Now well into 2025, we can reflect on how 2024's market developments are shaping the year ahead. Throughout 2024, we maintained our focus on our three foundational pillars: intellect, design, and execution. This approach helped us navigate a market environment marked by AI advancement, cooling inflation, and pre-election volatility - and continues to guide our strategy as we move forward.

2024 Theme Review

Early in 2024, we outlined three key themes:

Theme 1: The Federal Reserve's Stance

The Fed shifted from its restrictive policy stance by implementing two rate cuts in the latter part of 2024 - moving from 5.5% to 5% in September, followed by another reduction to 4.75% in November. And finally, on December 18th, the Fed made its last rate cut for 2024, reducing the federal funds rate by 0.25. Despite inflation remaining above the Fed's 2% target, there seems to be steady progress in inflation reduction while the economy maintains its strength.

Theme 2: Opportunities in Quality Equities

U.S. stocks, especially in the technology sector, delivered strong performance throughout 2024. What began as an AI-driven rally concentrated in a few large tech companies broadened to benefit many other sectors and businesses implementing AI technologies.

Theme 3: Presidential Election Impact

We saw increased market volatility during the pre-election period, as many expected. Following the election results, markets stabilized, which aligns with historical patterns we've observed in previous election years.

Looking Ahead: Key Themes for 2025

We are focusing on three main themes that we believe will shape investment opportunities

Theme 1: U.S. Market Leadership

The U.S. market continues to lead the way in 2025, driven largely by the ongoing AI revolution. We are seeing AI reshape not just individual companies, but entire industries and economies, opening up new opportunities across the market. We expect that this technological revolution, along with solid economic growth and relatively easy financial conditions, to drive continued U.S. outperformance. Companies that effectively implement AI solutions are likely to maintain market leadership positions, while others that adapt to this transformation may present new opportunities.

Theme 2: Navigating Market Volatility

2025 is shaping up to be a "buckle up" year, with more market swings ahead as major policy changes take effect. While we are optimistic about the year overall, we expect to see more ups and downs than we have gotten used to recently. After two consecutive years of returns exceeding 20% in major market indices, we expect a return to more normalized growth patterns in 2025. While we anticipate positive returns, this adjustment to a more typical market environment, combined with policy changes, means investors should be prepared for increased short-term volatility.

Theme 3: Risk Management in an Uncertain Environment

The evolving policy landscape requires a sophisticated approach to risk management. Trade and immigration policy uncertainties could impact both growth and inflation. In response, we are emphasizing quality investments across asset classes and considering alternative strategies, with a focus on maintaining portfolio resilience through various market conditions.

Investment Implications

For our clients, these themes translate into considerations that include:

• The importance of maintaining well-diversified portfolios
• Opportunities to capitalize on technological advancement across sectors
• The value of staying invested despite potential volatility
• Understanding that market volatility is expected and normal, particularly in 2025
• Focusing on long-term investment goals rather than short-term market movements
• Strategic preference for large-cap, high-quality U.S. equities with reasonable valuations
• Tactical opportunities in the financials sector, particularly given the current rate environment
• Integration of alternative strategies for improved portfolio diversification
• Continued allocation to technology sector leaders, emphasizing companies effectively implementing AI

Looking Forward

As we navigate 2025, we remain committed to our disciplined investment approach while adapting to evolving market conditions. We expect a bumpier ride this year as markets digest both policy changes and the rapid pace of technological change. However, periods of volatility often create opportunities for long-term investors. Our strategy emphasizes quality investments while maintaining flexibility to adapt to changing market conditions. This balanced approach, combined with our focus on your long-term financial goals, positions us to help you navigate both the opportunities and challenges ahead.

As always, do not hesitate to reach out with any questions about your portfolio or our market outlook. Thank you for your continued trust in our firm.