Quarterly Commentaries

The Iran conflict has increased volatility and uncertainty, but underlying macroeconomic conditions still show potential for continued late-cycle growth.  Our current positioning balances defensive and economically sensitive exposures that we believe can help weather volatility and capture opportunities as the conflict eventually de-escalates.

Following a third consecutive year of strong equity returns in a mature economic cycle, we see both opportunity and risks ahead. We are cautiously optimistic for 2026 and believe a select mix of portfolio allocations balancing economically sensitive and defensive exposures is warranted.

Volatility was a hallmark of the first part of 2025, as markets digested significant economic and policy uncertainty. In the back half of the year, equity markets have pushed to new highs as some aspects of uncertainty eased. Amid a renewed concentration of market leadership, shifting policy actions, and disruptions of economic data, we are pleased with how our portfolios have captured market upside as we actively managed risk this year.

The global economy, the Fed, and markets face tensions as opposing macroeconomic forces perpetuate uncertainty. We are navigating this late-cycle environment with a dynamic balance of select economically sensitive and defensive portfolio exposures.

While uncertainty surged and then partially subsided in Q2, markets rebounded despite slowing economic trends. We see potential for continuation of late-cycle growth that brings opportunities and challenges. We are selectively positioning portfolios to capture potential excess returns and manage risks in this macro environment.

Amid noisy data and policy uncertainty, we see risk of near-term economic deceleration, but evolving growth drivers still could extend growth in the intermediate term. We are positioned for this environment with a mix of defensive and economically sensitive exposures to manage risk and opportunities.

Near-term U.S. economic risks have receded somewhat while market risks remain, in our view. For 2025, we believe continued late-cycle economic growth should provide select market opportunities, though managing risk from valuation and market concentration will be crucial.

The first half of 2024 saw a continuation of various trends, including slower economic growth, easing inflation, tight monetary policy, and unusually narrow equity market leadership. More recently, several regime changes, including the start of Fed rate cuts, a reduction of political uncertainty, and the broadening of market leadership may offer potential opportunities for active investors in a mature but ongoing economic cycle.

As the Fed starts an easing cycle, tight monetary conditions and their impacts could linger and signs of slowing growth abound.  Still, late-cycle conditions have supported attractive market returns for two years, and we continue to see a mix of opportunities and risks as market leadership broadens.

While uncertainty can drive volatility, our research shows Presidential election-year returns are more a function of economic drivers than politics.  This year, both candidates have administration records that may help reduce broad market uncertainty, and we are focused on potential sector impacts of various election scenarios.