Diamond Capital Management's Market Commentary
February, 2025
Kip B. Robbins, CFA
Vice President, Senior Portfolio Manager
Executive Summary:
- While inflation is trending lower, the deceleration has slowed. How much will the Fed continue to ease?
- Companies are reporting their Q4 numbers and results have been mixed.
- Stock market volatility has increased in recent months due to greater uncertainty about the economy, the impact of tariffs, and the Fed’s decisions on monetary policy.
Inflation Interest Rates
Over the past couple of years, inflation has been on the minds of investors, and while there has been solid improvement, it is still lurking in the foreground. The Fed's interest rate moves have made their mark, but the question now is: Are they done? The market is expecting a 25 bps rate cut mid-year, then a 50% chance of another 25 bps cut by the end of 2025. While inflation is trending lower, the deceleration has slowed. Economic indicators show resilience in employment, which could allow for the Fed to pause for an extended period. That means we need to keep an eye on every Fed statement and employment report, because the central bank is likely not ready to call it quits just yet.
Earnings Season
At this point in the quarter, we are right in the thick of earnings season. Companies are reporting their Q4 numbers and while results have been reasonably solid, future guidance has been mixed. Tech is still flexing, but not quite as strong as it used to. The big names are hanging in there, but there is more talk about cost-cutting, layoffs, and slowing growth. Meanwhile, sectors like energy are holding up better than expected, benefiting from high commodity prices. The key takeaway here is: we are not in a one-size-fits-all environment anymore. It is about finding those companies that can weather the storm and adapt to shifting market conditions. This type of environment lends itself well to active and customized investment solutions.
Volatility is the Name of the Game
If you are feeling whiplash, you are not alone. The market’s volatility index, or VIX, has moved higher, which means we are likely in for continued swings. Investors are clearly grappling with the unknowns ahead. Will inflation continue to cool? Can earnings keep pace while economic growth slows? Will tariffs be implemented? There is a lot of uncertainty out there, and that is going to keep volatility front and center in the conversation. Buckle up! The next few months will require some patience.
The Bottom Line
So, where do we go from here? The key is balance. We are looking at a market that is at numerous inflection points. As your portfolio managers, we will stay sharp and focus on long-term fundamentals, looking for companies with solid growth prospects that are not overly reliant on external factors like interest rates or supply chain disruptions.
The information and material contained herein is provided solely for general information purposes. This material is not intended to be investment advice nor is this information intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only current as of the stated date of their issue. Certain sections of this publication contain forward-looking statements that are based on the reasonable expectations, estimates, projections, and assumptions of the authors, but forward-looking statements are not guarantees of future performance and involve risks and uncertainties. Investment ideas and strategies presented may not be suitable for all investors. No responsibility or liability is assumed by The National Bank of Indianapolis, or its affiliates for any loss that may directly or indirectly result from use of information, commentary, or opinions in this publication by you or any other person.