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Writer's pictureInfraCap Management
15 hours ago4 min read

2025 Economic and Market Outlook


New York - January 2, 2025 ~ The team at Infrastructure Capital Advisors has completed its 2025 market and economic outlook with a brief recap of its 2024 outlook.  This insight report covers the overall economy and the stock and bond markets.




1.     Review of 2024 Outlook: Published Dec. 2023

 December 2024 Market & Economic Outlook Report: click here see the report.

 

2024 Market Outlook Summary:

  • We were bullish on the market for 2024 and had established our target on the S&P at 5,150, based on 19x the 2025 EPS consensus estimate of $270. We believed that central banks would ease in 2024, led by the ECB as Europe had already entered a recession. We projected that lower long-term interest rates, a resilient US economy, and the ongoing AI boom would drive the S&P 500 Index to our target by year-end 2024.


  • We raised our target to 5,500 after the first quarter of 2024, and in early June 2024, we raised our target to 6,000 based on declining inflation, which resulted in strong visibility on Fed rate cuts and the accelerating AI boom.

 

2.    2025 Market and Economic Outlook:


    A.  Market Outlook Summary:


  • We are bullish on stocks with a 7,000 target on the S&P 500 Index assuming an 18% effective corporate tax rate is enacted. Our target represents 22x the consensus 2026 S&P Estimate of $316 after adjusting for a reduction in the corporate tax rate from 21% to 18%.  The 22x multiple is justified by the lower corporate tax rate which drives higher returns on invested capital resulting in higher earnings growth.  If there is no corporate tax cut our S&P target falls to 6,600 and if there is a full cut to 15% our target rises to 7,500.


    • Corporate tax cuts are the key driver of economic growth and stock prices.


    • Earnings growth comes from investment of retained earnings and depreciation not margin expansion.


    •  Most government policies, including immigration and tariffs, have an immaterial effect on inflation or growth. Corporate tax policy and major changes in anti-trust enforcement do have an enormous impact on economic growth and stock prices.  Most market forecasters, including the Fed, are ignoring the inflation and growth impacts of the dollar appreciating by 8% over the last 3 months.


  • We continue to be bullish on investment banks, financials, REITs, small caps, and preferred stocks, but tech stocks will outperform these sectors unless rates start to drop in 2025.

 

  B.     Bond Market Outlook:


  • We remain bullish on bonds despite the recent sharp selloff of 10-year treasuries in response to a hawkish Fed and expect the 10-year to move into the 3.5%-4% range by the first quarter of 2025.


  • We believe that fears of accelerating inflation are completely irrational. Inflation is caused by excessive monetary growth and energy shocks and is not significantly impacted by other government policies.


    • As Milton Friedman said, “Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” 


    •  The Pandemic was nearly a perfect test of monetarism vs. Keynesianism and monetarism won. Since the beginning of the Pandemic, the monetary base (“M 0”) is up over 60% and nominal GDP is up 38% with CPI up over 22%. Consequently, all of the inflation related to the Pandemic was caused by excessive monetary growth.


    • The monetary base shrank 4.5% Y/Y indicating we are headed for deflation if the Fed does not cut rates significantly. 


    • We forecast that PCE-Core will roll down to below 2.4% by the end of the first quarter and to 2.1% by year-end of 2025 allowing the Fed to cut 3-4 times next year. The key driver of that decline is the shelter component of CPI which has finally decelerated to the .2% level from the .5% monthly run rate.  The BLS shelter inflation measure lags market rates by 18 months.


    • Our CPI-R real time inflation index which uses market rental rates to estimate shelter inflation is at 1.5% Y/Y for core and PCE-R Y/Y is at 1.8%, with auto services driving over .7% of the CPI-R headline increase.


    • The best cure for higher rates is higher rates. If rates remain in the current 4.5% range with the 30-year mortgage over 7%, we will have a significant decline in housing leading to slack in the labor market and slow economic growth. The current 7.3% rate is only 70bp below the high for the Century and over 200bp above the 25-year average. Tight Fed policy has already triggered a housing recession with residential investment declining by an average of 3.5% over the last two quarters. We believe the only financial condition that matters is the 30-year mortgage rate as housing declines have caused 11/12 post WWII recessions.


    • The “Hatfield Rule” is a recession indicator which states that if housing starts drop below 1.1MM there will be a recession. It is superior to the “Sahm” rule as housing is a leading indicator and employment is a lagging indicator.


    • We believe Trump administration policies are actually deflationary as pro-growth policies reduce inflation (quantity theory of money) and strengthen the dollar which has already appreciated by 8%, which is also highly deflationary and would almost fully offset any potential tariff increases.


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DISCLOSURE

Opinions represented on this website are subject to change and should not be considered investment advice. Past performance is not indicative of future results. This data was prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed.

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Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the InfraCap Small Cap Income ETF, please click here. Please read the prospectus carefully before investing. For more information, please reach out to William Heffernan at 212-763-8326 or icap-operations@infracap-funds.com.

 

The Funds are distributed either by Quasar Distributors, LLC or by VP Distributors, LLC, an affiliate of Virtus ETF Advisers, LLC. ICAP and SCAP ETFs are distributed by Quasar Distributors LLC. PFFA, PFFR, and AMZA ETFs are distributed by VP Distributors, LLC an affiliated of Virtus ETF Advisers, LLC.

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Current income is a primary objective in most, but not all, of ICA's investing activities. Consequently, the focus is generally on companies that generate and distribute substantial streams of free cash flow. This approach is based on the belief that tangible assets that produce free cash flow have intrinsic values that are unlikely to deteriorate over time. For more information, please visit infracapfunds.com.

 

The Russell 2000 Index is a small-cap U.S. stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index. It is not possible to invest directly in an index. In addition, there is a highly liquid option market according to total option volumes, as of December 8, 2023 *Morningstar ratings are based on risk-adjusted returns. Strong ratings are not indicative of positive fund performance. Morningstar Rating: Five star ranking awards for three year performance was prepared by Morningstar, an independent third party. As of 09/30/2023, PFFA was rated 5 stars out of 64 funds, 1 stars out of 58 funds and has no rating out of 38 funds within the US Fund Preferred Stock category for the 3-, 5- and 10 year periods, respectively. As of 09/30/2023, AMZA was rated 5 stars out of 100 funds, 1 stars out of 91 funds and no rating out of 0 funds within the Energy Limited Partnership category for the 3-, 5- and 10 year periods, respectively. These ratings are not indicative of a fund's future results or the future success of the adviser in managing its other funds. Approximately 10% of funds received 5 star award (top ten) in these categories. These category rankings only reflects two category rankings produced by Morningstar. The Adviser did not pay a fee to participate in the in Morningstar’s rating system. Morningstar ratings do not represent the entire universe of Preferred Stock or Energy limited Partnership funds offered to investors, rather this rating represents a subset of Preferred Stock and Energy Limited Partnership funds. For more information about the ranking and rating process, please contact Morningstar at 1-312-384-4000, or visit https://bit.ly/440AjUT.

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A word about SCAP risk:  Investing involves risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in equities securities, dividend paying securities, utilities, small-, mid- and large-capitalization companies, real estate investment trusts, master limited partnerships, foreign investments and emerging, debt securities, depositary receipts, market events, operational, high portfolio turnover, trading issues, active management, fund shares trading, premium/discount risk and liquidity of fund shares, which may make these investments volatile in price. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund’s returns. Small and Medium-capitalization companies, foreign investments and high yielding equity and debt securities may be subject to elevated risks. The Fund is a recently organized investment company with no operating history. Please see prospectus for discussion of risks. Diversification cannot assure a profit or protect against loss in a down market.  SCAP is distributed by Quasar Distributors, LLC.

 

A word about ICAP Risk: Investing involves risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in equities securities, dividend paying securities, utilities, preferred stocks, leverage, short sales, small-, mid- and large-capitalization companies, real estate investment trusts, master limited partnerships, foreign investments and emerging, debt securities, depositary receipts, market events, operational, high portfolio turnover, trading issues, options, active management, fund shares trading, premium/discount risk and liquidity of fund shares, which may make these investments volatile in price. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small and Medium-capitalization companies, foreign investments, options, leverage, short sales, and high yielding equity and debt securities may be subject to elevated risks. The Fund is a recently organized investment company with no operating history. Please see prospectus for discussion of risks. ICAP fund distributor, Quasar Distributors, LLC.

 

Virtus InfraCap U.S. Preferred Stock ETF (NYSE: PFFA): Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stock: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. No Guarantee: There is no guarantee that the portfolio will meet its objective. Prospectus: For additional information on risks, please see the Fund’s prospectus. 

 

InfraCap REIT Preferred ETF (NYSE: PFFR): Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Real Estate Investments: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management. Industry/Sector Concentration: A Fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated Fund. Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the underlying index may result in the Fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy. Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index. Market Volatility: Securities in the Fund may go up or down in response to the prospects of individual companies and general economic conditions. Price changes may be short or long-term. Prospectus: For additional information on risks, please see the Fund’s prospectus.

 

InfraCap MLP ETF (NYSE: AMZA): Exchange Traded Funds: The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. MLP Interest Rates: As yield-based investments, MLPs carry interest rate risk and may underperform in rising interest rate environments. Additionally, when investors have heightened fears about the economy, the risk spread between MLPs and competing investment options can widen, which may have an adverse effect on the stock price of MLPs. Rising interest rates may increase the potential cost of MLPs financing projects or cost of operations, and may affect the demand for MLP investments, either of which may result in lower performance by or distributions from the Fund’s MLP investments. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Short Sales: The fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the fund replaces the security. Leverage: When a fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulations, or factors affecting underlying assets. No Guarantee: There is no guarantee that the portfolio will meet its objective. Prospectus: For additional information on risks, please see the fund’s prospectus.

 

Performance Data: Performance data quoted backtested results. Backtested Performance was derived from the retroactive application of a model developed with the benefit of hindsight. Backtested performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please visit www.virtusetfs.com for performance data current to the most recent month-end and the Fund’s standard performance information. Past performance is not indicative of future results.

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Indices / Performance Terminology Used: For more information regarding the underlying data, calculations, or terminology used, please reach out to us. Please CLICK HERE to see a glossary of terminology and indices used.

 

Privacy Policy:  Protecting your privacy and personal information is important to us. Go to www.infracapfunds.com/privacy-policy to view our full policy.

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Past performance is not indicative of future results.

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