Key Events: Earnings season starts on a high note
The S&P 500 closed at a new high last Monday but ended the week lower. The Russell 2000 closed the week at a new all-time high as the rotation away from large cap growth stocks to international, value and smaller cap equities continues.
Earnings season kicked off with healthy reports from several large US banks, but financials fell for the week due to the President’s initiative to cap credit card fees. Taiwan Semiconductor reported robust fourth quarter profits to round out the week, supporting spending forecasts for 2026 and boosting sentiment for AI stocks.
Market Review: Broadening rotation continues
Emerging markets led for the week with small caps following up as a close second. Value stocks outpaced growth for the third straight week adding to their year-to-date lead.
Bonds were mixed on the week as the 10-year Treasury yield rose to its highest level since August 2025 while corporate bond spreads hit their lowest level since 2007.1
Outlook: Superlatives abound, but not without concerns
The list of positive attributes supporting the current market outlook is extensive and healthy: 1) fiscal policy should swing from headwinds to tailwinds due to benefits from OBBBA; 2) monetary policy offers a modest swing from QT to QE in 2026; 3) AI spending theme remains robust; 4) deregulation opportunities; 5) diminishing tariff concerns; 6) low rates with benign inflation anticipated; 7) economic growth is expected to accelerate; 8) valuations for small/mid/international core and value are reasonable.
What could possibly go wrong with such a bullish setup for the year ahead? Even though valuations for many stocks are reasonable, cap-weighted valuations are still historically very high, and portfolios already exhibit record levels of equity ownership as shown in the first chart below. Prices and positioning reflect high expectations.
Additional concerns are the weak and bifurcated labor market, high levels of government debt, geopolitical risks and a complacent view of rates and inflation held by the optimistic camp. These issues may dampen the market’s expected return profile, but investors still have many options to construct resilient portfolios to produce solid risk-adjusted returns. Small and mid-cap companies have outperformed large cap growth by just over 11% since November 14th as the theme of broadening performance has taken hold. We believe investors should continue to embrace the benefits of diversification, especially after 3 years of narrow market performance.
Stock Allocations at Record Levels 2
Broadening Performance
OneAscent Navigator Outlook: January 2025
This material is intended to be educational in nature , and not as a recommendation of any particular strategy, approach, product or concept for any particular advisor or client. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisors. OneAscent can assist in determining a suitable investment approach for a given individual, which may or may not closely resemble the strategies outlined herein.
Source: Bloomberg data and Bloomberg Global Credit Corporate Statistics chart.
Source: Federal Reserve Bank of St Louis Households and Nonprofit Organizations; Directly and Indirectly Held Corporate Equities as a Percentage of Financial Assets; Assets, Level (BOGZ1FL153064486Q) | FRED | St. Louis Fed
Market Returns reference the following indices: Large Cap – S&P 500, Mid Cap Growth – Russell Midcap growth, Mid Cap Value – Russell Midcap Value, Small Cap – Russell 2000, Developed – MSCI EAFE, Emerging – MSCI Emerging Markets, Aggregate – Bloomberg US Aggregate, High Yield – Bloomberg High Yield
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