Last year was another good one for markets, with the biggest names in the S&P 500 once again leading the way higher. The AI story has been a driving force behind much of the market’s return in the last two years, and there is little reason to believe that things will change in 2025. Elsewhere, investors will be watching to see how the Trump administration will look to implement various campaign promises. Things are evolving quickly, and the scale may end up being the focus of 2025. The scale of change in the political landscape, trying to find the appropriate level of budget cuts to scale down government debt, and the scaling up of AI, are all things we will be watching.

Markets have pulled back to start the new year. Numerous factors have likely led to the uninspiring start, though it does little to change our longer-term outlook. Investors have had to trade around three consecutive shortened weeks, and there seems to be a lack of continuity across markets. Additionally, the usual quarterly and annual rebalancing around the new year is likely leading investors to sell some winners and move into other parts of the market.

Stock markets have been celebrating the fact that we made it past the election and earnings season without any major disruptions. The new administration is expected to pursue policies to reduce government spending, reduce regulations, maintain/lower taxes, and broaden protectionist trade policies.

Stock markets love an environment like this one. We have had mostly good news, with just enough worry to keep investors honest. While not perfect, markets were able to generate gains across the board during the quarter. In a sense, the third quarter mirrored the year as a whole and to some extent, reflects what we believe may be in store in the coming quarters. That is to say that we expect more of the same, steadily good markets with the odd hiccup here and there. During the quarter the Fed started an expected easing cycle, China unloaded a sizable stimulus package to boost their struggling markets, and we received some upward revisions to recent economic data. As always, there is an element of nuance to what is happening in the world, but our views have not changed substantially. We maintain a constructive view towards equities while believing in the relative value of short-term, high-quality fixed-income assets.