Economic Outlook & Market Review 1Q25

KEY TAKEAWAYS:

1. The US economy and stock market proved resilient in 2024, as continued labor market strength, moderating inflation, and enthusiasm around the promise of more pro-growth policies outweighed concerns of an economic slowdown and political uncertainty.
2. Interest rates rose in the fourth quarter as the Fed offered cautious commentary on the future path of interest rate cuts. While yields are elevated relative to the previous decade, they are in line with historical averages and we expect bond yields to remain range-bound and conducive for stock prices.
3. We expect market breadth to continue to improve, particularly as an expected surge in capital spending by the “Magnificent 7” stocks should benefit a broad swath of suppliers including more traditional technology companies, energy providers, and infrastructure.
4. The US has led the world’s recovery since the pandemic, and the promise of continued economic growth should benefit domestic stocks. Short- and longer-term bonds continue to offer attractive income prospects and diversification benefits.