Monthly Market Commentary

Happy New Year! 

As we look back on 2024, we cannot overlook the strong US equity market performance that, while dominated by a select group of mega cap growth stocks, did show greater breadth across style and market cap for much of the year despite limping across the finish line.  

The S&P 500 set 57 new highs during the year and the 25% return is in the top 30% in the history of the benchmark.  Value and small cap stocks generated double digit returns, adding to their recovery started in 2023.  Overseas stocks did not fare as well despite improvement in economic conditions in many regions.  The lack of Mag 7 type stocks and the US dollar remaining strong were factors that impacted returns for the quarter and year.  Overall, US equities delivered strong performance for the year, though the largely negative results for December may foretell a more challenging environment in 2025.

During 2024, the attention shifted from when the Fed will start cutting rates to how much will the Fed cut rates.  Unfortunately, the year ended with the discussion on how little the Fed will cut rates in 2025 and why.  Inflation has proven to be even more stubborn than expected at mid-year while more recent employment numbers raise concerns about weakening labor conditions.  With fewer expected rate cuts in 2025, stock investors will focus more on earnings growth for continued positive returns as stock price multiples have reached near peak levels for many companies. 

Here are a few observations about what occurred across the public markets during the month:

Overall

• The S&P 500 Index was down -2.4% in December, up 2.4% in Q4, and up 25.0% for the year. 
• The MSCI ACWI ex USA MSCI Index was down -1.9% in December, down -7.6 in Q4, and up 5.5 for the year.
• The Bloomberg Aggregate Bond Index was down -1.6% in December, down -3.1% in Q4, and up 1.3% for the year.

Domestic Equity

• Despite surging after the November election, stocks finished Q4 with small positive gains in most segments.  Mixed economic data and a decline in expected Fed rate cuts in 2025 caused negative December returns for all but the Russell 1000 Growth.
• Large cap growth was the best performer in Q4 and in December, while value and smaller cap stocks sold off aggressively in the month, bringing down their returns for Q4.  Questions about future rate cuts and the impact of new economic policies derailed their positive post-election momentum. 

International and Global Equities

• Foreign stocks were down in line with the US in December but had a weaker Q4 due to continuing economic and geopolitical pressures coupled with a renewed strength in US equities and the US Dollar. 
• In December, emerging market stocks outperformed developed, largely due to the stimulus driven performance of Chinese stocks.  For the quarter, returns were in down sharply, impacting 2024 results.   

Fixed Income Markets

• Bonds delivered negative returns for the month and quarter as interest rates rose 60 - 80bps during the quarter despite 50 bps in Fed rate cuts.  Investors reacted to stubborn Inflation levels and mixed labor market data.

Specialty Markets

• REITs returns collapsed in December on rising interest rates while commodities managed a positive return for the month due to rising natural gas prices. 

US Equity Sectors

• Consumer Discretionary and Communication Services were the best performing sectors for the month and quarter while Healthcare and Materials were the worst sectors. 

Dear Client,

Looking back on 2024, it clearly echoed many of the themes from 2023. There were some brief economic growth scares along the way, but the broader economy continued to defy expectations and surprised once again to the upside. Stocks continued their strong performance, putting the S&P 500 on track to record its second consecutive year of 20% plus returns. Powerful trends in artificial intelligence and technology have continued unabated and largely overshadowed other factors like election uncertainty, continued geopolitical tension, and some rich stock valuation levels. After the election, the anticipation of potentially market-friendly policies from the incoming administration also helped to bolster stocks.

The bond market, in contrast, experienced another lackluster year. While the Federal Reserve (Fed) initiated a long-awaited easing cycle, policy ambiguity and uneasiness over rising debt levels led to increased volatility in bonds, but no clear directional trend.

As we look ahead to 2025, we remain cautiously optimistic. Cautious because we know that no market environment is ever permanent, and that change is always potentially around the corner. Optimistic because we recognize constructive long-term technology trends are in place. Plus, potential tax policy and deregulation efforts in 2025 could provide some semblance of a tailwind — particularly from an economic perspective. While risky asset returns are not expected to be as robust as 2024, 2025’s investment environment should prove to be favorable for investors.

For perspective, here’s a chart on stock market performance over time.

Click Here for Larger View

As your financial advisor, will help you navigate through market complexities and crosscurrents and continue to work toward achieving your goals.

Please let us know if you have any questions.

Sincerely,