Full Bull
Much like the year before – heading into 2024, many strategists doubted the market’s ability to keep moving higher after a strong 2023. Inflation was still high, the market was very top-heavy with most gains coming from the Magnificent Seven contingent of big tech stocks and the Federal Reserve had not yet indicated it would cut interest rates. Estimates for the broader benchmark S&P 500 ranged from 4,200 to 5,400. Those turned out to be wrong, and the S&P 500 ended the year at 5,881 after topping 6,000 numerous times and making 57 all-time highs during the year. As we look back on 2024, a year marked by significant global events and market fluctuations, we see resilience and adaptability at the forefront. From historic elections and geopolitical tensions to groundbreaking advancements in technology, this year has underscored the dynamic and ever-evolving nature of our world and the global economy.
In many ways, 2024 played like a dubbed recording of 2023. The U.S. economy remained resilient, outgrowing other major developed countries, and mega-cap tech stocks led the S&P 500 to dominate global markets yet again. The ‘Magnificent Seven’ stocks rose 48% while the other 493 stocks in the S&P 500 rose just 10%. The S&P 500’s 23.3% return, marked a second consecutive year of +20% returns – a feat that has only occurred seven times in the last 70 years.
US Economic data showed strong GDP growth (+2.7% YoY), low unemployment (4.1%), increased consumer spending (+3.7%), and falling inflation (+2.7% YoY) removed any recession fears lingering from the 2022-2023 rate hiking cycle (+525bps). Corporate profits accompanied the rising economic tide with S&P 500 earnings growing 9.5% in 2024. Accordingly, Ten of 11 large-cap sectors finished higher in 2024 including four gaining more than 30%. The top performers were Communications (+38.9%), Technology (35.7%), Financials (+28.4%), and Consumer Discretionary (+29.1%). At the other end of the performance spectrum were Materials (-1.8%), Healthcare (+0.9%), and Real Estate (1.7%).
It was a roller coaster year for rates and timing the start of the rate cut cycle. At the start of 2024, markets were pricing seven 25bp rate cuts by year end. Over the next four months into early May, the hawkish repricing of rates led to markets pricing just one 25 bp rate cut by year end. As the summer came, softening economic data swung the pendulum back towards a dovish repricing of rates and while inflation had yet to reach the Federal Reserve’s 2% threshold, its declining trend provided the FOMC enough cover to pivot from its restrictive policy with three rate cuts totalling 100bps over the final three meetings in 2024.
At the November FOMC, Chair Powell said the presidential election will have no effect on monetary policy decisions and accordingly the uptrend in rates stalled over the next four weeks. Animal spirits were in high gear all month following the resounding sweep of republicans in the elections. Market breadth was strong with all eleven large and small-cap sectors finishing higher, and both the S&P 500 (+5.9%) and the Russell 2000 (+11%) had their best monthly performance in 2024.
The Federal Reserve’s reaction function changed in a hawkish direction at the December FOMC, where Chair Powell emphasized a greater balance between inflation and labour relative to the prior meetings concern for softening economic data (i.e. labour). Powell also noted some members were starting to incorporate economic effects of the incoming Trump administration (i.e. inflation). While the Fed’s projections included marginal changes for 2025 GDP and Unemployment, its outlook on inflation and the Fed Funds Rate was more pronounced implying just two 25bp rate cuts in 2025 from the prior projection of four. Equities responded accordingly by reversing sharply lower in December, where eight of eleven large-cap sectors finished in the red. Once again, one of the few pockets of strength came from the Magnificent Seven Index which gained in December.
