A.I. Enhanced Human Insight

Executive Summary Strong Market Performance: The fourth quarter witnessed a significant equity rally, driven by the U.S. election outcome. The S&P 500 achieved a 25.0% annual return, building upon 2023's robust performance. Interest Rate Volatility: Interest rates increased throughout the quarter, impacting fixed-income markets and likely helping cause the equity sell-off at the end of the year. Growth Stock Dominance: Growth stocks continued to outperform, while small-cap value stocks showed some signs of a potential catch-up trade. AIQ’s strategies generally performed well in both the fourth quarter and for the year. Market Outlook: The market outlook is cautiously optimistic, with indicators such as a strong labor market, stable inflation, and potential pro-growth policies under the new administration being monitored closely Key Risks: Valuation Concerns: High stock market valuations pose a risk, particularly for large-cap companies. Inflation Uncertainty: The outlook for inflation remains complex and could significantly impact both equities and fixed income. Geopolitical Risks: Ongoing global conflicts and potential policy shifts under the new administration could increase market volatility. Investment Strategy: Maintain a focus on growth stocks at reasonable valuations, while broadening exposure beyond the largest companies. Favor small and mid-cap companies with strong fundamentals and growth drivers. Remain cautious on bonds due to low credit spreads and potential for interest rate volatility. Adjusted portfolio hedging strategies to mitigate risks associated with increased volatility and potential market drawdowns.

The conversation discusses the current state of the markets, the economic data's impact on investment strategies, and their positioning in response to these factors. Here are the detailed points covered: Inflation Expectations and Observations: Despite strong inflation data in January and February, it's anticipated that progress will be made on the inflation front as the year progresses. Certain sectors, like medical, may see price increases early in the year, but these are expected to stabilize. Housing inflation is also expected to decrease, thanks to a statistical reworking and the anticipation of reduced pressure from housing costs over time. Core Inflation Metrics: The focus on "super core inflation," which excludes energy, food, and shelter, is due to its significance in understanding underlying inflation trends without the volatile or lagging sectors. This metric remains a concern due to its persistence above the Federal Reserve's 2% target. Federal Reserve's Policy Outlook: There's a consensus that the Federal Reserve will not be cutting rates in the immediate future, with potential cuts possibly happening around mid-year. The number of cuts could be two to three, depending on inflation progress. The real vs. nominal interest rate discussion highlights the Fed's focus on inflation-adjusted rates to determine policy restrictiveness. Economic Data and Labor Market Trends: Recent labor market data suggests some easing in the previously tight market, potentially influencing the Fed's rate decisions. The overall economic data shows a marginal slowdown but remains strong, suggesting no need for defensive portfolio positioning. Investment Strategy: Given the economic outlook, the strategy favors growth-oriented investments, especially in sectors that can thrive even in slower economic conditions. This includes mega-cap tech and emerging opportunities in AI and mid-cap growth sectors. The strategy is not leaning towards defensive (e.g., utilities, staples) or highly cyclical exposures but maintains a focus on sectors with strong growth and margin potential. Yield Curve and Fixed Income Strategy: The conversation touched upon the yield curve inversion and its implications for fixed income investments. The strategy involves focusing on the short end of the corporate bond curve due to higher yields and less credit risk, as well as adjusting allocations away from the long end to mitigate risk from potential yield increases. Portfolio Management Approach: Active management is emphasized, with a willingness to adjust strategies based on evolving economic data and market conditions. The goal is to place investments in areas deemed most opportune rather than adhering to a fixed or passive approach. Communication with Advisors: It's highlighted that as new economic data becomes available, they plan to keep advisors well-informed, enabling them to accurately discuss portfolio adjustments and strategies with their clients. This conversation underlines a strategic, data-driven approach to investment, with a readiness to adapt to changing economic indicators and market conditions. Investing in securities is speculative and carries a high degree of risk. Past performance is no guarantee of future results. Additional information, including management fees and expenses, is provided on Advisor Resource Council’s Form ADV Part 2, which is available upon request. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary and require consideration of your unique objectives and financial situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in this material may not develop as predicted. Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. All information is believed to be from reliable sources; however, Advisor Resource Council makes no representation as to its completeness or accuracy.