Q4 2024
January 15, 2025
As we reflect on 2024, we recognize a year of remarkable resilience in global markets. The S&P 500 posted a strong 23.3% annual return, its second consecutive year of over 20% gains—a rare achievement in market history. These results underscore the strength of corporate earnings and guidance, but they also highlight a key concern: market concentration. Today, the top 10 stocks in the S&P 500 account for almost 40% of the index—a level not seen before—creating vulnerabilities as we look ahead to 2025.
2025: A Year of Crosscurrents and Big Questions
With this backdrop, 2025 is shaping up to be a year of both complexity and disruption. Political policy ambiguity, economic adjustments, and evolving sector-specific trends raise important questions for investors:
Are risks being overlooked? Elevated valuations, pockets of speculative trading, and concentrated technology leadership suggest some investors may be ignoring key vulnerabilities and lessons from past market cycles.
What’s next for AI? Artificial intelligence has driven significant valuations, but the road to seamless adoption and record profits remain uncertain. Established companies face mounting pressure to innovate while competition grows fiercer among smaller players.
Can the energy transition scale? While progress toward alternative energy is well underway, infrastructure challenges, supply chain costs, and policy uncertainties may hinder near-term economic viability.
How will consumer habits shift? The rise of weight-loss drugs like Ozempic is already reshaping spending patterns. Early studies show a 6% reduction in grocery spending and up to an 11% decline in purchases of packaged foods, with ripple effects on industries like healthcare, consumer goods, and retail.
These questions reflect the challenges of forecasting the year ahead. While the math of investing may seem simple–navigating these crosscurrents is complex.
Why Discipline is Essential in 2025
The remarkable returns of 2024 capped a decade marked by low interest rates and strong corporate profitability, creating an environment of sustained growth. Yet, this prolonged success has also fostered a sense of complacency among some investors. Sky-high valuations in the technology sector, speculative trading in cryptocurrency, and the dominance of a few mega-cap stocks reflect a growing willingness to sideline traditional valuation principles. Now, as we step into 2025, the U.S. market finds itself in what many are calling a "goldilocks" scenario. Wall Street analysts anticipate robust earnings growth of 17-18%, paired with a potential Federal Reserve rate reduction of 25 to 75 basis points—a rare alignment of conditions.
However, this optimistic outlook sets a high bar. History teaches us that periods of unchecked enthusiasm often precede corrections, a reminder that vigilance and disciplined strategies are essential, even in seemingly perfect conditions.
In today’s complex and ever-changing market, we believe that diligent research and a disciplined approach to valuation are essential for long-term investment success. While fleeting trends and headlines may capture attention, it is the underlying economic fundamentals that ultimately determine investor returns. At the heart of our strategy is a commitment to capital preservation—not only to minimize risk but to create a stable foundation that enhances returns over time.
Our decisions are shaped by a culture built on common-sense objectives and enduring investment principles, ensuring we remain focused on what truly matters. Guided by the belief that fundamentals drive stock prices, we are well-prepared to navigate the uncertainties and shifting currents of 2025 with confidence, clarity, and care.
Thank you for the trust you have placed in us. Please don’t hesitate to reach out with any questions or thoughts. We look forward to working with you in the year ahead.
Sincerely,
Janet Wills
Adam Mehrer
