GLOBAL MARKETS –A SIXTH CONSECUTIVE QUARTERLY RALLY IN THE

U.S STOCK MARKET

The U.S stock markets finished another quarter on a strong note. The S&P 500 Index

rose 2.3% while the Dow Jones Industrial Average rose 0.9%. The NASDAQ

composite appreciated 6.4%, while the MSCI All Country World Index was flat. The

Bloomberg U.S. Aggregate Bond Index fell 3%. U.S. Treasury rates rose broadly as

the yield curve began its move to an historically normal curve. The ten-year

Treasury yield at 4.6% was 79 basis points higher at quarter-end versus the prior

quarter while the two-year Treasury yield at 4.2% rose 60 basis points. The three-

month U.S.T bill at a yield of 4.3% is 30 basis points lower than the 10-year U.S.

Treasury note. The spread between these two maturities has widened 110 basis

points from last quarter, moving from an inverted curve to a more normal curve.

This curve normalization has occurred without a recession. So far, this time has

been different with no recession in 2024. But signs abound that the economy is

slowing, 2024 may well have been the tipping point for the economy, we shall see

as 2025 progresses.

The Federal Reserve’s move was indeed to lower interest rates during the quarter.

Today the markets are looking for additional reductions in 2025, but unlike in

September of 2024 when the markets anticipated multiple reductions in 2025,

they now anticipate only two. We are not so sure that will be all the reductions for

2025. We are inclined to believe each reduction in 2025 will be 25 basis points,

data depending of course. Rising levels of inflation appear to have abated with a

stronger than anticipated economy, although the current levels of inflation are still

higher than the FOMC’s target of two percent. That inflation target is unlikely to

be seen in 2025. We do not believe significant tariffs, if enacted against our

trading partners will be deflationary.

As we stated last quarter, market volatility was indeed seen in the remaining

months of 2024 and is one of 2024’s legacies. We are now even more concerned

about a global equity correction of even more substance and more longevity thanoccurred in 2024. We have already seen, what we believe is a majority of the

fixed income market correction in the U.S. It may well be time for the that to

reverse in 2025. U.S equity valuations, particularly those that are specifically

technology related, are even more elevated today than they were just last quarter.

Paying forward for a decade of anticipated growth makes little sense to us.

While fixed income rates have risen dramatically this quarter, the interest rate

spread between investment and non-investment grade securities continues to

trade even more historically narrow, not reflecting realities of the economy. The

dollar ended the quarter at its strongest level since late 2022. We don’t expect

that to continue for long in 2025.

The impact of the war in Ukraine continues to confound the west, many have

grown not only complacent in how this impacts the global economy

today/tomorrow but have gotten tired of this war and will be looking for an ‘easy’

exit with the incoming U.S Administration. Middle east violence continues with

new hope of a peace deal of sorts in the early months of the new US

Administration. Expansion of this violence is beginning to involve more countries;

Syria for one, we can only hope it doesn’t escalate and broaden out even further.

The human and economic tragedies globally are reminiscent of past periods of

violence and war. These horrors continue to reverberate around the world,

caution is warranted even more in 2025 than in 2024.

Our continuing search for and investment in undervalued assets requires patience

and a healthy dose of optimism for humanity.

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The information provided is for educational and informational purposes only and does not constitute investment advice and it

should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take

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decisions based on such information and it should not be relied on as such. The views expressed in this commentary are subject

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results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based

upon certain assumptions and should not be construed as indicative of actual events that will occur.

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