Last updated: March 19, 2025
It is impossible to talk about 2024 without discussing the Presidential election, noteworthy for providing a most unexpected outcome—election night clarity—including an improbable sweep of the swing states and a popular vote victory, as opposed to an ambiguous result inches left or right of stalemate and resolved by lawyers. To be fair, the electorate remains split, and a significant chunk of America considers President Trump to be a walking extreme. The early narratives have not disappointed in that regard, with discussion of substantial tariff-supported changes to the tax system; attacks on liberal standard bearers such as Justin Trudeau, Gavin Newsome and the usual Washington, DC marionettes; a presidential order to rename the Gulf of… America; Elon Musk as the nation’s green-eye-shaded bookkeeper in the Department of Government Efficiency; the expected excoriation of any judge, bureaucrat or head of state with the temerity to present obstacles to the Trump agenda; and a vague discussion of acquiring Greenland and taking the Panama Canal.
Source: Associated Press
With the popular vote, however, came what arguably appears to be a mandate for redirection of the nation’s political trend, and expectations are high, with a contingent of America anticipating a Reaganesque tenure from a second-time president that may have Reagan’s level of support from the working class, but has not previously matched the former President’s gift for communication, steady leadership and consensus building.
From an investment perspective, the high expectations have made their way into the price of stocks, despite the reality that the administration controls only a narrow majority in Congress and inherits a difficult financial backdrop in terms of debt, inflation and potential pressure on interest rates.
When the white house switches parties, numerous seductive statistics are offered to predict impact on financial markets, and it is not unusual to see a wave of positive sentiment over the first year of a presidential term. History suggests that we be wary of the former and recognize the limitations of the latter—our country is so young that we are on the 47th presidential term (45th person to be President) and this inauguration represents only the 14th swing from one presidential party to the other since 1900, so the sample set of such data is too small to have legitimate statistical value. The reality is that events will overtake this administration and the impact on markets is yet to be determined. The potential for deregulation is a positive force and tariffs come with potentially difficult short-term ramifications but interesting long-term possibilities.
Equally important at this juncture is that, while progress against the federal deficit appears possible, it is very hard to envision this administration being a deficit ending, much less debt-reducing manager of the United States balance sheet.
Markets will be shaped by these policies, but the ultimate answers will be found in how they impact interest rates, earnings, federal reserve policy, valuation and sentiment.
Summary
We live in interesting times, but in 2024 that timeworn challenge failed to diminish a trend of historic gains. As we consider the year in perspective, a number of data points emerge that bear scrutiny, to include an all-time high in concentration percentage among the largest stocks in the S&P 500, valuations that are high by historical standards, a President that is willing to diverge from the economic structure of recent decades, stubborn inflation that can’t quite fall to the 2% Federal Reserve target, and a big change in the level of interest rates relative to the lows of a few years ago. Even the multi-year performance of the S&P 500, while positive for investors over the last two years, could be added to that list.
TRB Trust & Wealth Management manages portfolios for a wide range of clients, with approaches customized for different assets, structures, goals, and investment horizons. Our preferred perspective is always long-term with a focus on growth and compounding assets, and many of our conversations with clients are based around that long-term outlook. The very best thing for clients over extended time periods is to hold through the day-to-day, or even the year-to-year noise, adding to their investments when fear and volatility create opportunity, and reallocating to capitalize on market strength. Our long-term investment focus does not, however, prevent us from making tactical changes in portfolios, and the focus at this juncture should be adjustments toward areas of the market that have been left behind by some of the challenges discussed in this note.
This includes stocks, active managers, and indices with value orientations as well as some blend of value with small and mid-sized capitalization focus. Additionally, while capitalization-weighted large-cap indices have significant concentration and valuation issues, equal-weighted indices allow similar exposure to large stocks with less of those concerns. International and emerging market indices also fit into this category, particularly after years of underperformance as well as more attractive valuations than we see in the US, though investors must be prepared to weather volatility in any geography that becomes caught up in abrupt changes to US trade policy.
Economies and markets never lack concerns and catalysts, and it is our job to incorporate risks and opportunities into long-term portfolio construction. We have a strong and growing team across the state, and it is a good idea to check in with your advisor to discuss your perspective and confirm that goals and portfolio allocations are appropriate relative to the potential for market volatility.
This article is an excerpt of a larger work by Chief Investment Officer Trey Willerson. In his 2024 Year End Review, Willerson provides an in-depth analysis of the key economic and market trends that shaped the past year, offering insights into what may lie ahead for investors. Read the full article here.
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