A Year of Ups and Downs: 2024 Market Review
The S&P 500 ended 2024 on a high note, advancing 2.4% in the fourth quarter, despite a bumpy ride. November was the standout month, with a 5.7% gain, while October and December saw declines of 1.0% and 2.5%, respectively.
Economic Indicators: A Mixed Bag
The jobs market showed surprising strength, with 212,000 new jobs added in November and 256,000 in December. However, industrial production decreased 0.1% in November, and capacity utilization fell to 76.8%, its lowest level since 2021. The ISM manufacturing PMI remained in contraction territory, while the services PMI indicated expansion.
Interest Rates and Inflation
The Fed’s efforts to combat inflation were put to the test in the fourth quarter. Despite cutting interest rates by 50 basis points in September, followed by quarter-point cuts in November and December, long-maturity interest rates rose into year-end. The 10-year Treasury yield reached 4.57% in December, up from 4.18% in November. The core PCE price index, the Fed’s preferred inflation gauge, remained above the 2% target range, rising 2.8% year over year in November.
Sector Rotation and Market Performance
The fourth quarter saw an intensification of the sector rotation away from traditional growth areas and toward cyclical, rate-sensitive, and defensive sectors. However, December featured a counter-rotation, with newly favored sectors taking a hit during the holiday month selling. Despite this, the market advanced broadly for the full year, positioning stocks well for 2025.
Earnings and GDP
S&P 500 earnings for the third quarter rose in low-double-digit percentages year over year, marking a fifth consecutive quarter of annual EPS growth. Around 75% of companies exceeded consensus expectations for 3Q24 EPS. Third-quarter GDP grew 3.1%, driven by personal consumption expenditures and nonresidential fixed investment.
Consumer Sentiment and Retail Sales
The consumer seems to be adapting to higher prices, with retail sales rising 0.7% in November and 3.8% year over year. The University of Michigan Consumer Sentiment Index reached 74.0 in December, up from 71.8 in November.
A New Era for the Market
As we enter 2025, the market is poised for growth, despite the challenges faced in 2024. With the sector rotation and economic indicators pointing to a shift toward cyclical and defensive sectors, investors are well-positioned to take advantage of the opportunities ahead.
Leave a Reply