As we enter the new year, we wanted to provide a recap of 2024 and our market outlook for 2025.
In 2024, US equities, as measured by the S&P 500, outperformed all other major equity markets, with a total return of about 25%. Tech and AI dominated, and the S&P became highly concentrated with eight mega-cap, “Big Tech” stocks (TSLA, MSFT, GOOGL, META, AVGO, AMZN, AAPL, NVDA). These names made up 36% of market capitalization in the index at year-end and accounted for 60% of S&P 500 returns in 2024. NVIDIA alone became one of the largest components of the S&P by market capitalization due to its rise as a leader in the AI and semiconductor space. This name had an outsized effect on the index and accounted for ~22% of the S&P 500’s total performance for the year. This highlights how a small group of stocks, including NVIDIA, concentrated the gains in the broader, market-cap weighted index (as compared to the equal weighted that unperformed by 12%). Bond markets yielded positive results in the first three quarters of the year, as the Fed pushed on with its easing cycle. Within private markets, private credit and infrastructure strategies outperformed while private equity markets began to accelerate from their slowdown in activity. Real estate was lackluster but we have seen some signs of bottoming as market values adjust to the higher rate environment.
We have a positive outlook for 2025. While we are expecting another year of market gains, we believe that investors should expect more modest, single digit returns and potentially more volatility than in 2024. It is important to acknowledge that the markets have already had quite the run-up and valuations are at relatively heightened levels, which has historically been followed by weaker future returns. Going forward into 2025, companies are under increased pressure to deliver given the higher spending on building out AI. The bar is high for the Big Tech names, because while they have already shown significant outperformance, we want to consider how future returns will play out. One cannot ignore the recent developments with the Chinese-based DeepSeek AI platform, too. It is important to delineate between the AI infrastructure space (i.e. semi-conductors like NVDA or digital infrastructure names like Vertiv) versus those focused on AI implementation (i.e. Meta, AAPL, or TSLA to name a few). For the implementors, more efficient models should bring down costs and increase return on investment. This is not the first time we have seen a technological advance like this before where costs are high in the early stages, decline over time, and result in increased public adoption, We remain constructive on U.S. large cap technology for those reasons. We also feel that the electrification of the grid will be a continued trend in the new year as long-term demand trends are unlikely to soften. Lastly, we do expect trade-related rhetoric to drive near-term volatility but the backdrop of a healthy U.S. economy remains intact.
We expect US employment and GDP to remain strong in 2025. However, inflation has continued to remain above 2%, and could start to move higher again. Accordingly, interest rates are expected to remain higher, and while we expect the Fed to continue to lower rates this year, we think this will be at a slower pace than previously expected. Potential upside on inflation and higher for longer rates mean the Fed is no longer a tailwind for equity markets.
All this to say, we think more portfolio diversification will be required in 2025. The correlation between total returns for stocks and bonds has risen to the highest levels since the end of the 1990s. In a higher for longer rate environment with potential upside on inflation, we would expect this to continue, which is why we believe in an allocation to private market investments. Some private investments (such as Infrastructure and Real Estate) have low correlation to public markets and, therefore, add increased diversification to a portfolio. Additionally, many private investments are often less affected by public market volatility, while potentially achieving similar risk-adjusted returns over the long term.
Should you have any questions about this information and how it relates to your personal financial situation, please do not hesitate to reach out to your advisor.
Thank you for your continued trust.
TritonPoint Wealth
Sources: Dynasty Financial Partners, Goldman Sachs Investment Strategy Group, Apollo Global Management, KKR

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