Paradigm Shifts: Valuations, Earnings & What The Market Holds In 2025 with Cameron Dawson
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Deep Dive
What was the biggest surprise in the market for 2024 according to Cameron Dawson?
The biggest surprise in 2024 was the market's ability to re-rate up to 2020-2021 highs, despite expectations that valuations would act as a ceiling. Instead, valuations expanded significantly, with forward multiples appreciating by mid-teens, even as the Fed remained tighter than expected and interest rates rose.
Why does Cameron Dawson believe valuation discipline is crucial for 2025?
Valuation discipline is crucial because if valuations start to matter in 2025, it could lead to a sideways market. If they don't, the market could enter bubble territory where valuations are ignored. Dawson emphasizes that valuation concerns could act as a ceiling, making it a key factor in navigating the year.
What is the earnings growth expectation for the Russell 1000 Growth Index in 2025?
Consensus forecasts expect earnings growth for the Russell 1000 Growth Index to increase from 4% in 2024 to 16% in 2025. This implies a significant reacceleration in earnings growth for the 45% of the index that is not part of the Mag Seven, which is a high bar to meet.
What are the risks associated with passive investing in 2025?
Passive investing works as long as the market becomes increasingly concentrated, with flows going to a few dominant names. Risks arise if earnings capability of these winners shifts or if liquidity flows change. Historically, periods of high concentration have been followed by underperformance due to valuation compression, not earnings.
What is Cameron Dawson's outlook on fixed income volatility in 2025?
Dawson expects continued volatility in fixed income, with potential for yields to rise to 5% due to growth fears or inflation risks. She advises being acquisitive when yields back up and patient when they decline, as interest rate volatility is likely to persist.
What is the significance of the U.S. dollar in global markets for 2025?
The U.S. dollar's strength will define market leadership. A weak dollar is necessary for non-U.S. assets to outperform. Dawson notes that dollar strength could tighten financial conditions and impact earnings, especially if companies report weaker numbers due to FX headwinds. Continued dollar strength is possible if the U.S. economy outperforms peers.
What are the potential risks for the U.S. consumer in 2025?
The U.S. consumer faces risks if unemployment rises or asset prices decline. Low-income consumers are particularly sensitive to labor market changes, while high-income consumers are more affected by asset price fluctuations. A weakening labor market or declining equity and housing prices could lead to reduced consumer spending.
What is Cameron Dawson's view on international markets for 2025?
Dawson is selective in international markets, favoring high-quality names trading at discounts to U.S. peers. She is underweight developed markets and neutral on emerging markets, preferring U.S. mid-cap stocks due to lower currency and tariff risks. She looks for opportunities where extreme pessimism creates value.
What is the potential impact of rising corporate debt defaults in 2025?
Rising corporate debt defaults could signal trouble if companies cannot refinance at lower rates. Many firms hoped for rate cuts to ease debt burdens, but if rates remain high, refinancing becomes challenging. This could lead to increased delinquencies and broader economic impacts, including higher unemployment.
- Market re-rated to 2020-2021 highs despite expectations
- Valuations did not act as a ceiling in 2024
- Passive investing dominates, seemingly ignoring valuations
- Shiller PE ratio at 38, similar to 1999 and 1920s levels
- Warren Buffett holds 325 Billion in cash
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