Portfolio Manager Commentary

February 15, 2025

Economic Outlook

In January 2025, the Markit PMI Manufacturing Index increased to 51.2, continuing its modest improvement in recent months. The ISM Services PMI declined to 52.8, though it remains in expansionary territory. The NFIB Small Business Optimism Index fell to 102.8, indicating cautious optimism as it remains near a four-year high. The U.S. economy added 143,000 jobs in January, while the unemployment rate declined to 4.0%, its lowest level since May 2024. Retail sales fell 0.9% month-over-month in January but remain 4.2% higher year-over-year, signaling continued consumer resilience. The Consumer Price Index increased by 0.5% month-over-month in January, with consumer prices up 3% annually, continuing an upward trend for the fourth consecutive month. The Producer Price Index rose by 0.4% month-over-month over the same period, with producer prices increasing by 3.5% from a year ago. The average interest rate for a 30-year fixed-rate mortgage is 6.87%.

Fixed Income

The Federal Reserve paused its rate-cutting cycle at the January FOMC meeting, keeping the Fed Funds target rate unchanged at 4.25-4.50%. In response to previous rate cuts and mild inflation concerns, the U.S. yield curve has steepened, with the long end of the curve still somewhat elevated from levels seen one year ago. The 10-year yield is currently 4.52%, 24 basis points above the 2-year yield of 4.28%. The next FOMC meeting is scheduled for March 19, 2025. Options markets are strongly convinced that the Federal Reserve will leave rates unchanged in March. The minutes from the January FOMC meeting, set for release on February 20, 2025, may provide further insight into the Federal Reserve’s monetary policy outlook for the coming months.

Yield Curve

Current Generic Bond Yields

Equity

So far in 2025, U.S. equity markets have shown resilience amid economic uncertainties. The S&P 500 has gained approximately 4% year-to-date, with all 11 sectors currently posting positive returns. This past Friday, the NASDAQ reached a new all-time high, its first since mid-December 2024. Despite inflation concerns and geopolitical risks, investor sentiment remains positive.

In 2025, the best performing sectors have been Communication Services (+8.78%), Financials (+6.96%), and Materials (+6.76%). The worst performing sectors have been Consumer Discretionary (+0.94%), Information Technology (+1.55%), and Real Estate (+3.25%). This year, the Russell 1000 Growth Index has increased 5.12% year to date, while the Russell 1000 Value Index has gained 3.76% over the same period.