Hello Everyone!  As we wrap up what has turned out to be a great year for global markets, I am here to provide our thoughts for 2025.  In short, we expect low double digit gains as the bull market marches forward but with an uncomfortable pullback along the way. 

It's hard to bet against stocks while the Federal Reserve is cutting interest rates as the government runs large deficits to boost spending.  Both are occurring in a non-recessionary environment with a strong but slightly slowing labor market.  That is a good recipe for stocks.  

Not only that, corporate margins continue to expand, wage growth is strong, and labor productivity continues to increase.  Because we expect above-average economic growth, corporate earnings are likely to meet somewhat lofty growth expectations.

Given our economic outlook, U.S. stocks will likely continue to outperform International stocks but to a lesser degree than in recent years, primarily because of the significant valuation difference between the two markets. We continue to favor large-cap stocks versus small-cap stocks, given their higher-quality balance sheets and earnings growth expectations. 

Now, it isn't all good news.  We do expect a 10% correction, or more, in 2025.  Pullbacks are more common during positive market years than many realize, but we think the dynamics are there for one.  *Tech Valuations UP* While we believe the valuation expansion this year has been justified, we are reaching the upper bound of levels we feel are reasonable.  *Tech Valuations DOWN* *Earnings UP* Because of that, markets have less room for error should something disrupt the economy, and why earnings growth will likely have to contribute to any significant market returns. *Earnings DOWN*

Some risks we are monitoring include the possibility of sticky inflation, overly optimistic market sentiment, the pace at which the labor market slows, a continued slowdown in the housing market, and unknown policy expectations and implementation.  

For bonds, we are less optimistic.  *Bond Rate Mvmt UP* The anticipated solid growth and sticky inflation would push long-term yields slightly higher, hurting bond prices as they are inversely correlated.  However, the starting yield is modest, so we think the income bonds generate will offset any price depreciation; thus, we expect bonds to end the year marginally positive. *Bond Rate Mvmt DOWN*

We continue to advocate for untraditional diversifiers beyond generic stock and bond portfolios, especially considering our bond outlook. *Undersupplied UP* Commodities continue to play an important role in portfolios to hedge against any inflation surprises.  Also, some commodities are critically undersupplied. *Undersupplied DOWN*

*Hedge Fund Perf UP* It's worth considering alternative investments as well, given they're relatively uncorrelated to stocks and bonds.  They perform well during volatile and wide-momentum markets, and we think we'll get both in 2025. *Hedge Fund Perf DOWN*

In summary, we feel stocks will be modestly higher this time next year, but it may not be a comfortable ride getting there.  Continue to stay diversified to smooth out that ride and for those who are able, keep an open mind to take advantage of opportunities.

With that, we want to extend our sincerest thank you for putting your trust in us to manage your assets and help reach your goals.  Here's to a wonderful 2025 and we wish you all a Happy New Year!