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Investment Management

First Quarter 2025 Insight

February 25, 2025

John Allen

John Allen
Marc Castellani

Marc Castellani
Stephen Kawasaki

Stephen Kawasaki

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Q1 2025 Aspiriant Investing Insight Highlights

Investment Strategy & Research (IS&R)

Get an inside look at our Investment Strategy & Research (IS&R) team’s first-quarter 2025 analysis of the economic landscape. This summary covers key market trends, AI-driven investment shifts, political and fiscal challenges and portfolio considerations. For a deeper dive, access the full Insight report here.

Highlights

  • U.S. Economic Stability & Federal Reserve Policy: The United States maintains modest gross domestic product (GDP) growth and strong employment, with inflation gradually receding. The Federal Reserve (the Fed) has implemented rate cuts and held its target rate at 4.50%. While the Fed has signaled a readiness to ease further if economic conditions weaken, future policy decisions remain uncertain and will depend on evolving economic data.
  • Stretched Valuations & AI-Driven Earnings: U.S. equity valuations remain high, reflecting market expectations of strong earnings growth driven by artificial intelligence (AI). International markets, by contrast, present more reasonable valuations, particularly for value stocks.
  • Big Tech & AI Market Disruptions: AI advancements and Big Tech’s dominance continue to shape financial markets. While AI capabilities are evolving rapidly, historical trends suggest that industry leadership shifts over time. Some U.S. firms may be overinvesting in expensive AI infrastructure, creating potential long-term risks if expected returns fail to materialize.
  • Trump 1.0 vs. Trump 2.0 – Economic & Policy Uncertainty: A second Trump administration, with Republican majorities in both chambers, sets the stage for policy shifts in trade, energy and immigration. However, fiscal challenges—including a $1 trillion interest burden and a rising federal deficit—limit financial flexibility.

Macro Environment at a Glance

AI Developments & Market Dynamics

AI advancements are accelerating rapidly, with mathematics seeing the most dramatic progress relative to human benchmarks—AI accuracy in competition-level math increased from approximately 6% in 2021 to 90% within two years.

Amazon, Alphabet, Microsoft, and Meta, among others, view AI as an existential threat, fueling a dramatic surge in capital expenditures (CapEx). Their combined CapEx now accounts for roughly 23% of total U.S. spending—up from just 3% a decade ago—with overall CapEx more than doubling since 2010 and rising 40% since 2021. Concurrently, research and development (R&D) spending has quadrupled since 2010 and surged an additional 60% in recent years.

Yet, returns may take years, and lower-cost, open-source models like DeepSeek’s R1 pose competitive risks. Following the announcement of its R1 model, Nvidia experienced the largest single-day market value loss in history—shedding nearly $600 billion.

AI Progress vs human performance benchmarks

Trump 1.0 vs. Trump 2.0 – Political & Fiscal Challenges

With Republican majorities in Congress, Trump’s return signals sweeping policy shifts in trade, energy and immigration. However, unlike his first term, robust labor markets, inflation, high interest rates, and fiscal constraints limit the scope for pro-growth policies.

Fiscal challenges further complicate the picture as interest costs now exceed $1 trillion—$600 billion more than in 2016—while the deficit surpasses 6.5% of GDP. With two-thirds of the $6.75 trillion budget tied to mandatory spending, fiscal options remain tight.

For Trump, the S&P 500 once served as an economic scorecard, surging nearly 200% since 2016. However, with valuations at 27 times trailing earnings and 25 times forward earnings, sustaining this performance may prove difficult.

Economic Market Indicators

Final Thoughts & Portfolio Considerations

  • U.S. Equity Valuations Are Elevated: Market valuations remain high, driven by AI-fueled earnings expectations. The market anticipates even stronger growth over the next decade compared to the past 10 years.
  • Global Diversification Remains Critical: While Europe, Japan and emerging markets face distinct economic challenges, their equity valuations are generally more reasonable—especially for value stocks. Given differences in economic cycles across regions, diversifying into value stocks and non-U.S. equities could provide portfolio tailwinds over the next decade.
  • Fixed Income Positioned for Stronger Returns: Investment-grade bonds offer more attractive yields than in recent years and may act as a stabilizing force if equity markets experience volatility.
  • Alternative Investments Enhance Risk Management: For portfolios with diversifiers, strategies such as long/short investing, relative value, global macro, and gold can improve stability and help mitigate risk.

 

Download Insight highlights Download full Insight analysis
John Allen
John Allen

Chief Investment Officer, Partner

John joined Aspiriant in 2014 as Chief Investment Officer. As CIO, John is primarily responsible for leading the firm’s overall Investment Strategy & Research Group, broadly consisting of 12 professionals. The group is responsible for asset allocation, portfolio construction, manager selection and risk management. John also chairs the firm’s Investment Committee and serves on a number of other committees. He has over 20 years of experience in investment management, investment banking, corporate finance advisory and business strategy consulting.

Prior to joining the firm, John was a senior member of the client service team at Grantham, Mayo, Van Otterloo (GMO), which manages approximately $80 billion across a wide-range of public equities, fixed income, hedge funds and asset allocation funds. In that role, John had primary responsibility for 80 clients and $6.5 billion in assets under management.

Prior to joining GMO, John was the Head of Investments at a large family office in Los Angeles. There, John had responsibility for managing the firm’s overall investment portfolio as well as its direct investments. Previously, John established his career working in the investment banking department at Donaldson, Lufkin & Jenrette and in the business consulting practice at Stern Stewart & Co. Throughout his career, John has served on the boards of directors of three private companies.

John earned a Bachelor of Science degree with high distinction from the Economics Department at the University of Virginia. He holds the Chartered Financial Analyst® (CFA®) designation and the Chartered Alternative Investment Analyst (CAIA) designation. He is also a member of the CFA Institute and CAIA Association.

John lives in Los Angeles with his family.

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Marc Castellani
Marc Castellani

Managing Director in Private Investments, Chair of the Board of Directors, Partner

Marc joined Aspiriant in February of 2015. He has over 25 years of experience in the financial services industry. Marc oversees the firm’s private investment offering (private equity, venture capital, hedge funds and private real estate), and actively works with his colleagues on asset allocation, investment strategy and manager selection. Marc is a member of Aspiriant’s Investment and Client Service Committees.

Prior to joining the firm, Marc worked at the J.P. Morgan Private Bank in Los Angeles in a senior client management role and worked with families and high net worth individuals on portfolio management, tax planning, liability management and wealth transfer strategies. Before moving to Los Angeles in 2009, Marc worked for several years in New York City in the Mergers and Acquisitions departments of J.P. Morgan and Banc of America Securities. In that capacity, Marc advised large multinational clients and privately held, family-owned businesses on a range of strategic alternatives including sales, mergers, acquisitions, divestitures, spin-offs and growth equity financings.

Marc earned his undergraduate degree at Cornell University and his graduate degree in finance at the University of Rochester.

Marc lives in Manhattan Beach with his wife and children.

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Stephen Kawasaki
Stephen Kawasaki

Senior Manager in Investment Strategy & Research, Partner

Stephen brings nearly a decade of investment management experience to his role as a Senior Manager in Investment Strategy & Research. Stephen works with his colleagues from our
Orange County office on asset allocation, investment strategy and manager selection decisions.

Prior to joining Aspiriant in 2016, Stephen was a member of the Investment Committee at Balasa Dinverno Foltz LLC, which manages assets primarily for individuals, families and institutional clients. In addition to investment strategy responsibilities, he provided investment and wealth advisory services to high net worth individuals and families.

Stephen earned a Bachelor of Science degree in Financial Planning with high honors from the University of Illinois, Urbana-Champaign. He holds the Chartered Financial Analyst® (CFA®), Chartered Alternative Investment Analyst (CAIA), and the Certified Financial PlannerTMTM (CFP®) designations. He is also a member of the CFA Institute and CAIA Association.

Stephen lives in Orange County with his family.

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