Tactical Asset Allocation: January update

January 2025 update

Market trades associated with US election have begun to lose momentum and unwind earlier gains. US small and mid-caps have given back all the outperformance over US large caps since election day and, over the past month, emerging market stocks have outperformed US stocks despite unremarkable economic performance and concerns around global trade policy. This is same pattern after 2016 election, when markets focused on newer and potentially more consequential developments.

The December Federal Open Market Commitee (FOMC) meeting provided a noticeable break in the prevailing expectation for a long and gradual easing cycle. The FOMC made clear that any adjustments to policy rates will hinge on further progress in cooling price increases, expecting to deliver only two additional rate cuts in 2025 compared to earlier projections for four rate cuts.

Our framework remains in a contraction regime and there are no changes to our portfolio positioning. We’re still overweighting bonds versus stocks. We’re favoring US stocks, and defensive sectors with quality and low volatility characteristics. In fixed income, we remain overweight duration and underweight credit risk. 

Get the full story

See what our macro regime framework is telling us — and what we’re doing in response — in our January 2025 Tactical Asset Allocation update.

Topics include:

• Macro update — Growth remains broadly stable around the world. Our macro framework remains in a contraction regime, signaling below-trend growth and decelerating growth expectations.
  
• Markets — The sensitivity of stock and bond markets to economic data, both growth and inflation, is likely to increase meaningfully in 2025, potentially seeing the return of cyclical macro indicators as primary drivers of market performance.
• Investment positioning — See what we’re favoring in stock, bond, and currency markets.