January 8, 2025

To quote Dickens, “It was the best of times, it was the worst of times”.  Indeed December was a tale of two markets: the mega-cap equity names held up well but small-cap investors continued their long suffering woes – they have been in jail nearly as long as Dickens’ character Dr. Manette!.  The broad market, as measured by the S&P 500 Index, declined 2.3%.  Small-cap stocks had a very difficult month (-8.0+%) and have now lagged large-cap stocks for a staggering eight years.

The U.S. economy continues to show surprising strength.  Real gross domestic product (GDP) increased at an upwardly revised 3.1% annual rate in the third quarter, consistent with the 3.0% annualized growth recorded in the second quarter.  Growth continues to be supported by resilient consumer spending.  The possibility of lower taxes and less regulation now seems to be lifting sentiment not just for investors, but also consumers and small business owners.  Such animal spirits have the potential to boost economic activity, leading to increased hiring and investment.  For the fourth quarter, the Atlanta Fed’s GDPNow real-time forecasting model currently predicts real GDP growth of 2.4%.  As a result, full year 2024 GDP growth will likely come in at the top end of our prior +2-2.5% forecast – a solid year indeed.  Our initial forecast for 2025 real GDP growth is a similar +2-2.5%.

We continue to believe that a diversified portfolio of reasonably-valued, high-quality durable growth stocks such as our Clients’ remains the best protection, in our view, against bouts of market volatility while still allowing ongoing participation in the current bull market.  For now, we continue to emphasize technology, communication services, healthcare, and consumer discretionary in our Clients’ portfolios as we believe those sectors offer the best combination of value and earnings growth.