We have been highly constructive on U.S. large-cap stocks in our investment strategies since October 2023. We remain optimistic generally into 2025, but as we enter fall, we think it is prudent to be slightly more cautious as some facts have changed over the last several weeks. First, our analysis of earnings surprises and estimate revisions has detected some cooling trends, suggesting potential moderation of the earnings advantages that catalyzed much of the rally this year so far. Our research also reveals the autumn period in October through mid-November in presidential election years has tended to be more volatile than usual, with increased vulnerability to downside moves. The elevated uncertainty surrounding the upcoming election adds additional complexity. Given the sharp divide in the parties’ expected policy and the expectations of a close race, many real economy actors are delaying major capital allocations and business-defining bets to after election night. In this state of uncertainty, any lack of market liquidity has the potential to trigger volatility. This may be compounded if the final outcome of the election is delayed, as we saw in 2020. Finally, recent changes in market temperament have also caught our attention and give us pause. Relatively tranquil gains in large-cap stocks for most of the year have been disrupted recently with larger single-day selloffs, rotations, and V-shaped snapbacks, which may be signs of a market more susceptible to headlin
Global financial markets continued to move higher, supported by an improving outlook for global economic growth. Volatility remained near record low levels despite persistent geopolitical tensions, tightening U.S. monetary policy and particularly destructive natural disasters. We present a few highlights from 4Q17 below: U.S. equity markets continued their bull market run during the fourth quarter as the Trump Administration’s tax reform proposal took a step closer to approval, offering a boost to overall investor sentiment. The S&P 500, the Dow Jones Industrial Average and the technology-heavy Nasdaq Composite each hit all-time highs during the quarter. On the economic front, preliminary estimates indicate third quarter GDP grew at the fastest pace in three years amid strong business investment. Developed international equity markets were also positive during the fourth quarter, driven by improving earnings growth and general economic expansion. Strong gains came out of the Pacific region, while Europe lagged. On the political front, British Prime Minister Theresa May suffered a major setback as parliament voted to give lawmakers a final say on any Brexit agreement. In the emerging markets, returns were propelled higher by solid performances from China, India and South Korea. Year-to-date, emerging markets equities are the best performing asset class. Within fixed income, results were mixed during the fourth quarter as the Federal Reserve raised int