Review & Outlook

January 9, 2025

It was another strong year for the stock market, with notable performance across major indices:

  • S&P 500 Index (Market Weight) – 25.02%
  • S&P 500 Index (Equal Weight) – 13.01%
  • Dow Industrial Average (Price Weight) – 14.99%

This marks two consecutive years of double-digit returns, largely driven by the Artificial Intelligence (“AI”) theme and the anticipation of lower interest rates. While these returns are robust and well above our Investment Plan expectations, it’s important to note that not all stocks have kept pace. In fact, only 28% of stocks outperformed the S&P 500 Market Weighted Index, a significant departure from the typical 45% to
50% range. This divergence was last observed during the Technology bubble of the late 1990s.

Upon further analysis, we found that Lower Quality stocks—those with limited profits but high expectations based on AI technologies—were among the leaders, along with sectors that were hardest hit by the pandemic (e.g., banks, airlines, cruise operators). As you know, these are areas we generally prefer to avoid.

Read More

Review & Outlook

October 8, 2024

During the 3rd Quarter, the stock market shifted drastically away from Technology companies towards “Everything Else.” This welcome change was overdue and expected and as it became evident over the past couple of months that growth was slowing due to historically tight interest rate policy, investors gravitated toward higher Quality issues that can withstand a more stringent economic environment. As a result, Carderock stocks gained 8.1% on average for the quarter, with the S&P 500 market-cap weighted Index up 5.9%.

Up to this point, future growth expectations have been narrowly focused on a few large companies’ investments in Artificial Intelligence (AI) hardware, and the implied subsequent productivity gains and transformative effect it will have on the economy. Many parts of the industrial economy that play a role in developing AI have benefited as well, particularly those involved in the maintenance of power distribution networks, datacenters and utility infrastructure that have received tax credits due to recent legislation. In moving forward, we expect the rotation towards Quality companies to continue the 3rd Quarter results into the New Year as the market broadens its view and recognizes these relative opportunities.

Read More

Review & Outlook Archive