The Quarter in Review | 4Q 2024
A LACKLUSTER QUARTER ENDS STRONG 2024
U.S. stocks were up 2.6% for the fourth quarter, as measured by the Russell 3000 Index, capping off a strong year for the U.S. market. Tesla’s 54.4% return in the fourth quarter made it the largest contributor to the Russell 3000 Index, surpassing Nvidia’s contribution after the stock faltered a bit in December. In the U.S., value stocks largely underperformed their growth counterparts, particularly large cap growth stocks which delivered strong returns over the quarter.
International developed and emerging markets declined with the MSCI World ex USA IMI Index (net div.) down -7.5% and the MSCI Emerging Markets IMI Index (net div.) down -7.9%. While most countries globally posted negative returns, the U.S. was among a handful of others, including Taiwan and Singapore, that had positive returns for the quarter. Led by Taiwan Semiconductor, which delivered an 8.8% return, information technology stocks in emerging markets eked out a positive return for the quarter. Despite challenging returns, there were some bright spots as international developed markets saw positive value premiums outside the U.S. and emerging markets saw positive profitability premiums.
FIXED INCOME
U.S. Treasury yields climbed steadily throughout the fourth quarter of 2024, putting pressure on bond prices. This environment led to declines in both U.S. and international bond markets, as the Bloomberg Global Aggregate Bond Index fell 0.9% while its U.S. counterpart, the U.S. Aggregate Bond Index, declined 3.1%.
Monetary policy remained a key driver of market dynamics in the fourth quarter, with the Federal Reserve implementing two 0.25% rate cuts totaling 0.5%, matching the 0.5% cut in the third quarter.
ELECTIONS & TARIFFS
The U.S. elections concluded with Republicans winning the presidency as well as control of the Senate and House of Representatives. Election outcomes aside, history shows stocks have trended higher regardless of which party is in power in Washington. And while uncertainty about what comes next remains, investors wondering about the post-election world can remember that markets have moved forward even in difficult times like 2020.
One of the focal points following the presidential election is the potential for an increase in tariffs applied to goods produced outside the U.S. Many investors have wondered what this could mean for markets. How long and steadfast these tariffs remain in place is anyone’s guess as they appear to be as much about positioning and negotiating versus true long-term enactment. The tariffs imposed on Canada and Mexico were quickly paused less than 24 hours after going into effect.
INFLATION, INTEREST RATES and THE FED
2024 marked an interesting year in U.S. monetary policy. The Federal Reserve appears to be on track to successfully manage a “soft landing” – bringing down inflation without triggering a recession, time will tell if this holds true. After a few years of aggressive rate hikes to combat inflation the Federal Reserve felt comfortable to begin cutting rates in the third quarter. This reflected growing confidence that inflation had been tamed with the Consumer Price Index (CPI) falling below 2.5% in the late summer timeframe. However, the CPI has crept back up toward 3% as of this week prompting the Fed to hit pause on further rate cuts.
INTERNATIONAL MARKETS
Most investors tend to be very U.S. centric and primarily focus on the S&P 500 or the Russell 3000. Yet these indices only represent about half of the global stock market. Yes, U.S. stocks have handily outperformed international markets for a number of years. However, historical data shows that market leadership has alternated between U.S. and International stocks over different decades. A diversified global approach has historically helped moderate portfolio volatility. Rather than trying to predict which market will outperform, taking a disciplined and globally diversified approach.
LOOKING FORWARD
The start of 2024 was marked by cautious outlooks from market experts citing multiple potential headwinds, lingering inflation concerns, uncertainty around interest rate policies, the upcoming presidential election and global wars in the Middle East and Europe. Yet, the S&P 500 Index repeatedly hit new record highs. If anything, 2024’s market performance reminded us yet again that attempting to predict short-term market movements or make investment decisions based on future predictions often proves futile.
As investors look ahead, and as new leaders get to work in many countries around the world, it’s natural to wonder what impact their policies on taxes, spending, and trade might have on markets. And those are just some questions about 2025 that we know about.
That’s why investors may be best served planning for what could happen rather than trying to predict what will—by having a diversified portfolio that aligns with one’s risk tolerance, and sticking with it. After all, the market is a reflection of the efforts of companies to solve problems and provide goods and services. In the long run, innovation has succeeded even amid a changing world.
SUMMARY
Remember, we’re here to help. This also is where the time invested upfront with each of you shows its value.
Formulating a solid and adaptable financial plan together and discussing liquidity, cash flows, and reserves provides the solid footing needed for times like these with many changing facets.
We appreciate the opportunity to work with each of you. We recognize that each client’s situation is unique and incorporates different factors into their investment and financial plan.
As always, if you have any questions or concerns about current market trends and the impact on your personal situation and plan, please contact us and we would be happy to discuss with you.
Please follow this link to read the complete Quarterly Market Review (QMR) - 4Q 2024.