As we step into March 2025, the investment landscape presents a mix of opportunities and challenges. While economic fundamentals remain supportive, investors must navigate elevated valuations, geopolitical tensions, and an increasingly uneven global recovery.
Policy uncertainty has led to heightened market anxiety, but history reminds us that speculation around policy changes is rarely the primary driver of long-term fundamentals. Rather than attempting to predict the net effect of competing policy priorities, our focus remains on company fundamentals. Stock market performance will likely depend more on companies increasing their profits.
Valuation is not a reliable tool for predicting short-term stock market performance, but it remains critical to our long-term strategy. While certain areas of the U.S. and European markets appear stretched, advances in AI and other technologies are prompting investors to look beyond near-term profitability and toward potential earnings growth in 2026 and beyond. In select cases, we see the benefit of taking a long-term approach to earnings potential, particularly in industries poised for transformative change
The acceleration of AI investments continues to be a defining theme for the market. Companies across industries are expanding their use of robotics and automation to enhance efficiency. AI-driven advancements are streamlining routine tasks and enabling firms to take on more complex functions. For example, Google’s partnership with healthcare providers is improving diagnostic accuracy and early disease detection, demonstrating AI’s expanding influence beyond traditional technology sectors.
The rising demand for AI capabilities has also created a structural shift in power consumption. The increasing need for data centers, which form the backbone of AI operations, is driving a surge in electricity demand. Cardinal portfolios have exposure to this evolving energy landscape through holdings such as Siemens, a global energy technology leader with strong market positions in gas turbines, utility-grade equipment, and offshore wind turbines. The company stands to benefit from electrification and industrial retooling efforts as power sector demand increases.
The current wave of capital investment in the U.S. is not just a response to near-term economic trends but a strategic move to strengthen long-term resilience and growth. As these investments mature, they have the potential to reshape the U.S. economic landscape, fostering a more self-sufficient and adaptable economy.
Our investment philosophy remains anchored in a long-term approach. While it is important to analyze near-term trends, we recognize that attempting to make precise predictions often creates a false sense of certainty. Instead, we define success in multiyear terms and invest accordingly. By focusing on high-quality companies with strong growth potential, we maintain a perspective on short-term fluctuations while remaining committed to delivering long-term value.
We appreciate your trust and confidence as we continue to navigate the evolving investment landscape together.
