Highlights
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The economy has managed a soft/no landing…so far.
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Stocks gave back some of November’s gains.
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Interest rates were up at the longer end of the yield curve, hampering bond returns.
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Continue to focus on the long term despite uncertainties.
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Economic Update
2024 Was Another Year of Soft/No-landing
Throughout 2024, economic growth, job creation, consumer spending, and disinflation showed steady, if sometimes uneven, progress. First quarter GDP growth was a modest 1.6%, the slowest since Q2 2022, but this was followed by stronger performances in Q2 (+3.0%) and Q3 (+3.1%). For Q4 the Atlanta Fed GDPNow estimate currently stands at 2.7%.
The labor market added nearly 2 million nonfarm jobs through November, however the unemployment rate crept up from 3.7% at the end of 2023 to 4.2% in November.
Inflation continued its downward trend. November’s CPI rose 2.7% year-over-year, easing from 3.3% in December 2023. Core CPI moderated from 3.9% to 3.3% over the same period. Both continue to remain above the Fed’s stated goal of 2%.
Stocks and Bonds
For the month of December, the S&P 500 posted a decline of -2.4%, giving back some of the November rally. For the entire calendar year of 2024, the S&P returned 25%, marking back-to-back years of 25%+ total returns. The index set four new record closing highs during the early days of December, which brought the total for the year to 57, the 6th most in the benchmark’s history for a calendar year.
The Dow Jones Industrial Average declined -5.1% for the month but managed to hold on to a 15% return for the full year.
Mid- and small-cap stocks were particularly hard hit in December, down -7.1% and -8.3%, respectively. Still, 2024 gains of 13.9% and 11.5% for the two smaller benchmarks are nothing to be disappointed about in the context of average historical returns.
The tech-heavy Nasdaq Composite did manage a slight gain for the month, up 0.6%, bringing the YTD total return to 29.6%.
Only one sector gained in December after all 11 rose in November. Consumer Discretionary was up 1.1%. Energy and Materials were the hardest hit, down -9.6% and -10.8%.
Despite another 25 basis point cut by the Federal Reserve, longer-term interest rates rose during the month, putting pressure on fixed income returns to close out 2024. The US Aggregate index lost -1.64% for the month, bringing the 2024 return to 1.3%. Shorter duration bonds fared better with modest declines for the month and returns of between 3% and 4% for the year.
Long Term Remains the Only Term
As we turn the calendar from 2024 to 2025 a look back at some of the big questions market participants were asking a year ago and what we learned over the past 12 months seems appropriate. Here were a few of the things that were on people’s minds at the beginning of last year:
Q: Will the Fed cut rates?
A: Yes, the Fed cut rates three times, in September, November, and December, by a total of 1.00%
Q: How will the elections impact the markets?
A: Following Donald Trump’s re-election on November 5th market experienced an initial bout of enthusiasm before giving back some of the gains in the final weeks of 2024. The full effect of the new administration will take time to develop.
Q: Will unemployment remain historically low?
A: The US added nearly 2 million jobs in the first 11 months of 2024, but the headline unemployment rate increased from 3.7% to 4.2%.
Q: Will inflation continue to gradually drift downward, or will it re-accelerate as it did in the 1970s?
A: CPI declined from 3.3% in December 2023 to 2.7% in November.
Q: Will the Fed engineer a soft landing?
A: Thus far, that appears to be the case, but still to be fully determined.
Q: If we do have a recession, will it be of the mild variety or something more severe?
A: The economy avoided a recession in 2024.
Q: Will the ongoing wars between Russia/Ukraine and Isreal/Hamas be resolved or will hostilities escalate?
A: Both conflicts remain ongoing and unresolved.
The above is just a small sample of the worries that were on peoples’ minds coming into 2024. Today we may have more clarity on some, but other uncertainties will always be there to take their place.
The behavior of the markets over the past year is another reminder of why we encourage clients to try to avoid making major top-down calls when it comes to managing their portfolios. While we should always be aware of the environment we are in, rarely will the worries of the day be the ones that matter in the long-term.
We again share the pair of charts below as a reminder that it doesn’t matter what the market did last year or what it will do in the next 12 months. What matters is what markets will do in the long run.
The next time you begin to worry about what might happen if X, Y, or Z occurs, pull out these charts and remind yourself of the following:
- The market will likely have a period of correction at some point in the next 12 months. Over the past 45 years the average intra-year peak-to-trough decline is 14.1%.
- Despite occasional setbacks and uncertainty, the stock market has proven to be incredibly resilient over the long term.
We continue to be believers in the long-term compounding power of the equity markets despite the occasional concerns and setbacks.
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