Q4 2024 Market Outlook

MARKET OUTLOOK

For global equity investors, 2024 presented stark contrasts. Key economic themes such as inflation and artificial intelligence endured while the trend of populism led to further political disruptions. Global equity markets continued a steady rise, notching a second consecutive year of double-digit gains, amid a tumultuous sea of political upheaval in democracies around the world. U.S. equities, particularly megacap technology stocks, outperformed other developed market equities as the U.S. continued to outpace others in economic growth since the COVID-19 pandemic, driven by a strong labor market and resilient overall consumption.

Meanwhile, over 70 nations held elections, a banner year for democracy even while the threat of encroaching autocracy loomed ominously in several corners of the globe. A key theme of 2024’s global electoral extravaganza was a rejection of incumbent leaders and parties as voting publics, aggravated by the high cost of living, sought change and new—often unorthodox—approaches to realizing broader prosperity. Yet, while voters rebuked incumbent political leadership in many democracies worldwide, investors continued to stick with leading industries and companies in global equity markets. The emerging commercialization of artificial intelligence continued to drive equity valuations and returns as industries levered to this phenomenon benefited from investor enthusiasm, such as software applications.

As 2025 unfolds, many investors foresee continued growth in equities driven in part by secular trends such as artificial intelligence fueling resilience in the U.S. economy and productivity gains. However, there are several questions and concerns about the potential impact of policies on economic growth and inflation, both domestically and overseas. Here in the U.S., many see the incoming Trump administration as conducive to growing corporate profits, with its promises of less regulation and lower taxes. On the flipside, the president-elect’s proposals for mass deportation of undocumented persons and higher tariffs on imported foreign goods are widely seen as inflationary. The severity of these policies, if executed, may likely be a wild card that influences market performance positively or negatively in 2025. Some economists have voiced concerns about the risk of stagflation—a combination of lower economic growth, higher inflation, and higher unemployment—in the U.S. Elevated inflation historically has favored equities over fixed income, but the impact of persistent inflation on economic growth is certainly restrictive. As proposed immigration and international trade policies threaten to buttress inflation, investors are keen to see how the Federal Reserve may respond to any significant uptick in prices. The central bank projects that it may reduce its benchmark rate only twice in 2025, reflecting its cautious vigilance.

After a relatively placid year (during 2024 the VIX, the stock market volatility index, reached its lowest level since 2019), increased equity market volatility is a potential trend to watch for in 2025. As we wrote about last month, share prices are expensive relative to historical averages and investors will weigh whether corporate earnings reports in the coming quarters justify the rich price/earnings multiples that many high-performing stocks have been demanding. If earnings reports fail to meet expectations, a market correction should not come as a surprise. Another theme to watch for is whether there will be any broadening or rotation in equity markets - a scenario where names and sectors that were unloved in 2023 and 2024 exhibit relative outperformance in 2025.

While equity markets may likely be more volatile and less robust in 2025 than they have been the previous two years, we remain attentive to the market-moving forces that affect our clients’ portfolios. We are constructive on the markets and focused on investing in a diversified array of companies with track records of and prospects for sustainable, long-term growth.

Impact Update

This proxy season, we have filed two lobbying disclosure resolutions with AbbVie and Apple, and proposals on the freedom to organize and human rights impacts due diligence with Amazon and Alphabet respectively. We have also filed a proposal seeking climate change mitigation information from Alphabet as well as proposal on water use and consumption at Digital Realty Trust’s data centers. We filed an amicus brief with asset owners CalPERS and New York City’s Comptroller Office, and with the Interfaith Center on Corporate Responsibility (ICCR), providing our investor perspective to the judge overseeing the litigation against the Federal Trade Commission’s ban on noncompetes, which depress wages. Read our Q4 2024 Impact Update to learn more.

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