Q4 2024 Market Update

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.

If 2024 was the year for global elections, 2025 is the fallout. Nearly all major elections saw the incumbents either lose or end in a significantly weaker position. Here in the US, the new administration feels that it has a mandate and its ambitions will at times be at odds with an entrenched government bureaucracy designed to slow things down and take a more methodical approach. This is going to be a major point of contention and markets may get caught in the middle. However, given the highly unpredictable nature, we advocate for ignoring short-term noise and maintaining a long-term posture with the broader geopolitical backdrop in mind.

​Now for something more exciting, the evolving technology environment. AI was the thing that snapped stocks out of their 2022 bear market hibernation, and it has been the single biggest market story since. Last year, we saw that story continue as new, more advanced models were released to the public. These models are interesting in how human-like they can be. Like people, they are sometimes prone to making things up when they do not have the answer, but some of the newest models have an added element, the ability to “think”. These thinking (or reasoning) models can take a few minutes to ponder a question and review responses, leading to better answers. As the biggest AI data centers grow, the intelligence of these models should continue to advance, leading to greater use cases.

This year will likely see two types of AI hit the mainstream, Physical AI and Agentic AI. Physical AI is embodied in robotics, think self-driving cars, and humanoid robots. This technology is already here as Waymo is running self-driving taxi services in select US cities and Tesla is set to join them later this year. Meanwhile, a number of companies are working on humanoid robots with AI brains to perform any number of functions. At first, these robots are likely to work in factories, doing repetitive work. However, as their competence grows, it becomes easier to imagine a future where everyone has one at home, doing the dishes, cleaning, walking the dog, or any number of other chores. This will also likely be the year that we see several applications focused on AI agents come to market. These agents would be designed to perform specific tasks, such as booking flights, hotels, or car rentals, managing your calendar, and generally working as an assistant of sorts. There is the added ability to have these agents do things like data entry and other simple repeatable work. This has the potential to improve worker productivity and further support growth in the economy.
 
It was not so long ago that the idea of artificial intelligence was still something for science fiction fans and techno dreamers trying to envision the distant future. While we are still in the very early stages, things are rapidly advancing. The infrastructure buildout of the last two years is starting to bear fruit, a key element for the investment thesis. For all the craziness in the world, we are going to get one step closer to that sci-fi future this year. It is an exciting time to be investing and witnessing the advancements being made by the world’s leading technology companies. Thank you and please reach out with any questions or concerns.

Index Descriptions:
The Standard and Poor's 500, or simply the S&P 500, is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the USA.
The Russell 2000 Index is a stock market index that tracks roughly 2000 US small companies, and is considered a key benchmark for US small cap stocks.
The MSCI EAFE Index is a stock market index that measures the performance of large- and mid-cap companies across 21 Developed markets countries around the world. Canada and the USA are not included. EAFE is an acronym that stands for Europe, Australasia, and the Far East.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg US Aggregate Bond Index, or the Agg, is a broad based, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the USA.

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