In November, the S&P 500 achieved its best monthly performance of the year, supported by a clear election outcome and a “no-surprise” Fed rate cut. Year-to-date performance is on track to rival 2023's 26% return, a rare achievement as U.S. stocks have posted consecutive 20%+ annual returns in less than 10% of two-year periods since 1928. Unlike 2023, where tech sectors dominated, 2024 saw a mid-year sector rotation and broader market participation, reducing the “Magnificent 7” stocks' contribution from 60% to 23% by November. This broadening creates favorable stock selection opportunities, rewarding fundamentally strong companies across various sectors.
As the new year begins, several factors are poised to support stocks:
First, uncertainty has eased. A decisive election result removed a key market concern, and the rally could extend into 2025, fueled by expectations of tax cuts and deregulation in key industries. While policies like tariffs and immigration remain uncertain, historical trends suggest strong returns in the first year of a presidential term.
Second, the economic backdrop remains favorable. Unemployment, though slightly higher at 4.2% in November, remains low. Consumers are resilient, and a tight housing market is boosting home equity values.
Finally, corporate change is accelerating, with new products, leadership shifts, and an increase in CEO departures, leading to greater M&A activity in a less regulated environment.
We believe that agility and careful selection will be crucial for navigating the markets in the coming months, across styles, sectors, and geographies. If change is a defining characteristic of 2025, this will be a crucial period for active managers who possess the flexibility and expertise to manage the challenges and opportunities ahead.
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