January 2025 Market Commentary

Closing Out 2024 and Looking Ahead –

The S&P 500 closed out 2024 with an impressive gain of 23.31%, marking its second consecutive year of strong performance following a 24.23% increase in 2023.  While back-to-back gains of this magnitude are noteworthy, they are not historically unusual.  That said, this current bull market had one of the slowest first year starts to a new bull cycle in history, reflecting the cautious optimism towards markets as investors wrestled with the most significant inflation in decades, the subsequent rate hike cycle, and how it would affect returns. 

With inflation largely under control and the presidential election behind us, major money managers are implementing their strategies and reallocating portfolios to align with evolving market conditions and expected policy changes.  The outlook for 2025 is strengthened by the unique potential of a technology-driven economic surge, further amplified by the potential of significant deregulation and proposed tax cuts.  A period such as this has arguably not been seen since the 1920s.  The rise of Artificial Intelligence (AI) stands at the forefront of this transformation, offering the potential to revolutionize productivity across industries and elevate the United States’ economic growth even further beyond that of global peers.  As this technology integrates further, we anticipate equity markets to continue their upward trajectory, supported by AI’s capacity to drive innovation and profitability. 

Of course, challenges remain.  The escalating tariff conflicts with key trading partners present headwinds, but these hurdles can be seen as potential advantages for U.S. based companies that focus primarily on domestic sales.  Simultaneously, the trend of reshoring production continues to gain momentum, fueling growth in construction and reinforcing the resilience of the U.S. economy. These shifts underscore the adaptability and strength of domestic markets in the face of global uncertainties. 

The Federal Reserve has maintained transparency throughout its monetary policy decisions, pairing clear communication with measured actions.  This approach has contributed to a stable economy and stronger-than-expected equity market performance.  Historical data suggests that a slower pace of rate cuts correlates with stronger market returns, largely because it indicates confidence in the economy rather than urgency to counteract a downturn.  Based on these dynamics, it is believed that the long-anticipated “soft landing” has been achieved, and the economy is well-positioned for continued growth in the near term. 

Looking ahead to 2025, a sound investment philosophy is rooted in discipline and continues to center on two key principles: optimism and quality investments.  Optimism, because bull markets have many times over proven to “climb a wall of worry,” often defying bearish narratives.  Quality investments, because while market contractions are inevitable, their timing is unknown; thereby, focusing on high-quality companies with proven resilience across economic cycles, we believe portfolios are well-prepared for whatever the future holds. 

As we step into the new year, we remain steadfast in our belief that discipline, optimism, and a focus on quality will continue to drive long-term success. 

“Worry is a waste of imagination.” – Walt Disney