Earnings growth is key for sustained market gains

As we progress through 2025, equity markets are navigating a landscape marked by both high valuations and macroeconomic uncertainties. Despite early-year volatility, the S&P 500 and Nasdaq have achieved record highs, indicating resilience in equities. Non-US markets currently present more favorable conditions due to factors like strong government spending and low valuations compared to US equities. Key challenges for investors include geopolitical tensions, tariff unpredictability, and questions surrounding AI's impact on business investment.

The Trump administration's focus on reviving US industrial production brings potential opportunities within sectors such as industrials and biopharma. Meanwhile, AI continues to evolve rapidly across industries, creating new investment avenues but also posing risks to traditional business models. As we move forward, active managers may find value in an increasingly dispersed market environment where nearly half of stocks outperform the S&P 500 Index—a significant change from previous years—highlighting potential gains for those leveraging detailed research amidst ongoing market fluctuations.