Happy New Year! The beginning of January is traditionally a time to review and reflect over the past calendar year. As we know, a lot can happen over the course of a full year and 2024 was no different. This month, we will try to highlight some of the key events and main takeaways from markets and the economy in 2024:
- 2024 was a positive year for world stock markets, especially for US large companies. The S&P500 notched 57 new all-time highs over the course of 2024 (after achieving none in 2023 and only 1 in 2022) and returned a strong +25% for the full year. US small stocks also did well, returning 10-11% in 2024. Most other equity asset classes delivered solid returns in the mid to upper single digit ranges; international large stocks were the main underachiever, returning just +3.5% in 2024.
2. Long-term bonds are still in a historic drawdown. The forty-year bond bull market appears to have ended in August of 2020 when the yield on the 10-year US Treasury bond briefly reached 0.50%. Since then, interest rates have moved substantially higher, driven by an inflation shock in 2022 and aggressive rate hikes by the US Federal Reserve. The sharp rise in rates led to significant declines in bond prices, especially for long-term bonds. Although the Federal Reserve began cutting short-term rates in September of 2024, long-term rates continued climbing higher, rising by more than 1% since then. The drawdown in long-dated Treasury bonds is now more than four years old, and prices are still more than 40% below their peak.
3. The US economy and labor markets held up well last year. 2024 marked another full year without a recession, as annualized GDP growth averaged close to 3% each quarter. Monthly job growth moderated throughout the year but remained positive; there has not been a single negative jobs print since December of 2020. The unemployment rate rose modestly to 4.1% by the end of the year from its most recent low of 3.4% in April 2023.
4. Inflation remained an issue, as focus turned to government debt and deficit spending. After significant improvement in 2023, progress on inflation seemed to stall near the end of 2024. As the Federal Reserve was gaining confidence in their ability to bring inflation down to 2%, they began to ease monetary policy by reducing overnight lending rates. At the same time, US government borrowing and spending remained strong. As tighter monetary policy battled against expansive fiscal policy, GDP growth held up, but the “last mile” of the inflation fight remained elusive. Many analysts believe that large fiscal deficits likely contributed to inflation’s persistence in 2024. Consequently, fewer rate cuts, perhaps only 1 or 2, are now expected in 2025.
5. The election results in November have the potential to dramatically overhaul tax, trade, and economic policy in 2025. In broad strokes, President-elect Trump has indicated that he will pursue a low tax, high tariff, low immigration, protectionist (“America first”) policy. We saw hints of this in his first term as president but with a stronger mandate this time and likely Congressional acquiescence, we can anticipate even bolder actions on all four fronts in the coming term. One outcome that appears very likely is the extension of the Tax Cuts and Jobs Act of 2017. That law was scheduled to sunset at the end of 2025 but its main provisions, including reduced marginal tax rates on individuals and corporations, an increased standard deduction, and an enhanced estate tax exemption amount, are likely to last many years longer now.
Sources: https://ycharts.com
Disclosure: The opinions expressed herein are those of Elevate Wealth Advisory (“EWA”) and are subject to change without notice. EWAreserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This should not be considered investment advice or an offer to sell any product. Past performance is no guarantee of future results. This contains forecasts, estimates, beliefs and/or similar information (“forward looking information”). Forward looking information is subject to inherent uncertainties and qualifications and is based on numerous assumptions, in each case whether or not identified herein. It is provided for informational purposes only and should not be considered a recommendation to buy or sell securities or a guarantee of future results. EWA is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about EWA, including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request.