The US stock market posted its 2nd straight annual 20%+ gain in 2024, despite a weak December in which the S&P 500 index declined in each of the year’s last four trading sessions. At one point in December, the Dow Jones Industrial Average (DJIA) suffered a streak of ten consecutive down days. The market’s loss of momentum coming off a very strong November also reversed the abrupt shift of market leadership which had occurred in Q3 after the Fed had enacted its initial cut in the federal funds rate.
The market’s continued ascent in Q4 was once again led by the ‘Magnificent 7’, which had taken a brief turn in the back seat during Q3 before reasserting its long-standing leadership. For perspective, fully half of the S&P 500 index’s 2024 advance was accounted for by those seven companies. After a year in which the S&P 500 index did not suffer a single 10% correction, stock valuations remain stretched versus historical levels, leaving the market vulnerable to a pullback.
The equity market’s schizophrenic behavior over the 2nd half of 2024 can be chalked up to a single factor – the bond market. The euphoric bubble of Q3, during which the market priced in a total of seven Fed rate cuts over the 15-months through 2025, burst in Q4 amid suddenly cautious messaging from the Fed regarding future interest rate cuts. In little more than three months, the bond market was pricing in just a single rate cut in 2025. The bond market selloff sent yields sharply higher, which in turn has translated into 30-year mortgage rates retracing to their highest levels since August. The primary culprit behind the bond market’s recent struggles is resurgent inflation readings, which have recaptured the Fed’s focus as employment data has remained sufficiently stable in its view.
Q4 performance was driven by the NASDAQ Composite index (up 6.17% versus the S&P 500’s 2.07% gain), while small company stocks were flat and international stocks fell dramatically from the impact of a strengthening US dollar brought about by the bond market’s rapid retreat. Full year 2024 performance for the major market indices follows: S&P 500 +23.31%; NASDAQ Composite +28.64%; DJIA +12.88%; Russell 2000 +10.02%; MSCI EAFE +3.49%; MSCI Emerging Markets +6.49%; Bloomberg Aggregate US Bond index +1.31%.
If one is to believe government economic reporting, the economy remains “resilient”, with no imminent threat of recession on the horizon. Be reminded, however, that both the Fed and the stock market have a long history of being taken by surprise, whereas the bond market has been much better at sniffing out trouble lurking around the corner. Bear in mind also that Wall Street forecasters NEVER predict a down year for the markets. This Main Street forecaster has learned to refrain from forecasting, but won’t be surprised if 2025 isn’t nearly as kind to investors as the last two years have been.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Market data provided by JPMorgan Asset Management and MarketWatch.com.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.
LPL Tracking #680030