A Year of Ups and Downs: Reflecting on 2024’s Market Performance
As we close out 2024, it’s clear that the year was a mixed bag for investors. While the overall market trend was positive, there were periods of uncertainty and volatility that kept investors on their toes.
The Big Picture: A Positive Year for Stocks
Despite some weakness in December, the major U.S. stock indices finished the year on a high note. The S&P 500 was up 25.2% on a capital-appreciation basis and 26.9% on a total-return basis, while the Nasdaq Composite rose 31.4% on a capital-appreciation basis and 32.2% on a total-return basis. The DJIA, while lagging behind its peers, still managed a respectable 16.2% gain on a capital-appreciation basis and 14.1% on a total-return basis.
Sector Performance: A Tale of Two Halves
The sector map for 2024 tells an interesting story. While the first half of the year saw a few standout performers, the second half saw a more even distribution of gains across sectors. Communication Services and Information Technology led the pack, with gains of over 40%. Consumer Discretionary, which struggled mid-year, made a stunning recovery to finish up 34%. The Financial sector also had a strong year, rising 32%, while Utilities rounded out the top five with a 24% gain.
The Economy: A Resilient Consumer Drives Growth
The U.S. economy grew at a steady pace in 2024, with GDP increasing 2.9% in 2023 and 2.5% in 2024. The Atlanta Fed’s GDPNow Tracker suggests that the economy is on track for 3.1% growth in the fourth quarter, which would put overall growth for the year in the high-2% range. A key driver of this growth has been the resilient consumer, with November nonfarm payrolls increasing by 227,000 and unemployment holding steady at 4.2%.
Earnings Outlook: A Brighter Future Ahead
As we look to 2025, our earnings forecast is increasingly optimistic. We’ve raised our forecast for S&P 500 earnings from continuing operations to $276, which models full-year EPS growth of about 12%. We expect better performance from sectors like Energy, Materials, and Industrials, which struggled in 2024. The AI transformation is also expected to continue driving growth in Communication Services, Information Technology, and Consumer Discretionary.
Inflation and Interest Rates: A Delicate Balance
While inflation measures are trending towards the Federal Reserve’s stated goal of 2%, momentum has slowed in recent months. The Fed has taken note of this slowdown, and interest rates have eased accordingly. However, long-term rates have risen in recent months, due in part to the reelection of Donald Trump and the uncertainty surrounding his promised policies.
Looking Ahead to 2025
As we enter a new year, there are many factors to consider. While the economy is growing and earnings are expected to rise, there are still challenges on the horizon. The industrial and commercial economy is still being impacted by high financing costs, and the housing sector, while showing signs of life, remains vulnerable to interest rate fluctuations. Nevertheless, we remain optimistic about the prospects for 2025, and believe that the market will continue to trend upwards in the coming year.
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