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MARKET INSIGHTS JANUARY 2025

By: ANTHONY MINOPOLI, PRESIDENT & CHIEF INVESTMENT OFFICER

We can put another year in the books! With 2024 coming to a close, there will be any number of market recaps for us all to review and consider what this means for 2025…and beyond. We still do not have all of our asset numbers pulled together, but the combined value of the mutual funds ended at roughly $1.75 billion, this was up considerably from $1.41 billion a year earlier. We remain so thankful to all of our clients for entrusting Knights of Columbus Asset Advisors to manage your assets.

Coming into 2024, many pundits were calling for a recession that never materialized. The equity market, as measured by the Bloomberg 3000 Total Return Index, returned 23.6%[1]. The Bloomberg 1000, representing large cap stocks, returned 24.2% and the Bloomberg 2000 Index, representing small cap stocks, returned 11.9%[1]. So, large cap stocks continued their dominance over small cap stocks. The Bloomberg 1000 Growth Index returned 28.9% versus 13.6% for the Bloomberg 1000 Value Index[1]. Thus, in 2024 an investor in large cap and growth fared better than any other combination of capitalization or style.

Equity valuations, particularly for growth stocks, became more stretched in 2024. This was a major consideration in our Asset Allocation Committee recommending a tactical underweight in equities of 3% and overweighting fixed income by that amount, as compared to the respective strategic model. In general, we have been concerned that this recent upward move in the stock market has become a bit stretched. Indeed, from the 2022 equity market low of 1,342.6 for the Bloomberg 1000 total return index, we have seen a move of over 69%[1]. In our minds, prudent investing calls for rebalancing and we spent much of 2024 advising clients to use equity gains to meet their cash needs and also to rebalance if cash needs were not sufficient enough to move their portfolios back to or through target levels.

The bond market also had an interesting year, and we will certainly cover more of this in our year-end wrap-up and market review we will hold in a few weeks. The 10-year Treasury began 2024 with a yield of 3.88% and ended 2024 with a yield of 4.57%[1]. This 69-basis point increase in yields caused the Bloomberg Aggregate Bond Index to return 1.25% for the year[1]. The Bloomberg Corporate Bond Index returned 2.12% for 2024, while the Treasury Index returned 0.58% and the Mortgage Index returned 1.19% for the year[1]. Overall, credit spreads entered the year tight and got even tighter so one needed to be overweight credit and shorter in duration to generate the best return in fixed income. The Bloomberg 1–3-year Government Credit Index returned 4.36% for 2024, soundly outperforming the longer duration, Aggregate Bond Index[1].

Throughout most of 2024, the Presidential election was front and center in the news and on the minds of investors. President Biden was the Democratic nominee until he was not, and the party quickly placed Kamala Harris at the top of the ticket. The Republicans won the White House and both chambers of Congress. Traditionally, the Republicans have squandered leadership because, unlike the Democrats who normally fall in line with their party line, they break into factions and get little accomplished. We shall see if this time is different.

It seems that elected officials are starting to discuss the national debt and deficits because the increase in interest rates is now making the national debt more expensive than it has been. In 1990, according to Statista, the national debt was $3.2 trillion versus the approximately $36 trillion in debt today[2]. In the late 1990s, during the Clinton era, we were running budget surpluses and there was a line of sight to paying off the debt. As we know, that never happened. I read an analysis a few weeks ago that if we only returned to 2019 spending, we would have an essentially balanced budget. Tough decisions will need to be made because spending tax receipts on national debt interest payments does not provide the government the ability to spend on economic or social priorities. Also, if the U.S. is seen as a weaker credit, investors may demand higher levels of interest to purchase our bonds. As we remain the world’s reserve currency, there is strong demand for the dollar and our bonds. We should not be so smug as to assume this always will be the case, but a successor reserve currency does not seem to be at hand at this time.

The geopolitical environment remains daunting with the continued war in Ukraine and Israel's continued military footing in the Mideast. A military analyst recently explained to me that the United States' opinion was that Russian and Chinese weapons were equal to U.S. weapons. The Ukrainians and Israel have shown that Western weapons remain vastly superior. At the same time, China is continuing to build up their military and, notably, their stockpile of nuclear weapons. Whether this is “cold war” type saber rattling remains to be seen. However, this footing will put pressure on our own military spending.

For now, we are continuing to focus on the trajectory of inflation and whether another leg down will provide the Fed with cover to reduce the Fed Funds rate. The Fed had been focused on cutting rates to support the economy and the employment market. The challenge is that inflation is not cooperating, and this may keep the Fed on the sidelines. The incoming Trump administration and the policies relating to taxes and spending will also provide some insight into the path of the economy. More to come to be sure!

I wish all of you a blessed and Happy New Year!

[1] Source: Bloomberg

[2] Source: https://www.statista.com/statistics/187867/public-debt-of-the-united-states-since-1990/

A portrait of Anthony Minopoli wearing a dark suit, white shirt, and red tie.

This commentary has been prepared by Knights of Columbus Asset Advisors (“KoCAA”) for informational purposes. Nothing contained herein should be construed as (i) an offer to sell or solicitation of an offer to buy any security or (ii) a recommendation as to the advisability of investing in, purchasing or selling any security. Any opinions and information expressed herein reflect our judgment and are subject to change without notice. Certain of the statements contained herein are statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (1) general economic conditions, (2) performance of financial markets, (3) interest rate levels, (4) increasing levels of loan defaults, (5) changes in laws and regulations, and (6) changes in the policies of governments and/or regulatory authorities.

KoCAA is an SEC registered investment adviser that maintains a principal place of business in the State of Connecticut. For information about KoCAA’s business operations, please consult the Firm’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at adviserinfo.sec.gov. KoCAA is a wholly owned subsidiary of Knights of Columbus, one of the world’s largest Catholic Lay Organizations. Investing involves risk and you may gain or lose money on your investments. For additional information visit KoCAA.com or write to kofcfunds@kofcassetadvisors.org.