MARKET COMMENTARY: Q4 2024
A Strong Finish to 2024
After periods of volatility and uncertainty, 2024 was a remarkably positive year for stock investors.
Despite persistent geopolitical tensions, elevated inflationary pressures, and a divisive U.S. election, markets delivered a second consecutive year of double-digit returns. Inflation, while remaining above the Federal Reserve’s 2% target, slowed sufficiently to enable three rate cuts during the year. Concurrently, fears of significant domestic economic disruption from foreign conflicts proved overstated, and the U.S. election produced a decisive and, contrary to expectations, uncontested result—an outcome that brought much-needed clarity to investors.
Markets responded optimistically, emphasizing the Federal Reserve’s rate cuts and the transformative potential of artificial intelligence infrastructure rollouts. The so-called “Magnificent Seven” – Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla – contributed over 53% of the S&P 500’s total return. The S&P 500, which is weighted by market capitalization, closed the year up 25%, while an equal-weighted version of the index, which provides a more balanced view across all constituents, gained 13%. 1
Even with the dominance of large-cap technology stocks, the broader market benefited from hopes of continued rate cuts, a deregulatory agenda under the incoming administration, and spillover effects from increased AI-driven investment. Other sectors saw substantial gains, with financials rising by 28%, utilities up by 20%, and industrials growing by 16%.2 This broadening of market participation signaled resilience across various segments of the economy, even as technology retained its leading role.
What’s Driving Markets
The prospect of Donald Trump’s return to the presidency in 2025 is shaping market expectations. While optimism surrounds his pro-business stance, including potential corporate tax incentives and regulatory reforms, concerns remain regarding his unpredictable approach to trade and global relations.
The coming months will be pivotal, with early policy signals—particularly on tariffs—likely to influence both market sentiment and Federal Reserve actions. A Federal Reserve meeting shortly after the inauguration will provide additional insights into how fiscal and monetary policies align under the new administration. U.S. GDP growth for Q4 2024 is projected at a robust 3.1%, reflecting underlying economic strength.
Globally, the outlook suggests modest expansion, led by the United States. Lower interest rates and pro-growth policies underpin this optimism. Inflation remains contained within a manageable range, though the risk of escalating trade tensions warrants caution. Commodities markets are mixed, with oil prices under pressure from oversupply and softening demand.
Equities are expected to see a broadening rally in 2025, with mid- and small-cap stocks offering compelling opportunities. Meanwhile, bonds continue to present attractive yields, reinforcing their role as a cornerstone of income strategies. 3
Final Thoughts – The Case for Diversification
The past two years have underscored the dominance of U.S. equities, with 2024 marking one of the strongest back-to-back performances since the late 1990s.4 This outperformance has fueled the narrative of “U.S. exceptionalism”—the belief that the U.S. market’s structural advantages ensure its continued leadership. While elements of this narrative hold merit, it is essential to recognize that exceptional returns are often cyclical rather than perpetual.
High concentrations in a handful of tech giants have driven much of the recent market performance. These companies' valuations now reflect lofty expectations for sustained growth. While their innovation and scale are remarkable, the risk of under performance grows as maintaining such growth rates becomes increasingly challenging. A potential shift in leadership, as seen during the post-tech bubble era, could favor other asset classes or regions.
Broad diversification remains a prudent strategy. While U.S. equities command a dominant share of global markets 5, opportunities exist in underappreciated sectors and international markets. Periods of concentrated leadership often give way to broader participation, presenting opportunities for investors willing to look beyond recent trends.
As we navigate 2025, balancing optimism with vigilance will be key. Markets are dynamic, and adaptability remains an investor's most valuable asset.
Index Disclosure and Definitions
Investors cannot invest directly in an index. Indexes have no fees. Historical performance results for investment indexes do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the occurrence of which would have the effect of decreasing historical performance results. Actual performance for client accounts will differ from index performance.
S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization.
Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ.
Nasdaq Composite Index (NASDAQ) measures all Nasdaq domestic and international-based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies.
MSCI World Ex USA GR USD Index captures large and mid-cap representation across 22 of 23 developed market countries, excluding the U.S. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by MSCI). The index consists of the 25 emerging market country indexes.
Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment-grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed income securities in the United States, including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than one year.
The Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment-grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. The index is USD-hedged.
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Diversification seeks to improve performance by spreading investment dollars into various asset classes to add balance to a portfolio. However, this methodology does not guarantee a profit or protection from loss in a declining market. Past performance does not guarantee future results.
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¹ Morningstar Direct as of October 31, 2024
² Langley, K., “Stocks Cap Best Two Years in a Quarter-Century,” The Wall Street Journal, December 31, 2024, https://www.wsj.com/finance/stocks/stocks-on-pace-for-best-two-years-in-a-quarter-century-c5b5f9b3
³Ashworth, M. and Gilbert, M., “Politics, Economics and Markets Create a 2025 Three-Body Problem,” Bloomberg, January 2, 2025, https://www.bloomberg.com/opinion/articles/2025-01-02/politics-economics-and-markets-create-a-2025-three-body-problem
⁴Rotblut, C. “Stock Market History after Back-To-Back 20% Gains.” AAII: Stock Market History after Back-To-Back 20% Gains, 2025, www.aaii.com/investor-update/article/248160-stock-market-history-after-back-to-back-20-gains
5 Lu, M. “The World’s Biggest Stock Markets, by Country,” Visual Capitalist, March 14, 2024,.https://www.visualcapitalist.com/the-worlds-biggest-stock-markets-by-country
