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Economy & Markets 

  • Recent economic reports point toward a robust economy. Strong job growth and rising wages have propelled consumer spending over the last 12 months. This economic strength has pushed 10-year Treasury rates higher which will put renewed pressure on the housing market.  
  • The human cost of the Los Angeles fires is devastating; our thoughts go out to everyone impacted. The rebuilding process will be difficult but critical to the U.S. economy. The California economy is the fifth largest in the world if looked at as an individual country and represents 14% of U.S. GDP.

 Equities

  • The S&P 500 closed the year by finishing the month of December -2.4%. Despite this, the market saw a +2.1% gain in the fourth quarter which helped the S&P 500 close 2024 +25%. Expectations are for continued strength in both corporate revenues (+5.5%) and profits (+12.6%) in 2025.
  • For 2024, growth-oriented Communication Services, Technology and Consumer Discretionary sectors led the way while Materials, Health Care, and REITs lagged. Growth stocks closed 2024 well-ahead of value stocks and large cap outperformed both mid and small caps. U.S. equities significantly outperformed their international counterparts. 

Fixed Income 

  • The yield curve steepened as the market digested better economic reports and the possibility that the FOMC may pause their rate cuts in 2025. 
  • Credit spreads remain tight, but are still not showing any signs of stress, signaling comfort with the economic outlook.1

 Employment

  • Hiring rose by 256,000 jobs in January, much higher than the 165,000 expected. The unemployment rate fell to 4.1% from 4.2%. For the entire year, unemployment averaged 4.0%, up from 3.6% in 2023, both levels reflecting strong labor markets.
  • Wages grew by 3.9% over the last year, and the participation rate held steady at 62.5%. Another sign of labor market strength was seen in lower initial claims for unemployment.

Federal Reserve 

  • Expectations for interest rate cuts in 2025 by the Fed have declined dramatically from just four months ago when investors expected 100 basis points of reductions this year. Investors now expect just one 25 basis point cut this year.
  • The minutes of the December Fed meeting showed members were concerned about potential policy uncertainty with the changing landscape in Washington.

Issues to Watch

  • As we wrote last month “Employment, inflation, and the path of further rate cuts” remain the dominant themes for 2025.
  • How the new administration navigates tariffs, taxes, and immigration will set the tone for the economy and financial markets this year.

A chart illustrates economic metrics

1. Data provided by Bloomberg. Metrics are as of month-end or most recent publication
2 Provided by U.S. Real GDP Economic Forecast Survey Median
3 Provided by World Real GDP Economic Forecast Survey Median
4 Provided by Bloomberg Intelligence Forecast
5 Provided by World Probability Forecast
6 Arrows represent a month-over-month change


A chart illustrates index returns data



Asset Allocation / Tactical Positioning

a chart illustrates asset allocation and tactical positioning for January 2025

1 Equity tactical weights are relative to the Cambridge Trust Core Equity allocation and is comprised of 80% S&P 500 and 20% MSCI AC World ex-U.S. Index.
2 Fixed Income tactical weights are relative to the Cambridge Trust Core Taxable allocation and is comprised of 100% Barclays Intermediate Gov/Credit Index.
3 Below investment grade holdings include high yield and emerging market debt mutual funds. Represents an out-of-benchmark allocation that will be reflected as an overweight position relative to the Barclays Intermediate Gov/Credit Index if any allocation is held.
4 Alternative tactical weights represent an out-of-benchmark allocation that will be reflected as an overweight position when utilized and neutral position when not.
5 Direction arrow highlights any recent changes of the overall allocation after a recent tactical asset allocation or strategy change. Last changes were made at November 2024 Asset Allocation Committee meeting.

Cambridge Trust Wealth Management is a division of Eastern Bank. Views are as of January 2025 and are subject to change based on market conditions and other factors. The opinions expressed herein are those of the author(s), and do not necessarily reflect those of Eastern Bankshares, Inc., Eastern Bank, Eastern Bank Wealth Management, Cambridge Trust Wealth Management or any affiliated entities. Views and opinions expressed are current as of the date appearing on this material; all views and opinions herein are subject to change without notice based on market conditions and other factors. These views and opinions should not be construed as a recommendation for any specific security or sector. This material is for your private information, and we are not soliciting any action based on it. The information in this report has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is neither representation nor warranty as to the accuracy of, nor liability for any decisions made based on such information. Past performance does not guarantee future performance. 

Investment Products are not insured by the FDIC or any federal government agency, are not deposits of or guaranteed by any bank, and may lose value.