FSI Sector Allocation - January 2025 Update

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Market Recap

Happy New Year.

The market has been choppy recently, and the anticipated strong December performance did not materialize. While the S&P 500 fell 2.5% in December, the internal market performance was actually worse than the cap-weighted index as the equal-weighted index dropped 6.4%, with only 54% of S&P 500 stocks above their 200-day moving average. On one hand, year-end profit-taking may have played a role. On the other hand, the Fed's hawkish cut in mid-December also impacted investor confidence. Even so, December's weakness cannot overshadow the strong equity market in 2024. But this raises the question: how should we position ourselves for 2025?

First and foremost, the most important yet easily overlooked point is that the stock market and economic development do not suddenly change just because the calendar flips from 2024 to 2025. In other words, the market's strength over the past two years won’t suddenly vanish simply because we are now in 2025.

Furthermore, the hawkish cut by the FOMC in December and the subsequent market reaction were admittedly disappointing. However, the real question is: has the macro landscape fundamentally changed? While the Fed did ...
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