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December 2024 Market Review & Commentary

Writer's picture: Derek SauerwineDerek Sauerwine

   We hope you enjoyed a delightful holiday season and are having a fantastic start to your New Year! Our family had a wonderful time during the holidays, and I think this might be the first season we managed to avoid any cases of the flu or COVID, which was a tremendous blessing in itself! Besides staying healthy, we took a trip to New York City to see the Tree at Rockefeller Center and gave Channing the opportunity to experience the city during the holidays, including a visit to the top of the Empire State Building.

    As we emerge from a year filled with headlines, we will discuss both the December year-end market performance and the outlook for 2025.

 

4th Quarter and December Year End Summary

    The 4th quarter of 2024 was filled with significant market events. The stock market began the quarter slowly in October, but the presidential election results sparked a widespread rally in November. However, this rally diminished by the year's end, with the S&P 500 trading just a few percentage points below its record high.

     In December, market enthusiasm waned, with the S&P 500 moving sideways and closing the month down -2.50%. Underneath, a familiar trend from earlier in the year affected returns, as smaller companies significantly underperformed larger ones. The Russell 2000 Index was most affected, dropping -8.4% and losing most of its post-election gains. Value stocks also decreased in December, with the Russell 1000 Value Index falling by -6.8%.

     Despite the year-end downturn, the past two years have been outstanding for investors, with the S&P 500 achieving strong returns for two consecutive years. The S&P 500 still concluded 2024 with a +23.31% gain, and the heavily impacted Russell 2000 Index still achieved a positive result of +10.02%.

  The credit market stayed active in Q4, with the Federal Reserve lowering rates by an additional 0.50%. However, the major change was the updated 2025 outlook. Both the Fed and the market now expect fewer rate cuts in 2025 than were predicted at the end of the 3rd Quarter, resulting in a significant rise in Treasury yields in the 4th Quarter. We will be monitoring this change in yields during the first half of 2025.


2025 Outlook:

As the new year begins, attention will be focused on the new administration to see what actions it might take immediately in January, including policies enacted through executive order and those following the traditional legislative path.

      The steady rise of the S&P 500 in 2024 indicates the market's increasing confidence. Investors are hopeful about the growth prospects of the artificial intelligence sector. The U.S. economy exceeded expectations, growing at an above-trend rate in three of the last four quarters despite high interest rates. However, the rally in the equity market has made broad indices like the S&P 500 more concentrated and costly. Many are questioning whether this momentum can persist into 2025. The market's attention might turn to fundamentals and earnings as the next driver to elevate markets. In 2025, companies will need to meet investors' expectations to justify their high valuations.

The ongoing bull market began in October 2022 and is now entering its third year. It has performed consistently with historical averages, though historical data indicates that returns typically decrease as bull markets age.


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