Dear Clients,
Hello, Happy New Year, and Happy first-of-the-year Friday! I hope you all had a fantastic holiday and relaxing break filled with love, laughter, and quality time spent with family and friends. Hopefully, you’re still enjoying the last embers of this special holiday season. At Corbin, we wrapped up the year with our annual Strategy Offsite Meeting and Holiday Party in December where we came together to celebrate a successful 2024, discuss plans for 2025 and beyond, and spend meaningful time connecting with colleagues in person. It was inspiring!
With the Q4 2024 reporting season just around the corner, our team has been diving deep into market trends to uncover the key drivers we believe will define the year ahead. In our second inaugural Letter to Our Clients, we cover key themes to help prepare for 2025 and share selected actionable recommendations and best practices.
Importantly, we’ll be going over these topics and more in our upcoming Inside The Buy-Side® Earnings Primer® webinar The Big So What™ – Q4’24 Earnings Season on Wednesday, January 15th from 12:00 PM – 12:45 PM EST. Be sure to click the link to reserve your spot!
Having created an industry-leading Perception Study practice, we’re big on report cards here at Corbin.
As a reminder, at the beginning of last year we highlighted the following themes in our 2024 letter:
Geopolitics dominated the narrative in 2024. From the high-altitude Chinese “weather” balloon and Taiwan military exercises escalating U.S.-China tensions to the Israel-Hamas war prompting Red Sea shipping disruptions, geopolitical events compelled companies to adapt quickly amidst heightened investor scrutiny. Indeed, these challenges consistently ranked high among unaided investor concerns, as reflected in our Inside The Buy-Side® Earnings Primer® publications, and became recurring topics on earnings calls.
At the same time, artificial intelligence advanced from buzzword to boardroom priority as companies shifted focus to practical applications and communicated detailed AI roadmaps. This evolution, explored in our recent white paper, underscored the tangible value of AI in augmenting workflows, such as synthesizing earnings and assisting in the investor research process.
Lastly, 2024 activism demonstrated traction, up 7% versus the five-year average1, though the deal environment remained cooler than initially anticipated. While seven rate cuts were expected heading into the year, only three materialized — 50 bps in September followed by 25 bp cuts in November and December — curbing the anticipated surge in M&A activity. Despite this, deal activity did show modest growth. Announced and completed deals in 2024 rose 8% YoY across North America and Europe,2 arresting a two-year trend of waning activity.
As President-elect Trump prepares to re-enter office, his unconventional and rapid-fire communication methods are poised to create both challenges and opportunities for companies.
With platforms like X (formerly Twitter) and Truth Social serving as President-elect Trump’s preferred communication channels — alongside the growing influence of podcasting and independent journalism, where he and his administration frequent — it is essential that communications teams, corporate and investor relations, monitor these outlets closely. Gone are the days of lengthy op-eds and carefully crafted trial balloons signaling shifts in administrative policy weeks in advance. Instead, policy changes and key messages will be delivered directly, often without warning, potentially requiring immediate attention and swift action.
In response, we foresee the formation of “Trump Task Forces” within companies, modeled after activist preparation teams and comprising representatives from investor relations, corporate communications, government affairs, legal counsel, public relations, and senior business leaders. These teams will focus on assessing remarks that could spark investor questions or concerns, particularly if your company or industry draws the ire of the President — potentially attracting heightened scrutiny from retail investors, too. This proactive approach ensures companies remain agile, aligned, and prepared to navigate what is sure to be a fluid communication environment.
In fact, we’ve already seen the first signs of this dynamic emerging in public company communications, even before the official transfer of power later this month.
For example, President-elect Trump’s November 12th announcement of the Department of Government Efficiency (“DOGE”) highlighted his administration’s readiness to implement sweeping reforms, leading to an 11.0% weekly decline among the 30 largest U.S. government contractors3 — significantly outpacing the S&P 500’s 2.4% drop during the same period.
Further, and attracting even greater public and market attention, while comments regarding tariffs heated up during the election, on November 25 President-elect Trump posted two statements on Truth Social outlining his intention to institute a 25% tariff on all products imported from Canada and Mexico, and an additional 10% tariff above existing tariffs on Chinese goods.
As a result, November alone saw a 43% spike in tariff mentions among public companies vs. October. In aggregate, Q4 tariff mentions more than doubled (+132%) versus the prior year among North American and European transcripts and press releases.
In an analysis of recent commentary, many companies warn new tariff-induced costs would likely be passed along to customers:
With the Presidential Inauguration in 17 days, we will likely enter a highly reactive investment community environment, with tariffs taking center stage in upcoming discussions and other important yet unknown topics emerging throughout the year and beyond. With input from internal stakeholders — potentially through a “Trump Task Force” — consider these best practices for effective investor engagement:
In 2025, we expect intensifying activist focus on M&A and portfolio breakup strategies.
Over the past decade, activist campaigns have been steadily rising. The chart below illustrates a clear upward trend in North America and Europe, with campaigns targeting companies of at least $500 million in market cap reaching their highest level in 2024. This reflects a growing appetite among activists to challenge large, established companies and push for significant structural change. Our proprietary research further emphasizes the influence of shareholder activism, with 62% of surveyed buy-side professionals giving it some or significant attention, while only 8% disregard it entirely.
Looking ahead, the relatively lower effective interest rate environment expected in 2025, coupled with potential political shifts at the FTC — including the likely appointment of Andrew Ferguson as chair, who is expected to favor deregulation and less aggressive antitrust enforcement — could foster a more favorable climate for M&A activity. Private equity sponsors are well-positioned to deploy capital aggressively, potentially inflating already lofty valuations, which could pose challenges to grow inorganically for public companies which have to answer to shareholders.
Moreover, activists are increasingly advocating for ‘de-conglomeration’, a topic we discussed in 2021, in response to investor preferences for streamlined operations, specialization, clear capital allocation priorities, and further M&A optionality. Elliott Management’s recent campaign against Honeywell exemplifies this trend, highlighting the growing momentum behind portfolio realignment and simplification.
The combined effect of increasing pressure from activists and a favorable dealmaking climate means companies will face heightened portfolio scrutiny in 2025.
Consider the following best practices:
Large- & Mega-Cap | Mid-Cap | Small-Cap | |
---|---|---|---|
2014-2022 Avg. | 30% | 25% | 45% |
2023 Avg. | 30% | 16% | 54% |
2024 Avg. | 33% | 26% | 41% |
2024 underscored the importance of cautious guidance amidst an environment where market psychology can rapidly drive sentiment positively or disrupt it sharply.
With X-factors like tariffs, taxes, tighter immigration policies, and evolving regulatory conditions still looming, companies must approach 2025 with an acute focus on what they can control and avoid overreliance on unpredictable macro narratives. After analyzing recent industry conferences, off-cycle earnings reports, and analyst commentary, resilient consumer spending, solid real income growth, and relatively stable labor markets continue to support economic growth expectations. Notably, the NFIB Small Business Optimism Index climbed eight points in November to 101.7, marking its highest reading since June 2021 and breaking a 34-month streak below the 50-year average of 98.
However, inflation concerns remain persistent, with the term “sticky” resurfacing in discussions, and the recent Q4 uptick in consumer confidence was not sustained through December (the Consumer Confidence Index® declined 8.1 points in December to 104.7, back to the middle of the range that has prevailed over the past two years).5 Meanwhile, the implementation of Trump’s proposed tariffs could present additional challenges — Goldman Sachs projects that core PCE inflation could increase from 2.4% to 3.0% under such a scenario. In the end, analysts expect real GDP growth of 2.0% (median, with a range of 1.3% to 2.7%) in 2025, down from the 2.7% projected for 2024.6 According to FactSet, nearly all 2025 S&P 500 price estimates reflect cautious optimism; the bottom-up aggregation of analyst price targets predicts a closing price of 6,713.13 in 12 months, an implied gain of 14.1% from year-end levels.
As American Economist Benjamin Graham famously stated, “If I have noticed anything over these sixty years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market.”
As we kick off the new year and dive into earnings season over the next few weeks, we’ll be keeping a close eye on these trends and more as they unfold. Keep an eye out for our 61st edition of Inside The Buy-Side® Earnings Primer®, which we will publish on Thursday, January 9.
Thank you for allowing us to serve as a trusted advisor — we truly appreciate your support and readership. Here’s to a successful and standout 2025!
All our best,
Rebecca & Team