 Plebdex & Investment Ideas

Behold the 2025 Plebdex. There are a few changes to the portfolio’s holding this year. A summary of these changes and a summary of how each investment fits into our overall theme is provided in the subsequent section.

Holding & Ticker	Weight	Fund Expense Ratio
S&P 500 Market Weight (FXAIX)	15%	0.01%
S&P 500 Equal Weight (GSEW)	15%	0.09%
Cybersecurity Sector (CIBR)	10%	0.59%
Energy Sector (XLE)	7.5%	0.08%
Healthcare Sector (XLV)	7.5%	0.08%
Bitcoin (IBIT)	7.5%	0.25%
Develop Foreign Markets (VEA)	5%	0.06%
Biotech Equal Weight (XBI)	5%	0.35%
Uranium (URNM)	5%	0.75%
UBER Technologies (UBER)	5%	0%
Amazon (AMZN)	5%	0%
Google (GOOGL)	5%	0%
PayPal (PYPL)	2.5%	0%
Intel (INTC)	2.5%	0%
Kratos Defense & Security (KTOS)	2.5%	0%

Summary of changes from 2024

• No changes to our S&P 500 market-weight and equal-weight or Cybersecurity holdings.
• Trim Energy and Healthcare by 25% in favor of individual stocks.
• Sold the market-weight Biotechnology ETF in favor of the equal-weight Biotechnology ETF.
• Transitioned our Grayscale Bitcoin holdings into the iShares Bitcoin Trust and increased weight in the portfolio by 50% to 7.5% of overall holdings.
• Sold our China Technology ETF KWEB.
• Sold our clean energy stocks.
• Maintained our Amazon and Google positions.
• Added a small position for developed markets – think Europe, Australia, and parts of Asia (South Korea, Japan, etc.).
• Add three new individual stocks: Uber, Intel, and PayPal.

Market Themes

China

• As long as Xi Jinping is in power, China will remain uninvestable. We have specifically weighted the 2025 Plebdex to reduce risk and exposure to China.
• Investments
  • GSEW – the equal-weight S&P 500 reduces the outsized risks related to China from holding a market-weight S&P 500 fund. Apple, Tesla, and Nvidia’s core businesses are susceptible to tensions with China.
  • Intel – we see Intel as strategically vital to U.S. National Security. Intel trades below its book value per share (Read More). 2025 will see a new CEO, potential Intel asset sales, and a spinoff of its Foundry business. If Intel’s 18A manufacturing process pans out in 2025, we see Intel re-rating to ~$50 a share, greater than 100% upside. For those who have given up on Intel, feel free to replace this trade with a broad-based semiconductor ETF, AMD, Broadcom, Nvidia, or Qualcomm.
  • Kratos Defense & Security – we view this stock as an undervalued defense disruptor and a leader in unmanned drones and military vehicles.

Fiscal, Monetary, & Trade Policies

• Fiscal Policy
  • For the first time in several generations, U.S. Government debt and the overall budget deficit are being watched more closely by a growing chorus of vigilantes. The Department of Government Efficiency (DOGE) aims to trim unnecessary fat – a feat we will need to see play out, but one necessary to tackle growing deficits.
    • As deficits grow, treasury departments will issue more debt. To issue more debt, there must be a buyer. Treasury prices will continue to drop as fewer buyers are willing to accumulate debt. As the prices of bonds fall, their yield, defined as a percentage, increases. Said differently – as a government continues to issue debt at an unsustainable level, the bond market will reprice, keeping underlying interest rates elevated.
• Monetary Policy
  • We expect the road to 2% y/y inflation to be slow. Inflation risk is skewed to the upside. The prices of goods and services will continue to see impacts from supply chain shocks, trade negotiations, and overall commodity price increases. Couple this with where U.S. debt levels remain, and we expect to see 4-5% interest rates throughout 2025. We expect the Federal Reserve to cut rates once in 2025 between 25-50 bps.

• Trade Policy
  • Tariffs and their use in trade negotiations will create uncertainty and periodic volatility – fancy market parlance for selloffs. We see these as buy-the-dip opportunities.

Market Rotation

• We believe money will continue to rotate out of Megacap tech and into the other 493+ companies within the S&P 500. This is why a large (>10%) Plebdex position is invested in an S&P 500 Equal Weighted ETF.

Healthcare and Biotechnology

• We believe that the benefits of AI will have a material impact on the healthcare and biotechnology sectors.
• We remain bullish on these sectors, represented in the holdings of XLV and XBI, though we have trimmed these positions relative to 2024.

Cloud, AI, Robotics, & Autonomy

• We see the continued proliferation of ever-evolving technology throughout the world. There are a lot of opportunities in tech; however, we must be vigilant about exuberance. Investors are willing to pay high premiums for growth.
• Uber, Google, and Amazon represent our plays on this theme. We see the most upside in Uber and anticipate 50%+ upside over the coming year.

Cybersecurity

• Companies are not slashing their cybersecurity budgets; they’re increasing them. We see long-term tailwinds for this sector and remain heavily overweight by holding a broad-based Cybersecurity sector ETF.

Financial Technology and Bitcoin

• We continue to hold Bitcoin and have increased its weighting in this year’s portfolio. We see FinTech and Bitcoin having long-term value.
• We have increased our Bitcoin allocation and have decided to add PayPal as our FinTech play of the year.
  • We continue to see PayPal shares as attractively valued, and its new CEO’s turnaround will take off in 2025, resulting in material share appreciation.