Presented by The PensionmarkMeridien Team, January 10, 2024
2024 was quite eventful in the U.S. financial markets, with many long-term investors enjoying significant gains.
So, what should investors look for in 2025? Will earnings growth persist? Additionally, what are the longer-term implications of interest rates — will the recent upward trend in rates continue?
There is much to discuss, so let’s take a few minutes to reflect on how we reached this point over the past year and what we can potentially anticipate in 2025.
2024 U.S. EQUITIES PICTURE
It has been a predominantly smooth year overall, with some short-lived periods of volatility along the way courtesy of the Japanese Yen and some concerns about economic growth here at home over the summer. More recently, we saw a quick surge in volatility in December on a less rate-cut-friendly sounding Fed for 2025.
But when we fast forward to the end of the year and put the whole picture together, 2024 was another good year for equities. The S&P 500 had a 2024 yearly return of 23.31%1, the Nasdaq 100 rose by an astounding 24.88%2, and the Dow Jones Industrial Average was higher by 12.88%3.
U.S. equities have been good to long-term investors for a second consecutive year. Artificial intelligence (AI) continues to fuel markets as optimism surrounding the technology is vibrant.
2024: MAGNIFICENT 7 RALLY, FURTHER BROADENING IN 2025?
No surprises here — Magnificent 7 stocks led the way in 2024, with all seven of them posting impressive share price gains for the year.
NVIDIA, being the leader, posted outstanding gains in 2024, as we have seen investors pile in heavily over the last couple of years.
In 2024, the Magnificent 7 accounted for 57% of gains in the S&P 500 versus 65% in 2023. 2024 gains were still highly concentrated by virtually any metric, but broadening did occur slightly.
Will 2025 finally be the year of a real broadening? That could be one way to keep the market bulls roaring, albeit more moderately, while valuations are on the higher end of the historical spectrum. Would such a broadening send previous high fliers back to earth?
Nobody can know for sure. This is why it is crucial to maintain a well-diversified portfolio.
LONG-TERM EFFECTS
It has been a wonderful two-year stretch in major U.S. stock indexes. In fact, the S&P 500 just delivered the best two-year stretch since 1998 to long-term investors. The key is staying invested!
Through all the headlines, the interest rate cycling, elections, etc., long-term stock investors came out on top again!
As 2025 begins in earnest, let’s remain even-keeled and make prudent decisions, avoiding over concentration in the hot stuff. Yes, I must preach discipline (again)!
HISTORICAL NOTE
It’s important to note that, throughout its history, the S&P 500 has achieved positive annual gains around 70% of the time4.
While there are certainly bumps in the road that lead to harsh news headlines and emotional reactions, history shows that staying calm and disciplined tends to favor investors. Of course, past performance is not indicative of future results.
CONSUMER INFLATION
Government data5 shows that consumer inflation, as measured by the Consumer Price Index (CPI), had an overall decline in 2024 (hence the recent rate cuts). However, recent readings remain sticky, and the “last mile” to get the Fed’s 2% annual target is taking some time.
Shelter pricing has remained stubborn overall, although recently, shelter prices have shown some preliminary signs of accelerating at a slower pace. Gasoline prices have fallen steadily in recent months, with expectations for expedited production permitting from the president-elect as a partial catalyst.
Energy prices can be volatile (along with food) and impact consumer pricing readings, so many analysts look to Core CPI for data that is “smoother.” Core CPI is running higher by 3.3%6 compared to one year ago, according to November data released in December.
In short, inflation decelerated throughout 2024 overall but reached a stubborn zone towards the end of the year, showing difficulty in pushing through to the Fed’s target of 2%.
LABOR MARKET
The U.S. labor market showed moderate hiring overall in 2024. A good way to describe it is resilient and strong, yet cooling. Monthly unemployment data showed a 4.2%7 rate in the last monthly release of 2024.
The labor force participation rate is below pre-pandemic levels, and this is indicative of the labor shortage here in America. Looking ahead, economists offer varying perspectives on 2025’s labor market, with many calling for continued resilience and a soft landing in view.
U.S. CONSUMER
U.S. consumer resilience continues to impress!
COMMODITY PRICES:
Broadly measuring commodity prices using the S&P Goldman Sachs Commodity Index (GCSI), we see that the index was slightly higher in 2024. There are outliers, of course, like the recent spike in coffee prices, and what the heck are eggs up to here? Pricey breakfasts are here once again!
CONSUMER CONFIDENCE:
Consumer confidence had popped higher heading into the presidential election, but December data indicated a major change in tune.
“The recent rebound in consumer confidence was not sustained in December as the Index dropped back to the middle of the range that has prevailed over the past two years,” said8 Dana M. Peterson, Chief Economist at The Conference Board.
The final reading in 2024 showed consumer confidence missing expectations by a notable margin. Will this trend continue well into 2025 with the current macroeconomic backdrop?
MODERN & CLASSIC SAFE HAVENS
GOLD:
Spot gold prices had the best year in over a decade, rising by around 26% in 2024, even as interest rates remained “elevated” throughout the year. Rate cuts certainly played a part, along with safe-haven demand.
Spot gold prices breached previous all-time highs9 made in 2023 near $2150 per troy ounce early in 2024 and have spent the majority of 2024 moving higher in anticipation of lower interest rates to come while geopolitical tensions persist.
Precious metals could face an interesting 2025, with presently unknown interest rate direction and inflation uncertainty in the future on the minds of many.
MEGACAP CRYPTO:
Is crypto a safe haven? Well, it could be at times, and at other times, it is just super volatile. So, let’s call it a super-volatile-sometimes-safe-haven.
Bitcoin is the largest cryptocurrency by market cap. (It changes quickly, but it was nearly $1.97 trillion at the time of writing.) And it had a big 2024, more than doubling its value from the beginning of the year.
Investors got their Bitcoin ETFs back in January 2024 with the SEC’s historic approval, and bulls cheered the prospects of the new ETFs, as investment capital found its way into Bitcoin in a big way in 2024.
Cryptocurrency bulls found their footing on the presidential election along with stocks, with a large rally ensuing. Will the bullishness continue this year? Nobody can know with certainty, but we can be somewhat sure that volatility will continue to be present in the cryptocurrency space.
FED TONE SHIFT / OUTLOOK
Major U.S. equity indexes rose impressively throughout the majority of the year as expected rate cuts became a reality. But at the December meeting, there was a big change in tune10 from the Fed regarding 2025 rate cut prospects.
The Fed had broadcast four cuts to come in 2025 at the September meeting, and the current message is that there will only be two.
So now, markets will want to see some encouraging news on the inflation front (and potentially the jobs front) to get excited about Fed rate cuts again. In the meantime, perhaps the concentrated rally of 2024 will find its way to broadening somewhat.
Let’s not forget that market expectations at the beginning of 2024 had a total of six to seven quarter-point rate cuts priced into markets. At that time, the Fed had broadcasted a message of only three quarter-point cuts to come in 2024.
Well, in the end, we got what the Fed said as far as the number of cuts, although one of them was a supersized rate cut of the 50 basis points variety.
Could the Fed deliver something similar in 2025? Some financial food for thought!
THE TAKEAWAY
2024 was another banner year for U.S. equities, with long-term investors being rewarded heavily for the second consecutive year. Investors with discipline and strategy came out on top by year-end.
As we move into 2025, the future inflation picture is up for interpretation, as sticky pockets exist. This uncertainty resulted in the Fed broadcasting a message of fewer rate cuts to come at the December meeting, disappointing equity bulls. However, after the meeting, sentiment did improve.
The labor market cooling somewhat yet remaining resilient is constructive as the new year begins. And as usual, new narratives will develop as economic data begins to drop in the new year.
I hope that you found this review and outlook informative!
While nobody has a crystal ball and the unexpected and unpredictable can happen at any time, there is value in understanding the expectations of broad market participants.
As always, if there is anything on your mind regarding stocks, interest rates, energy, or anything else, please feel free to reach out to us. We can connect to discuss.
The PensionmarkMeridien Team may be reached at 866-871-9963 or
meridienteam@pensionmark.com
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This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and they should not be considered a solicitation for the purchase or sale of any security.
Citations:
1. Trading View, January 1, 2025
2. Trading View, January 1, 2025
3. Trading View, January 1, 2025
4. Forbes, January 14, 2021
5. U.S. Bureau of Labor Statistics, 2024
6. CNBC, December 11, 2024
7. CNBC, December 6, 2024
8. Advisor Perspectives, December 24, 2024,
9. Trading View, December 31, 2024
10. CBS News, December 18, 2024
Advisory services offered by Pensionmark Financial Group, LLC. Securities offered by Pensionmark Securities, LLC, member FINRA/SIPC. Pensionmark Financial Group, LLC is affiliated through common ownership with Pensionmark Securities, LLC.