Markets

U.S. equity markets had another strong year, even though equity markets sold off about 10% from mid-July through mid-August and drifted lower in the second half of December. The Fed cut rates again in December but signaled fewer cuts in 2025 based on positive economic data and sticky inflation, which contributed to negative bond returns in the fourth quarter and the catalyst to the selloff in mid-December. The potential for additional tariffs caused foreign stock to sell off significantly throughout the quarter.

As a reminder, the index returns above should only be used as a very broad point of reference.

Cash & Fixed Income: High-yield bonds led for all periods, except 3 years, where cash led the way. Municipal bonds were the laggard for the year, but aggregate bonds were the worst performer in the 3, 5, and 10-year periods. Cash was the worst performer over 15 years.

We continue to hold bonds as they provide meaningful diversification from stocks. If interest rates remain higher for longer, yields will continue to be strong. When rates do come down, bond prices will appreciate. Going forward, bonds should outperform cash as they do over time.

Equities: Large-cap stocks outperformed for all periods, while foreign stocks were the laggard in all periods, except 3 years, where small-cap lagged. Overall, equities continued their strong performance throughout the year, with the S&P 500 leading the way up 25%, while both small and mid-cap stocks were up double digits. Foreign stocks were positive but significantly lagged domestic equities.

With the outcome clear on the Wednesday morning after the U.S. election, we held a three-hour investment committee meeting to discuss how best to position for the upcoming Trump administration. Based on the America First agenda, we decided to maintain our foreign underweight and deploy cash into domestic equity in the large, mid, and small-cap spaces, creating slight tactical overweights compared to our long-term strategic targets.

We feel that high-quality domestic equities will be positioned to outperform over the next few years. As always, we will continue to monitor what laws are passed, changes in economic data, and any other pertinent factors that may impact client portfolios with a focus on continuing to provide the best risk-adjusted returns.