U.S. stock markets experienced positive performance in 2024, and that trend is expected to continue in 2025. However, 2025 also has the potential to experience increased market volatility and shifting trends due to policy changes from the incoming administration combined with uncertainty about inflation and global economic conditions.
Large Cap companies have dominated their smaller brethren since the end of the Great Financial Crisis in 2008. After the economy started recovering from the crisis in 2009, market leadership was initially powered by small names but as the recovery stabilized, larger names started to gather strength and have been on a tear since. With more than 13 years of large cap leadership on the books, it may be time for a change.
In this update, we begin by reviewing the state of the economy as we enter the second half of the year. We then pivot to discussing the potential impact of Artificial Intelligence (AI) on the Utilities sector and the performance of the Technology sector, driven by ongoing AI trends.
As we enter the second quarter of the year, market participants appear to be performing a balancing act on a tightrope amidst the crosscurrents of the macroeconomic data flow.
This post builds on the analysis of the 2022 rebalance, examining the S&P 500 Value Index’s December 15, 2023 rebalance to assess trends and methodologies. High turnover and major sector and risk factor exposure shifts can impact both passive and active strategies, potentially increasing costs and requiring careful risk management.
