Quarterly Market Update

The US presidential election took place on November 5th, however markets began to lean in favor of the Republican nominee, Donald Trump, during the month of October.

As momentum built behind his likelihood to win, we started to see possible beneficiaries of potential future policy action outperforming starting in October: US small-caps, US banks, and bitcoin, to name a few. As we then entered the month of December the post-election momentum began to dry up, and the bearish concerns around US large cap equity valuations and US inflation came back into the limelight.

The progress that we saw earlier in the year towards bringing inflation closer to the Fed’s 2% target essentially stalled during Q4, as September through November core CPI prints all reported +0.3% m/m and 3.3%y/y. Following a 50 bps cut in September, the Fed voted to cut 25 bps in both the November and December meeting.

As the Fed’s approach to execute rate policy decisions remains heavily informed by and dependent on the incoming macroeconomic data (especially as it relates to inflation and the health of the labor market) this effectively led the market to re-adjust its rate policy expectations, now accounting for less rate cuts over the course of 2025.

Between the September and December meeting, the Fed's fed funds year end rate expectations for 2025 shifted from 3.375% back up to 3.875%. Additionally, comments from the Fed also pointed to some concerns surrounding possible inflation implications stemming from potential Trump policies. This shifted the rate narrative back toward "higher for longer,” which in turn sent treasury yields into a sharp sell-off mode and further contributed to the steepening of the US Treasury curve, with 10-year yields rising about 80 bps over the quarter, closing at 4.58%.

Consequently, this notion also sent stocks into a tumble in December, as inflation concerns spotlighted the continued uneasiness surrounding high US valuation levels, the current narrowness of market leadership, and a decreasing equity risk premium.

Post election momentum did slow in the final month of the year and December turned out to be a negative month across the board. Although investors grappled with some concerns regarding the broad US economic outlook, it is important to point out that equity earnings continue to be well received, and Q3 results were not only strong but pointed to continued strength in their forward-looking outlook for 2025 and 2026.

Even through a period of heightening policy uncertainty, the S&P 500 was able to close up +2.1% for the quarter, pointing to the continued dominance of the US market versus other regions and we did see the majority of those returns driven by Big Tech names, with Nvidia (+17.3%), Apple (+14.1%), Tesla (+63.7%) , Amazon (+24.9%) and Broadcom (+42.9%) dominating from a contribution perspective.

Looking ahead, we continue to view 2025 with a positive outlook. Portfolios are set to update in the early months of the year, as we align with our new strategic asset allocation for 2025. We appreciate the view that equity markets may see a broadening out over the next year and believe our current positioning allows us to benefit from various areas of the market, such as our Non-US exposures, while lower risk level portfolios, benefit from our diversification within fixed income and cash.

CWB portfolios saw mixed performance returns in Q4 2024:

• Portfolios with higher equity exposure posted higher returns, as the asset class performed well over both the quarter and the year as a whole.
• We also saw double digit returns for portfolios with a risk level of 3, 4 and 5 over the course of 2024.
• In the US, large-cap outperformed during the quarter and returned just over 24% for the year. Allocations to US and Technology were both positive contributors.
• In fixed income, US Investment Grade Bonds were down close to 3%, with US rate curve steepening, as the short end fell and the long end rose.
• Within Munis, we saw lower returns for the quarter, while up close to 1% for the full year, 2024. Longer duration in portfolios with Municipal fixed income, was a detractor for the quarter.

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