4th Quarter 2024 Market and Economic Review
- Hoss Harasi
- Jan 13
- 3 min read
Key Economic and Market Updates
The final quarter of 2024 presented a series of significant market events. While October saw a slow start, the outcome of the presidential election in November sparked a broad market rally. As the year ended, gains faded slightly but the S&P 500 remained just a few percentage points shy of its all-time high.
In the credit market, activity was equally dynamic. The Federal Reserve cut rates by 0.50%, though expectations for further rate cuts in 2025 diminished, resulting in a notable rise in Treasury yields during the quarter. Below is a summary of key developments and a forward look at what’s ahead in 2025.
2024 Stock Market Rally Recap
Investors experienced a remarkable two-year period, with the S&P 500 achieving over 20% gains in consecutive years—a feat not seen since the 1995-1998 stretch. Technology giants played a leading role, propelling the market to over 55 new all-time highs in 2024.
Market Segmentation Performance: The top-performing group, known as the "Magnificent 7" (Microsoft, Apple, Alphabet, Meta, Amazon, Nvidia, and Tesla), achieved a return of more than 60%.
Broader Index Performance: Expanding to the 50 largest companies reduced returns to 32%, while including all S&P 500 firms resulted in a +23% return. Equal-weight company performance dropped to +11%.
Small and Mid-Cap Stocks: These segments delivered +10% to +12% returns, underperforming the large-cap sector.
Despite rate hikes since March 2022, the U.S. economy continues to exceed expectations, maintaining above-trend GDP growth rates.
Consumer Spending: Personal consumption expenditures have remained a steady growth driver, supported by rising household net worth, robust wage growth, and low-interest rate lock-ins from the pandemic period.
Manufacturing Surge: Government incentives for domestic manufacturing have fueled construction growth in sectors such as semiconductors, electric vehicles, batteries, and solar panels.
Pro-Growth Policies: The new administration’s agenda for tax cuts and regulatory reduction is anticipated to bolster manufacturing, capital expenditures, and foreign investment.
Federal Reserve Interest Rate Strategy
The Fed continued its rate-cutting cycle with two reductions totaling 0.50% in Q4. Despite these cuts, the central bank signaled a cautious approach toward additional reductions, citing the economy's unexpected strength.
Bond Market Reaction: Longer-term Treasury yields surged as market forecasts adjusted to fewer anticipated cuts. Since the Fed’s initial rate reduction in September, yields rose by nearly 1.00%.
Inflation Trends: While inflation dipped to 2.6% in August 2024, it has since stabilized, prompting ongoing scrutiny from the Fed.
The U.S. stock market concluded the year higher, albeit with notable volatility along the way.
Post-Election Rally: November saw investor enthusiasm drive a market upswing, particularly in small-cap stocks and the financial sector.
December Pullback: Smaller companies faced a downturn as the broader market traded sideways, impacted by rising Treasury yields.
Global Market Underperformance: International stocks faced headwinds from currency fluctuations and U.S. mega-cap dominance.
2025 Market Outlook
As we enter 2025, several themes are set to influence the financial landscape:
Market Valuations: The S&P 500’s valuation stands near 22 times forward earnings, comparable to levels seen during previous market booms.
Corporate Earnings: Investor focus is expected to shift toward earnings growth as a key market driver.
Bull Market Maturity: Historically, returns moderate as bull markets age, suggesting a potential shift toward fundamentals in 2025.
Market Data Snapshot (As of December 31, 2024)
Disclosures:
Past performance is not indicative of future results. This information does not represent investment advice and should not be used as a primary basis for investment decisions. Data is sourced from leading market indices and economic reports as of December 31, 2024.
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Prepared by Financial Plan Providers | Hoss Harasi, Financial Professional.
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