Last year was clearly a wonderful year for stocks. The best gains, however, were concentrated in a narrow group of technology stocks and the largest ten stocks by market-cap, now comprise 40% of the market index. These conditions remind us of the period of 1999- 2003. Then, the phenomenon was the advent of the Internet, now, it’s the rise of AI. In 1999, the glamour stock was Cisco Systems; this past year it was NVIDIA. Cisco traded at$80 per share then and now trades at $59 after 25 years of growth. It was massively over hyped. The similarities of the two periods are significant, the average stock underperformed dramatically in 1999, then outperformed for three consecutive years and we believe that history will repeat. A broad list of value and smaller stocks are now historically cheap relative to the much ballyhooed technology stocks of 2024.
Much has been made of Treasury rates moving higher while the Federal Reserve was cutting the discount rate. We believe this outcome is merely a sign that the economy is strong, earnings will be better than expected and there is little danger of a recession. In summary, we are excited about the opportunity for old-fashioned stock picking in the upcoming year. The market reversals of two weeks of January underscores our thesis.
For our clients with taxable accounts, we have enclosed a year-end summary of gains and losses. Please compare this with your own statements.
