Friends,
2024 was an outstanding year for the U.S. stock market as domestic stocks were up over 23% for the year. A few high-level observations regarding the 2024 stock market:
- It was the second consecutive year of 20% + returns for the S&P 500; the first time that’s happened since the late 1990’s.
- Returns were driven by large cap growth stocks, especially the Magnificent 7 (Nvidia, Microsoft, Meta, Amazon, etc). Those stocks alone represent over 30% of the total value of the S&P 500 …and were collectively up almost 67% for the year. By comparison, the equal weighted S&P 500 was up only 10-11%.
- As with the last few years, large cap stocks outperformed small and mid-cap stocks and U.S. stocks outperformed foreign stocks.
As for the bond market, it delivered low single-digit returns. High quality corporate bonds and the 10-year Treasury are currently yielding 4-5%, which is much better than we’ve seen in the last few years. More on that below….
As you all know, the Republicans swept the November elections as President Trump was returned to office and with Republicans taking a majority of both the House and Senate. Generally speaking, the Trump administration is viewed as pro business, especially with regards to lower taxes and deregulation. On the other hand, markets are nervous about the potential effect of tariffs and tighter immigration policy on economic growth, inflation and interest rates. The market’s initial response to the election was a rally in the stock market based on the elimination of uncertainty and optimism around the new administration’s pro-business policies. However, markets pulled back slightly in December as concerns mounted around inflation and the direction of interest rates.
What’s the outlook for 2025? We are generally positive but proceeding with caution. Just a few months ago, it felt like inflation was coming down and most market participants were counting on a series of rate cuts through 2025. At the moment, that path looks more bumpy than it did before. We are also mindful that two consecutive years of 20% plus returns has valuations slightly stretched and we never had a real correction in 2024.
Despite these concerns, we still have an economy that is growing nicely and has been amazingly resilient over the last five years…and there are no signs of a recession in the near term… We are investing through the stock market in many great companies that are growing, investing billions of dollars into their businesses and are powering a generational transition to artificial intelligence and increased productivity.
Our approach to portfolio management is to continue to execute a disciplined strategy utilizing a diversified portfolio tailored to the risk tolerance and return objectives of each individual client. We will continue to maintain modest allocations to the sectors of the market that have underperformed recently (value stocks, small, mid cap and foreign). We can’t predict the exact timing, but their time will come. We are encouraging many clients to move funds from cash / money market accounts to bonds or bond funds. We expect money market rates to continue coming down and we can lock in 4-5% yields in bonds going out 3 to 7 years.
All in all, we’re thrilled that we had such a great run the last couple of years. We can’t expect 2025 to be quite the same but we’re very bullish long term. We appreciate the opportunity to serve our friends and clients and wish all of you the best in 2025.
Follow the link below for more color on the 4th quarter economy and financial markets:
Quarterly Market Insights | January 2025
Matt and Andrew
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The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. Comments concerning the past performance are not intended to be forward looking and should not be viewed as an indication of future results.