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1Q 2025 Investor Update
2024 highlights
US equities drove global markets:
- The benchmark S&P 500 rose by 24.9% versus non-US equities (EAFE) +4.4% in $US
- US stocks now comprise nearly 75% of the global benchmark
US$ strength:
- The US dollar strengthened by 8.5% during the 4th quarter
- Markets priced superior US growth dynamics, capital flows
Market expectations & the de-regulatory regime
Markets often misprice elections. They over-estimate the future impact of campaign promises and threats; and they under-estimate the legislative constraints and “political realities” faced by incoming administrations. As the hype fades, simplistic trades purporting to buy the winners and sell the losers of the new regime unravel. Contrarian opportunities abound for seasoned investors able to look beyond the immediate aftermath of election season. This time should be no different.
Today, however, we sense that equity market prices generally reflect plausible expectations for the impact of major shifts in policies. To be sure, the broad scope and radical nature of many pronouncements by incoming Trump administration figureheads leaves much to speculation. Still, to our minds, there is at least one credible, highly actionable plank of the incoming administration’s policy arsenal – and the one to which investors should, we believe, pay most heed: de-regulation.
Widely viewed as a “win” for corporate America, de-regulation carries the promise of reduced bureaucracy, increased economic activity and higher profits. Providing businesses with greater visibility on investment is central to the growth agenda of the incoming administration. Importantly, much de-regulation can be accomplished by the executive branch alone, and often by simply refraining from action (though the results may be challenged in court).
The clearest beneficiary of de-regulation may prove to be the financial sector. Not coincidentally, financials contributed strongly to US market returns in the second half of 2024. Banks, in particular, stand to benefit in manifold ways from de-regulation:
- less-restrictive capital requirements
- reduced reporting burdens
- more tolerant reviews of mergers and acquisitions
- fewer regulatory charges and taxes
- increased trading and economic activity
As banks return excess capital and profit, investors stand to benefit from higher dividends and share repurchases. Naturally, markets have begun to anticipate this favorable scenario for banks.
On the other hand, de-regulation may negatively impact firms by reducing barriers to competition. That is, indeed, part of the rationale for it, as consumers should benefit from lower prices. Firms whose high profit margins depend, for instance, on government contracts (defense) or on reimbursement schemes (large swathes of the healthcare sector) may find the new regime less hospitable. Banks, too, could find themselves challenged by new competition in a less regulated lending sector.
As we enter this new political regime, we should expect a media barrage as loud (if not louder) than any real executive or legislative action. The emphasis on de-regulation, which markets favor, will be diluted by tariff proposals (threats), which markets dislike. And much of it may never come to pass. At this moment, especially, we should remind ourselves that “headline risk” is most often just that. We enter the New Year prepared to take the other side of the trade from consensus thinking. At the same time, we are careful not to dismiss the stock market’s intuition regarding the potential impact of a pro-growth policy regime.
Ingalls & Snyder, LLC, is an investment advisor registered with the U.S. Securities & Exchange Commission and a FINRA member broker dealer. This material is being provided to you for informational purposes only and is not intended to be a general guide to investing, or as a source of any specific investment recommendation and makes no implied or express recommendation concerning the manner in which any account should be handled. Any investment program involves certain risks, including loss of principal, and no assurance can be given that any specific investment objective will be achieved.
Ingalls & Snyder is a registered investment advisor and broker-dealer based in New York City. We provide investment management and related services to private clients and institutional investors.
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