Insights

From the Investment Policy & Strategy Group

Equities

Continued gains in equities are expected, driven primarily by earnings growth, which will be powered by profit margin expansion. Over the past several years, corporate America has been especially dynamic in adapting to massive change. This dynamism, along with advances in technology, should drive higher profits, with stocks following suit. However, given the elevated state of valuation, risk and reward have become more balanced, and we recommend a posture that is near target ranges for exposure.

Growth & Value

We continue to advocate for a balanced approach between growth and value. The degree to which individual companies can adapt to a rapidly changing environment is more likely to determine success than their designation within benchmark indices. The economy should remain on solid ground, neither accelerating nor falling into recession, so a balance between cyclical and less cyclical components is warranted. Additionally, the degree of exposure to the AI theme has emerged as a new and powerful factor that cuts across value and growth.

Small Cap & Large Cap

Large-cap companies will continue to benefit from their scale, including access to capital markets, the ability to invest in new technologies, and the recipients of index flows. We have maintained and will continue to maintain an outsized allocation to smaller companies. As noted above, the valuation gap, diversification benefit, opportunity for profit expansion as the AI wave unfolds, M&A environment, and tailwinds from eventual rate cuts present a compelling mix.

U.S. & Non-U.S.

We maintain our diversified posture across geographies. Valuation and growth opportunities exist across a broad range of industries, regions, and countries, and we rely on active management to identify these opportunities. Currency should be largely neutral, with a stable to slightly declining U.S. dollar, although the U.S. has an edge over most developed markets due to better demographics and expected growth. Pockets of emerging markets also offer solid growth prospects.

Fixed Income

Credit

We emphasize extreme selectivity with credit risk. Security selection is paramount, with active management as a critical component of avoiding potential problems. We favor more liquidity and higher quality within the credit space. A recent Bloomberg story highlighted the range of prices used by various market participants for the same loan. Given the massive growth in private funding markets against a mostly benign backdrop and with interest rates remaining stubbornly high, it is no surprise that some situations have gone haywire. Our work has consistently emphasized the importance of diligent credit underwriting and security selection, rather than generic and broad exposure.

Rates

Interest rates for the U.S. 10-Year Note will generally follow the path of Fed policy for the foreseeable future. This means that rates will decline, but slowly. Fed policy is constrained by stubborn inflation and a steady but weakening job market. So long as inflation and employment remain mostly stable, rate pressure will ease slowly.

Market Monitor

This table provides a comprehensive view of returns across various markets across time. It is paired with a snapshot of economic data, allowing a comparison of annualized returns while referencing the coincident economic conditions.

¹ Table rows are sorted by 3-year annualized returns. Source: Bloomberg. Data is as of 9/30/2025.

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