Royal: We were not in the recession camp. We were expecting continued growth, so that was definitely not a surprise to us. I’ve used the expression “it felt a little 2017-ish” because the market kind of went straight up slowly. People get much more optimistic when the market’s up 25% and it has been less volatile. In 2023, the market was up over 20%, but it didn’t feel like it, and the confidence in investing wasn’t there.
Schurtz: It’s surprising to me how the year ended up, given that we really had some remarkable things going on around the world that normally would throw us for a loop as an economy. We really took on China in a very major way. I mean that that world power conflict came front and center and only continues as a dominant theme. We had conflict in the Middle East, Israel and beyond that continues, and then we had serious supply chain disruptions in the Red Sea, and yet our economy marched on. The term that keeps getting used is American exceptionalism, and it’s really hard to argue with that term in some ways, when you think just about the economy, when you look at all the strife that we experienced.
A couple of themes that have come out of this year are U.S. energy policy and the electrification of the the world. They are definitely linked. If you’re a manufacturer today and you want to pick your new spot in the United States … one of the major factors you were looking at for sure is the availability of power, your ability to get it in a timely, reliable way. We’re in a power-hungry world. We’re moving into a world of deregulation, hopefully. I would say easier permitting and I think a regulatory regime that will confront the issues to try to move the power problem forward.
Johnson: This was a year where we climbed the wall of worry. Everybody was nervous all year long, finding reasons why they couldn’t engage, then they finally engaged or started to engage. But I don’t get any sense of euphoria out there. I’ve asked the question to many, many investors, and there’s nobody that’s like, “Yeah, this is a euphoric market.” This is a market that’s just moving up on momentum. Lastly, I’ll just say this, if I look back over the last 15 years and why people should remain invested in equities, we’ve only had two down years, 2022 and 2018, over the last 15 years. So from my perspective, with the Fed cutting rates, inflation coming down, yield curve normalizing in 2024 — it’s setting us up for I think for a very good 2025.
Tech stocks dominated over the last two years. Will more industries participate going forward?
Schurtz: We expect a broadening of the market. And sometimes when we talk about those things, it’s kind of a reversion to the mean theme. But I think the fundamentals are actually really strong. When you think about small-cap stocks, in particular, they’ve been beaten down for a long time. You now enter a pro-growth environment where interest rates are coming down. I think this is an environment where small-cap companies can thrive. And I agree, active management is going to pay dividends here.
Royal: I agree with the small-cap theme. If you look back to the dawn of the internet, the original names that benefited were the infrastructure names. But then it ultimately broadened out to the applications of technology. So the ultimate beneficiary of the internet was probably Amazon, a retailer. And I think you’re going to see, as we broaden out, you’ll see the benefits of AI in particular, but technology in general, flow through to these other industries.
