In the 4th quarter of 2024, the S&P 500 was up 2.41% vs. -0.16% for the MSCI World Index. Almost all stocks got a boost from the presidential elections. Bonds were a drag to performance for the most part in the 4th quarter. Even as the Fed lowered interest rates, the longer-term rates increased, creating pressure on bond positions. However, this allows investors to reinvest maturing bonds and new money into higher rates.
As we step into the promising landscape of 2025, the global economic environment shows signs of nuanced growth and transformation. Here at BrightHaven Financial Advisors, we're committed to keeping you informed and steering your investments towards prosperity.
Economic Overview:
The year 2024 ended with the S&P 500 experiencing one of its worst year-end performances in recent history, marking a significant dip from late December. However, historical trends suggest that such downturns do not necessarily predict a gloomy future. Economic analysts are observing a potential rebound in 2025, fueled by expectations of monetary policy easing across major markets. Central banks in both developed and emerging economies are anticipated to cut rates, which could stimulate growth, particularly in regions like the UK and China, where policy support is intensifying. This backdrop sets the stage for a dynamic year ahead, where strategic investments could yield substantial returns.
Investment Opportunities:
Equities: While we will stay diversified in the best healthcare, consumer discretionary, staples, etc. positions, the investment theme that we will continue to concentrate and focus on is Compute.
In today's digital age, compute power, much like energy in the mid-20th century, has become the new gold rush. During the 1950s and 1960s, energy companies reigned supreme, capitalizing on the global demand for oil, gas, and electricity, which powered the industrial boom and shaped economies.
Fast forward to the present, and we see a similar scenario unfolding with computational resources. The insatiable demand for data processing, AI development, and cloud computing services has positioned companies that provide or support these technologies at the forefront of modern business. Hyperscalers like Amazon Web Services, Google Cloud, and Microsoft Azure are akin to the energy giants of yesteryear, but the ecosystem extends beyond them to include chip manufacturers, data center operators, utilities, and specialized tech service providers. These entities are not just facilitating the digital transformation across industries; they are defining the new economic landscape, where compute is the currency of innovation, efficiency, and competitive advantage. Just as control over energy resources once dictated economic power, the ability to harness and manage computational resources now dictates the pace of technological advancement and market leadership.
Fixed Income: So far in 2024, longer-term rates have increased even while the Fed has decreased the overnight rate. However, interest rates are projected to decrease, so longer-term fixed-income securities, especially government bonds, seem to offer attractive yields. This could be a prudent time to increase duration in your portfolio to capture higher income levels in the coming years.
International & Emerging Markets: Despite political and macroeconomic uncertainties, international markets present intriguing opportunities due to their cyclical recovery patterns and currently undervalued assets. We approach these markets with a selective strategy. Historically, international equities have not always delivered the diversification benefits one might expect during bear markets, as global equities often move in tandem during severe downturns. Moreover, many of the largest U.S. companies are truly global in nature, deriving significant revenues and maintaining operations worldwide. Consequently, our investment strategy leans towards a domestic bias, recognizing that U.S. multinationals offer an inherent international exposure while potentially offering less correlation risk in turbulent times.
Alternative Investments: With traditional asset classes becoming more correlated, the role of alternatives for diversification and risk mitigation has never been more critical. Typically, investors give up some liquidity for less volatility when investing in Alts. We find that small allocations can provide some enhanced returns with less volatility in client portfolios when appropriate.
Potential Risks:
Inflation Risks: Although inflation is expected to moderate, proposed policy changes could introduce volatility in price levels, affecting investment returns.
Geopolitical Tensions: Ongoing and emerging geopolitical issues could disrupt market stability, necessitating an adaptive investment strategy.
Market Volatility: As we've seen, even without a Santa Claus rally, the market can be unpredictable. Investors should prepare for potential short-term fluctuations, especially with high valuations potentially leading to significant ups and downs.
Black-Swan events: Arguably nobody predicted the COVID-19 pandemic and the shutdown of the entire global economy. And likely nobody is predicting the next black-swan event. The key to managing these risks lies in diversification, maintaining liquidity, and a cautious approach to leverage.
Outlook for 2025 and Beyond:
At BrightHaven, we remain optimistic about the strategic positions we've taken. Our focus on quality duration, active management, and a diversified asset allocation positions us well to capitalize on the expected economic recovery. We anticipate that the 'soft landing' scenario, where inflation is controlled without precipitating a recession, will benefit risk assets. Our investment strategies are designed to navigate this landscape, focusing on growth amid complexity, leveraging trends in technology, and ensuring your portfolio is aligned with both immediate and long-term financial goals.
We at BrightHaven Financial Advisors are here to help you navigate through these opportunities and challenges. We're committed to providing bespoke advice tailored to your unique financial journey. Let's make 2025 a year of growth, resilience, and success together!