Hello BSW Readers,
I’m Katherine St. Onge, and I’ve recently joined BSW as Director of Investments. In my role, I provide leadership to the Investment Group and oversee BSW’s investment offering. As we start 2025, I wanted to share our team’s insights on the markets and various asset classes. Below, you’ll find our comprehensive analysis of 2024’s performance and what we’re watching for in the year ahead.
What I find particularly compelling about this moment in the markets is the interplay between last year’s remarkable returns and the complex landscape ahead. We’ve asked each of our investment specialists to share their perspectives on their areas of expertise – from fixed income to private equity – to give you a complete picture of what we’re thinking about as we navigate 2025.
Let’s dive in…
Reflecting on the market, 2024 delivered an impressive performance. Against expectations, the S&P 500 ended the year up 25%, well above its historical average annual return of approximately 10%. This remarkable gain came despite a variety of challenging conditions that many believed would limit returns. Looking globally, the MSCI ACWI delivered almost an 18% return, about double its average annualized return.
Chatter about a pending recession has persisted for the last couple of years and despite aggressive interest rate hikes by the Federal Reserve to curb high inflation, the US economy has remained resilient. Consumer spending drove economic expansion, inflation moderated, and while the labor market showed signs of softening—with the unemployment rate rising slightly above 4%—it remained relatively strong. Overall, the economic performance in 2024 was surprisingly robust.
What Lies Ahead for 2025
Lower inflation and interest rates, geopolitical stability, and a resilient labor market are among the hopes driving sentiment. However, charting the economy’s path remains a challenging task, especially in a year with significant uncertainties. The policy decisions of the incoming administration, such as potential restrictions on immigration, reduced business regulations, increased tariffs, and expanded tax cuts, can have far-reaching effects on global growth and inflation.
Meanwhile, the Federal Reserve’s path on interest rates seems to have shifted. After cutting rates three times in 2024, totaling a 1% reduction, the Fed is expected to take a more cautious approach in 2025. Current forecasts suggest fewer rate cuts than previously anticipated—or potentially none at all—indicating the US may face a period of “higher for longer” rates. Political uncertainty and interest rate disappointment could bring market volatility, underscoring the importance of diversification within portfolios to navigate potential challenges. Sticking to asset allocation targets is prudent at this point in time and we do not recommend any portfolio shifts given the ambiguity of possible policy implementation. As we step into a new year, our aspirations for the markets and economy remain optimistic.
Market Expectations and Valuations
After a stellar year like 2024, the S&P 500 tends to deliver more tempered returns. Achieving top-quartile performance two years in a row is rare—it has only occurred twice in the past two decades—and achieving it for three consecutive years would be unprecedented.
Much of last year’s market gains were driven by the “Magnificent 7” stocks, leading to elevated valuations. The U.S. equity market’s forward price-to-earnings (P/E) ratio is significantly above its 20-year historical average. Elevated valuations present risks, as they often make markets more susceptible to downturns in response to negative shocks. It is harder to outperform when you’re at the peak.
This environment may create opportunities for international equities, where valuations are generally more attractive at about half the P/E ratio of US stocks. Given the outsized risk the US market poses today, the economic consensus is that the MSCI ACWI will outperform the S&P 500 over the next ten years. BSW builds globally diversified equity portfolios, benchmarked to the MSCI ACWI. Diversifying portfolios across geographies, asset classes, and sectors remains crucial to capturing growth opportunities while mitigating risks.
Entering 2025 with Optimism and Preparedness
We enter 2025 with optimism fueled by a strong U.S. economy and resilient labor market, and a sense of intrigue as policy decisions unfold that could shape the broader economic and social landscape. While market returns are likely to trend towards average after two years of outsized performance, a diversified and disciplined approach should position investors to navigate uncertainty and help pursue long-term growth.
We wish you an above-average 2025 and look forward to traveling this winding road with you!
Fixed Income Update by Olivia O’Toole
Throughout 2024, the fixed income market experienced significant fluctuations, largely driven by the Federal Reserve’s monetary policies and evolving economic indicators. Late in the year, the Fed initiated a series of interest rate cuts, totaling 100 basis points (1.0%), marking the first reductions since 2020 due to moderating inflation.
Inflation continues to persist above the Fed’s 2% target, particularly due to inflation within the services sector, and there is concern that policy changes could reignite inflation. However, the labor market has demonstrated strength and economic growth has continued, contributing to a steepening yield curve, as longer-term interest rates have risen in response to the anticipated resilient economy.
As we look to 2025, the fixed income market faces some complexities shaped by both monetary and fiscal dynamics. The Federal Reserve is projected to continue rate-cutting, though not as much or as quickly as many were anticipating early on in the fourth quarter. However, proposed policy changes — including tariffs, immigration limits and tax cuts — pose potential inflationary pressures and could widen the federal budget deficit. These shifts may prompt investors to demand higher yields to compensate for increased risks associated with holding longer-term bonds.
Given this environment, we are cautiously optimistic. If the Fed does slow this cutting cycle and rates remain higher for longer, there will continue to be opportunities to lock in attractive long-term rates. We remain focused on higher credit quality bonds with the goal of providing added stability amidst potential market volatility in the coming year.
Equities Update by Dmitry Popov
The S&P 500 index delivered another impressive year, yielding returns over 25%, which exceeded most analysts’ predictions. This stellar performance has been propelled by corporate earnings growth, diminished inflation concerns, a robust dollar, and burgeoning excitement around artificial intelligence. Yet, contrasting signals—such as the Dow Jones Industrial Average experiencing its longest streak of consecutive down days in 50 years and quantum computing stocks surging by triple digits in December—prompt reflections on our current position in the bull market cycle.
It is rewarding to see investors reap substantial rewards from the stock market, and I remain hopeful for continued favorable trends as we navigate through intricate macroeconomic and geopolitical terrains. In the past two years we observed what I term an ‘extreme positive’ in the market—annual gains significantly surpassing historical averages. Though not unheard of, such trends are infrequent.
While high returns are exhilarating, they also call for prudence. Investors often succumb to recency bias, mistakenly normalizing these exceptional returns. It may be easy to overlook these returns as outliers simply because they are positive ones, ignoring potential warning signs of atypical market behavior. Seasoned investors, however, will likely scrutinize these outcomes, attempting to strategically seize future opportunities while managing risks.
We believe maintaining a well-balanced portfolio is crucial for investment success. From our perspective, it’s as important to protect assets from potential downturns as it is to capture upward trends. Although the S&P 500 remains a cornerstone for US-based investors, global markets present myriad opportunities beyond just a few top-performing stocks. By blending optimism with caution, investors can better equip themselves for sustained success in a continuously changing market landscape.
Real Asset Update by Elias Bachmann
Real assets are generally sensitive to interest rate movements, but perhaps becoming less so. Last quarter, the 10-year Treasury rate declined to around 3.6% by September, boosting transactions as buyers secured attractive long-term financing. Struggling sectors like office and retail also began to stabilize. However, the rate later climbed to 4.8%, driven by a strong economy and inflation persistently above the Federal Reserve’s target.
As an example of possible strengthening in real assets, the Vanguard Real Estate ETF (VNQ) did not drop to the lows seen in May of last year despite higher long-term rates by year end 2024. We believe this resilience is due to solid economic fundamentals, office and retail stabilizing, favorable supply-demand dynamics, a more optimistic growth outlook, and reduced short-term borrowing costs following the Fed’s three rate cuts.
Multifamily housing remains robust due to steady household formation, limited housing affordability, and stalled new supply. Workforce housing in the Midwest is particularly strong, benefiting from minimal new construction, solid rent growth, and stable migration patterns. Other standouts include development opportunities that will deliver units in 2-3 years, aligning with projected supply shortages.
Infrastructure continues to be a priority for BSW, with investments in renewable energy, energy storage, and mobility sectors. We are actively seeking potential additional exposure to infrastructure assets like transportation, logistics, utilities, and digital infrastructure. McKinsey & Company projects $3.7 trillion in annual infrastructure investment is needed through 2035 to sustain global growth.
Private Equity Update by Aaron Deitz
2024 marked a positive shift for Private Equity, with increased dealmaking, exit activity, and valuations compared to prior years. Although the IPO market remained subdued, PE-backed IPOs gained traction, accounting for a growing share of capital raised via this exit strategy. Investor sentiment improved as expectations realigned with improved economic conditions, including the onset of the Fed’s monetary easing cycle.
In 2024, the secondary market emerged as a standout segment within private equity. With heightened liquidity demands and prolonged fund distributions due to the M&A slowdown, investors (and GPs) increasingly turned to secondaries as a viable alternative for liquidity. Notably, BSW has focused more heavily on this segment over the past few years, understanding its importance and valuing its inclusion in client portfolios. We expect secondaries to remain a key pillar of the private equity ecosystem as it continues to evolve over time.
Looking ahead, should macroeconomic conditions remain stable and inflationary pressures ease, M&A activity could rebound, reenergizing private equity’s momentum. Increased distributions should enable LPs to recycle capital into new vintage funds, creating new avenues for growth. However, risks persist. If M&A activity remains challenged, GPs will likely continue to face difficulties realizing value from portfolio company exits.
Overall, 2024’s steady recovery sets a more optimistic tone for 2025. We believe that our fund managers will continue to capitalize on opportunities across the asset class as market conditions evolve.
Thank you for reading BSW’s Q4 2024 Blog post! Feedback is always welcome, and I’d love to know what investment concerns are top of mind to make BSW’s investment communications most relevant.

Katherine St. Onge, Director of Investments
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