Aristotle Small Cap Equity Q4 2024 Commentary

2025-01-21 07:00:00 ET

Summary

• The Russell 2000 Index posted a modest gain of 0.33% for the quarter, bringing its year-to-date total return to 11.54%.
• For the fourth quarter of 2024, the Aristotle Small Cap Equity Composite posted a total return of -0.46% net of fees, trailing the 0.33% total return of the Russell 2000 Index.
• We continue to remain optimistic about the long-term potential for the small-cap segment of the U.S. market.

Markets Review

The volatility observed throughout 2024, continued into the fourth quarter. The Russell 2000 Index posted a modest gain of 0.33% for the quarter, bringing its year-to-date total return to 11.54%. After a sluggish start to the quarter, November was a standout month for small cap stocks following the U.S. elections, as the Russell 2000 Index rallied 10.97% driven by expectations of pro-business policies under the incoming Trump administration. However, these gains were largely erased in December, as the Index declined -8.26%, reflecting renewed concerns over geopolitical tensions and uncertainty around the incoming administration's policies, such as tariffs and immigration, as well as the impact of sharply higher U.S. yields. Furthermore, continued strong economic growth, a stable labor market and firmer inflation data all pushed the Federal Reserve (Fed) in a more hawkish direction in December. After consecutive 25 basis point rate cuts at the November and December meetings, Chairman Powell indicated the Fed is likely to take a more measured approach going forward, and the committee updated their projections to forecast only two rate cuts in 2025....

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