As we step into 2025, this is a perfect time to reflect, reassess, and refocus on your financial goals. Each new year brings its own set of challenges and opportunities, and this year is no exception. With a new administration taking office, the economic landscape is evolving rapidly. Investors are anticipating potential policy changes, including deregulation, tax adjustments, and trade reforms, which contribute to some uncertainty but also open the door to opportunities for growth and renewal.
At Cardinal Capital, we’ve always believed in keeping things simple: investing in good companies trading at reasonable valuations and staying diversified to weather all market conditions. By focusing on time-tested principles rather than reacting to headlines, we ensure your portfolio remains aligned with your long-term goals. Our apolitical approach helps us avoid the pitfalls of speculative decision-making and keeps us focused on the factors that truly drive returns—strong businesses, compelling valuations, and broad diversification.
Last year, we saw remarkable market concentration as the “Magnificent 7” large-cap momentum stocks outperformed the broader S&P 500 by 34 percentage points. While these stocks garnered significant attention, we believe opportunities remain in companies poised to benefit from adopting AI and other transformative technologies. That said, many of these mega-cap tech names now carry lofty valuations, prompting a closer look at alternatives offering better value and long-term potential.
One of our long-held companies, Cisco, exemplifies the kind of large-cap stocks we favor: those with strong fundamentals, sustainable growth drivers, and attractive valuations. The company is well-positioned to benefit from the explosive growth of AI-related infrastructure spending. With its advanced semiconductor solution, “Silicon One,” Cisco is achieving double-digit growth in security and data analytics while maintaining a nearly 3% dividend yield. Its relatively low valuation also provides a defensive buffer during potential market volatility.
We’re also excited about the potential for underappreciated small and mid-cap companies to shine. The combination of lower borrowing costs, a resilient economic backdrop, and favorable valuations could close the performance gap with large caps. Historically, small- and mid-cap value stocks have demonstrated resilience during challenging periods, underscoring their role as stable performers in diversified portfolios. For example, during the tech bubble collapse, value-oriented small and mid-caps significantly outperformed their broader indexes. These lessons from history reinforce the importance of maintaining a balanced perspective.
January often brings the “January effect,” a seasonal trend where small-cap stocks historically outperform. While this phenomenon has lessened over time, it serves as a reminder of the opportunities that arise when conditions favor smaller companies. Regardless of the season, our focus remains on identifying companies with sound fundamentals and trading at reasonable valuations.
In fixed income, we see compelling opportunities in high-quality, high-yield bonds, which offer attractive yields in today’s elevated interest rate environment. Bonds continue to play a critical role in smoothing portfolio volatility and providing a reliable income stream, reinforcing their place as a cornerstone of balanced portfolios.
While we remain optimistic about U.S. equities and the potential benefits of policy changes, we recognize that markets may experience volatility as these changes transition from announcement to implementation. Staying invested in a diversified portfolio and preparing for pullbacks remain key strategies for navigating such periods.
We are here to guide you through these times of change and to ensure your portfolio is positioned for continued growth and stability. If you have any questions or would like to discuss your investment strategy further, please don’t hesitate to reach out.
Wishing you and your family a happy, healthy, and prosperous 2025!
