U.S. Sector portfolio outlook, positioning, and attribution as of 12/31/2024
December 31, 2024
Outlook:
- We believe the U.S. should maintain slow-to-moderate late-cycle growth in 2025, but elevated market valuations, along with uncertainty over monetary, fiscal, and trade policy also warrant consideration.
- We see earnings growth as a driver of positive U.S. equity returns this year, while a steepening yield curve could weigh on equity valuations as the Fed pursues a moderate pace of rate cuts.
- The U.S. consumer remains on solid footing, partly due to continued income growth and gains in household wealth, but has limited capacity to accelerate spending from here, in our view, as labor demand appears to be slowing and the savings rate remains low.
- The Republican sweep in November’s election presents some potential policy headwinds to growth, such as widespread tariffs or shifts in immigration policy, but we believe the balance of fundamental policy and sentiment impacts on the economy is likely to skew in favor of continued growth in the near term.
- We believe the Fed has flexibility to continue easing, but the expected pace of cuts suggests monetary policy will remain moderately restrictive in the near-term, which further argues for an extension of late-cycle economic growth rather than a material reacceleration of growth in the near-term.
Portfolio Positioning:
- In our view, the evolving late-cycle economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding several of the most cyclical early-phase sectors, but have increased our overweight of Financials, which we see benefitting from continued economic growth, a steeper yield curve, and growth in capital markets activity.
- We maintain a significant-but-underweight exposure to mid-phase sectors in aggregate, where valuations present risk, in our view, if financial results undershoot lofty investor expectations or the near-term benefits of AI underwhelm.
- We are overweight the late-phase, defensive Health Care and Consumer Staples sectors that we expect can outperform as growth slows.
Q4 Attribution
Positive Contributors:
Overweight
- Financials
Underweight
- Industrials
- Materials
Negative Contributors:
Overweight
- Health Care
- Consumer Staples
Underweight
- Information Technology
Attribution Analysis is relative to the S&P 500 benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
The most recent complete presentation can be viewed here.
Any portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions. Portfolios that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than a portfolio whose investments are more diversified.
Holdings, Sector Weightings, and Portfolio Characteristics were current as of the date specified in this presentation. The listing of particular securities should not be considered a recommendation to purchase or sell these securities. While these securities were among WestEnd Advisors’ U.S. Sector holdings at the time this material was assembled, holdings will change over time. There can be no assurance that the securities remain in the portfolio or that other securities have not been purchased. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities presently in the portfolio. Individual clients’ portfolios may vary. Upon request, WestEnd Advisors will provide a list of all recommendations for the prior year.