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The new year brings plenty of economic optimism fueled byanimal spirits. We hear it talking to companies and distributors and see it in confidence indicators. However, there was no discernable change in trajectory in Q4 post-election and we doubt much will change in Q1 pending more clarity on tariffs and other policies. Nevertheless, we expect a focus on regulatory relief and extending the current tax policy beyond the 2025 sunset to help spur economic activity. In addition, whether there are tariffs or not, the US will likely remain the preferred destination for investment over the foreseeable horizon. It also appears that the nagging inventory correction of 2023/24 has largely run its course.
As a result, the gradual recovery in short cycle activity that began to manifest in 2024 will likely gain momentum in 2025. At the same time the secular momentum around mega projects, reshoring and electrification will likely continue. Valuation remains elevated on an absolute basis, but EE/MI valuations on a relative basis look fairly normal and arguably have room to expand if the cycle does gain upward momentum.
