February Newsletter 2025

February 3, 2025

“Invest In…”

Jimmy Carter’s legacy extends far beyond his time in the White House, reflecting a life dedicated to service, compassion, and the pursuit of justice. After his presidency from 1977 to 1981, he founded the Carter Center, a non-profit organization devoted to improving global health, advancing human rights, and promoting democracy. His commitment to humanitarian work included combating diseases in developing nations and mediating conflicts, earning him global recognition for his efforts. In addition to his international endeavors, Carter returned to academia as a professor at Emory University and continued to teach Sunday School, sharing his values and faith with his community. His partnership with Habitat for Humanity showcased his dedication to affordable housing, as he helped build homes for those in need and inspired others to give back. Carter’s profound impact serves as a reminder of the difference one person can make, leaving a legacy of integrity and altruism that resonates with future generations.

As we head into February, markets continue to evolve, and new trends are shaping the investment landscape; as such we continue to recalibrate strategy and prepare for what lies ahead. In reviewing last month's letter, you’ll recall the cautionary tone we used when talking about the sky-high equity valuations and the rapidly changing dynamics of both traditional and alternative investments. In January we saw market movements on the equity side and the fixed income side reacting to inflation and expected rate changes that will create opportunities with our active management style. Let’s take a deeper dive into developments impacting the markets in January.

The markets are reflecting mixed reactions to the current policy proposals coming out of Washington D.C.; particularly those related to taxes, tariffs, and regulations.

The promises of tax cuts and deregulation are seen as market-friendly, as they will stimulate the economy. Tariffs aimed at countries and political powers that have significantly impacted our immigration policies and illicit drug trafficking have been set in motion to protect our children and our sovereign borders. While both Mexico and Canada will feel the brunt of the tariffs and our mutual economies will feel some pain, it is anticipated that a new equilibrium will result with both the United States and its closest neighbors ultimately creating a safer and more manageable border relationship.
Just this morning our President and the President of Mexico agreed to meaningful terms to protect our border and to delay all tariffs for the coming month. As I write this letter our President and the Prime Minister of Canada are undertaking similar negotiations in attempts to likewise delay all tariffs levied against Canada. Only time will tell if administration on both sides will come to meaningful longer-term settlements that will keep all parties safe and economically viable.
The tariffs to be levied against China are related to much different economic and humanitarian intolerances. Our president ‘s previous tariffs ultimately were primarily absorbed by China and its economy. Nevertheless, the stakes are currently much higher and trade war with China could result in global economic pain.
While there is optimism about potential economic growth driven by a new agenda in Washington, the uncertainty surrounding policy changes may overshadow market performance at least in the short-term. Today’s market activity demonstrates the significant volatility that can result when relationships between global trading partners come to a loggerhead. In the long run markets move on fundamentals and key indicators such as corporate earnings, debt levels, and the broader economy.

Bond markets, driven by shifting inflation expectations, geopolitical concerns, and the path of monetary policy, caused bond yields to fluctuate throughout January. On January 29th, the Federal Reserve opted to keep interest rates in the 4.25 to 4.50 percent range and signaled caution on the path of rate cuts. With inflation still above target and the economy showing growth, the Fed is taking a wait-and-see approach to assess the impact of the new administration’s policies. Fed Chair Jerome Powell stressed the need for caution, noting that aggressive rate cuts could hinder inflation control. Economists expect the Fed to hold rates steady until mid-year, with further cuts dependent on inflation trends and economic conditions.

Last week the launch of a new Chinese AI model called “DeepSeek” created waves in the tech world, triggering a significant market reaction. As a cost-effective alternative to current industry leaders in the US, the model's introduction led to a sharp decline on Nasdaq, although it later recovered most of those losses by the end of the week. This surge in competition has raised concerns about the future of many tech companies. The emergence of this new AI model highlights the fast-paced evolution of the AI sector, creating both challenges and opportunities for investors and tech firms alike, not just in the US, but around the globe. Our federal government immediately took steps to forbid downloading and or using “DeepSeek” on all government devices. Despite current laws prohibiting the importing of Chinese chips, it will be harder to protect all intellectual property and technical applications used throughout our economy. We will, as your investment advisor, have conversations with our IT providers to ensure continued protection of all client information included in our systems. In the interim we expect that our investments in the technology industry may gyrate wildly in valuation until we have a better understanding of the issue and its impact.

Economists are projecting steady growth for the U.S. economy in 2025, with GDP forecasted to grow by 3.9 percent as of February 3rd. The labor market remains strong, though some sectors like housing and tech are seeing signs of cooling, including layoffs and hiring freezes. While consumer spending has been resilient, elevated borrowing costs could pose challenges, especially if inflation picks up and persistent economic uncertainty rises. Despite these concerns, economists expect that wage growth and strong job numbers will support consumer demand, helping to avoid a sharp downturn. Overall, economists are cautiously optimistic, expecting tempered growth for the economy in 2025.

We will continue to stay active and monitor client portfolios to take advantage of this changing environment. A review of our past results for one-, five-, and ten-year performance proves our process has yielded meaningful results while protecting client assets in retirement and building portfolios for those still working.

Our aggregated managed portfolio is currently allocated 58 percent to equities, 41 percent to income, and 1 percent in cash, essentially reflecting a 60/40 portfolio on a combined basis. Aggregated client accounts have netted, after fees, a total return of over 63 percent over the past ten years. Each client’s individually managed portfolio reflects the overall portfolio allocation documented in each client’s Investment Policy Statement. Client goals have been achieved by focusing on long-term results. We have currently projected that ten-year results should produce an average annual return of between five and eight percent, without taking equity risk greater than 60 to 65 percent of your portfolio.

We are currently increasing our allocation to The Private Shares Fund (PIIVX) for both accounts of our younger clients and larger accounts with a legacy goal. This fund focuses on late-stage private companies that are nearing an initial public offering (IPO). Just this past week I was on a call with one of their portfolio managers who stated they have five companies in their portfolio and have recently filed the last regulatory documents needed before going public. One of those is Voyager; The Voyager program is an American scientific program run by NASA, which employs two interstellar probes, Voyager 1 and Voyager 2. Which is a deep space probe program. With more than 80 innovative companies in its portfolio, many of which are showing record growth, revenue, and profitability the fund’s managers are more optimistic than ever about its future. As we look ahead, we expect this sector to experience its next growth cycle, with more IPOs and merger and acquisitions activity on the horizon in the coming years.

As the tax season ramps up, we invite you to call our office for tax documents and other related reports you might need for income tax preparation. 1099 forms from Charles Schwab are currently being mailed to all clients. Please remember that corrected 1099s will continue to be mailed into April. Our new Client Brochure Form (ADV Part II) and an updated Privacy Policy will be sent to each client in mid-February.

We thank every client for their continued trust in the work that we do for you. It is our continuing goal to maintain strong and lasting relationships with each of you. Please call either Steve or me to discuss your portfolio further.

Sincerely,

Intelligent Investment Management, LLP