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Quarterly Market Newsletter – Q4 2024

Reflecting on Milestones, Preparing for Tomorrow

As the final days of 2024 fade into memory, we find ourselves at a unique crossroads – pausing to reflect on the journey behind us and imagine the path ahead.  In many ways, 2024 mirrored the trends of 2023.  Advances in artificial intelligence (AI) began to push beyond the tech sector, and are starting to weave themselves into our everyday routines.  Meanwhile, the meteoric rise of weight-loss medications reshaped healthcare, spurring deeper conversations about long-term wellness.  Globally, central banks – which just a year ago were raising rates to rein in sky-high inflation – are now taking the opposite tack and cutting them.  And following a spell of policy uncertainty, a decisive U.S. election outcome has ushered in a renewed sense of political stability.  Through it all, one defining theme emerged:  the U.S. economy has shown a level of resilience few would have predicted.      

As we ring in the New Year, we can raise a glass to the generally positive returns that markets provided in 2024.  U.S. large-cap stocks stood out once again, building on last year’s momentum.  Growth stocks – especially in technology – rose on the tailwinds of AI-related optimism, fueling hopes for sturdy future earnings.  Value stocks held their own, often providing a measure of stability in uncertain times, but trailing their growth-oriented counterparts more recently.  Overseas, international equities delivered mixed results. In fixed income, the bond market painted a more nuanced picture, with the 10-year Treasury yield hovering above 4% for much of the year.    

Even so, 2024 was hardly a complacent stretch for investors.  Though tamer than recent memory, there were still moments of market turbulence – unsettling at times, yet often revealing fresh opportunities.  Fluctuations in inflation, interest rates, and consumer trends tested our strategies, challenged our assumptions, and ultimately sharpened our focus.  Throughout every twist and turn, our investment decisions remained guided by facts rather than speculation.  Where some saw turmoil, we recognized chances to refine, recalibrate, and reaffirm the long-term principles that anchor our approach. 

The U.S. Economy:  Recession-Resistant or Just Postponed?

Taking a broader view, recessions in the United States have gradually become both less frequent and less severe.  Aside from the brief 2020 downturn linked to the pandemic, the nation hasn’t experienced a genuine slump since the 2008 Global Financial Crisis (GFC) – now more than 15 years in the rearview mirror.  In the past four decades, we’ve weathered just three recessions, and only one (the post-GFC stretch) persisted for more than a year.  Compare this to the previous 40-year window, which contained eight distinct recessions, and it’s clear the business cycle has significantly mellowed.  

Unemployment rate and recessions since 1948

January 1948 – November 2024.  Shaded areas denote recessions

Source:  Federal Reserve Bank of St. Louis, U.S. Bureau of Labor Statistics

A key reason for this shift lies in the changing nature of the U.S. economy itself.  In bygone eras, American growth was anchored by manufacturing and heavy industry – sectors that often moved in lockstep with the broader economic cycle, leaving them vulnerable to sudden downturns.  Today’s leading companies tend to be “asset-light,” technology-driven enterprises, boasting higher profit margins and more flexibility to adapt during downturns. 

Furthermore, the Federal Reserve has assumed a more proactive role in cushioning the economy when trouble looms.  Through tools like interest rate cuts or quantitative easing, the Fed has repeatedly demonstrated its willingness to step in before a downturn gathers steam – at least so far.

Fiscal Policy to Dominate U.S. Macro Narrative in 2025

The dawn of 2025 ushers in a notable power shift in Washington, as the Republican Party assumes the White House and control of Congress – even if the House majority is razor-thin.  This unified government raises the prospects of sweeping legislative moves, potentially fast-tracking major reforms.  Of course, there’s often a gap between campaign rhetoric and the real-world demands of governance.  Yet, if history is any guide, unified control tends to hasten the rollout of ambitious policy agendas. 

At the heart of President-elect Trump’s platform are proposals for tax reforms, industry deregulation, and energy expansion – policies many observers believe could bolster economic growth.  On the flip side, plans for stricter trade tariffs and large-scale deportations of undocumented immigrants, combined with rising national debt, risk rekindling inflationary fires.    

Although the Federal Reserve has leaned toward stable or lower interest rates lately, a sudden uptick in inflation could compel it to reverse course and resume rate hikes.  As we edge closer to Inauguration Day, there’s little doubt that fiscal policy will command the national spotlight.  How swiftly lawmakers transform campaign goals into concrete legislation – and how effectively the new administration balances pro-growth measures with inflationary concerns – remains the critical questions as we head into the new year. 

Positioning For the Year Ahead

Entering 2025, we carry a mix of optimism and prudent caution.  The stock market’s strong showing over the past year was underpinned by growing corporate profits and the Fed’s pivot toward cutting rates – forces that keep the current rally going. 

Yet, much of this good news is already reflected in share prices, leaving fewer “upside surprises” than investors saw in 2024.  Even outside of recessionary periods, it’s not uncommon for the market to take a pause, sometimes delivering a correction or two along the way.

For the most part, the U.S. economy remains on steady footing, thanks to steady corporate earnings growth and a supportive monetary backdrop.  Nonetheless, the valuation bar is undeniably high, largely due to the swift ascent of the so-called “Magnificent-7” tech giants.  While their climb has warped overall market metrics, the rest of the index trades at more moderate levels – an encouraging sign that not every sector faces outsized risk. 

In our flagship Ascent Dividend Focus strategy, we remain committed to investing in companies with enduring earnings, paired with above-average dividend increases and/or share repurchase initiatives.  At the same time, we’re carefully underweight direct AI exposure at the moment, wary of potentially frothy valuations and the risks associated with heightened concentration. 

Our Ascent Global Growth strategy has benefited from a protracted run in growth stocks.  As we step into 2025, we modestly increased our defensive cash position and strategically harvested tax losses by shedding a few non-core holdings – ensuring we have the flexibility to seize new opportunities should the market cool. 

Meanwhile, our Ascent Income Portfolio stays focused on underappreciated names that deliver solid dividend streams.  We’ve made incremental tweaks to spotlight companies we believe are temporarily overlooked but still provide reliable income potential.

When we reflect on 2024, it isn’t so much the market milestones or portfolio shifts that stand out – it’s our conversations with you, our clients, that truly remain front and center. We cherish those discussions about your family milestones, personal stories, aspirations, and long-term financial goals, and the confidence you’ve shown in our team to help guide you there.  Your trust fuels our dedication every single day.  On behalf of everyone at Ascent, thank you for your unwavering partnership. We look forward to navigating the opportunities and challenges that await in the new year – together.