Florida Banking December 2024-January 2025

TRUST & WEALTH MANAGEMENT

IGNORE THE WEATHER – STAY THE COURSE WITH THE U.S. BY KRISTIAN R. JHAMB, CFA, CIO AND MITCHELL DARIO, CFA, SENIOR PORTFOLIO MANAGER, SANIBEL CAPTIVA TRUST COMPANY

A s we visit with clients about their investment portfolios and long-term goals, we would be remiss as portfolio managers and financial advisors not to acknowledge the many potential squalls on the horizon that could upend the comfortable “soft landing” narrative currently embraced by many market participants. Heightened geopolitical tensions, the possibility of restoked inflation, challenging valuations amid excessive Artificial Intelligence (AI) hopes, and of course the implications of the U.S. presidential election, could all materially impact portfolios and our clients. But it is also of critical importance to deal in

equity valuations in 2024 — the S&P 500 is expected to grow earnings by 10 percent this year, compared to just 1.6 percent in 2023. As for the U.S. presidential election, the data suggest and history shows us this is an area where the outcome is much less relevant than staying invested, regardless of the winner. Since 1960, the S&P 500 has averaged an annualized return of roughly 8.2 percent each year. Returns during a U.S. presidential election year were slightly below average at 7.3 percent per year. Returns generated the year after a U.S. presidential election were significantly above average at 10.2 percent annually. We are not Pollyannaish about the profound implications of this recent election across so many swathes of society, geopolitics, trade, regulation, taxes, spending and markets. Over the short run, the market may in fact resemble a voting machine, as sentiment can shift wildly on matters such as the election. But over the long run, as Warren Buffet’s mentor Ben Graham put it so aptly many decades ago, the market is a weighing machine, where earnings are placed on the scale as the chief driver of returns. Amid this uncertainty about the future, we also believe it is an opportune time to take a step back and recognize the extraordinary relative performance of U.S. markets, and why we believe it will persist. By comparison, the U.S.’s chief rival, China, has endured well-documented economic and financial struggles in Further slicing the data by party, as well as Congressional makeup, results in similarly equivocal figures.

facts, and the facts suggest the U.S. and its markets are well-positioned to continue to lead and outperform its global peers. At the end of another decidedly strong year in U.S. markets, it bears noting that 2024 holds a great similarity to 2023, insofar as the key themes driving performance. Equities are hovering near all-time highs, buoyed by optimism that AI will propel revenue, earnings and productivity gains for enablers and adopters of these technologies. Paired with the rate-cutting cycle that the

“AT THE END OF ANOTHER DECIDEDLY STRONG YEAR IN U.S. MARKETS, IT BEARS NOTING THAT 2024 HOLDS A GREAT SIMILARITY TO 2023, INSOFAR AS THE KEY THEMES DRIVING PERFORMANCE.”

Federal Reserve (Fed) embarked upon in its September meeting, this should provide an accommodating backdrop to equities for the balance of the year. One welcome point of contrast of 2024’s equity performance to last year’s is the much wider participation by sectors beyond those where the major AI players reside — Tech and Communications. Earnings have also been more broadly supportive of

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