Fourth Quarter 2024 Review and Outlook
Written by Tim Rigby
The market fluctuated significantly last quarter: there was a strong rally following the election, followed by a sharp decline in December According to The Wall Street Journal, the popular stock indexes posted returns as follows:
Quarter YearThe Dow Jones Average 0.50% 12.90%
The S&P 500 2.07% 23.30%
The NASDAQ Composite 6.17% 28.60%
It was the second year in a row that the S & P 500 returned 20% or more because of the weightings in technology stocks. These stocks have done very well but are very highly priced in some cases. The rest of the stock market started to rally to catch up but it has done so only in fits and starts so far. Many of the non-tech companies are very modestly priced so when a company does have better earnings or other favorable news, their stocks have moved up sharply in price. This process takes a while but eventually most companies will participate in market upside.
With the election over, there will be quite a bit for the market to digest. President-elect Trump has different thoughts than many in Washington so the next four years will be interesting if nothing else. How will tariffs affect our markets if enacted? What about tax policy? The border? These are but a few of the issues he has promised to address, and they are not without controversy and could cause short-term market volatility.
Congress could be more important to the markets than who is President as they control spending and tax policy. Will they pass more reasonable spending bills to rein in the deficit? There will be a big fight over tax policy as the tax cuts President Trump passed in his first term will expire this year unless Congress renews them for better or worse. What will the “Department of Government Efficiency” (DOGE) find that could streamline government bureaucracy and save money?
The Federal Reserve indicated they want to continue lowering short-term interest rates, but deficit hawks may pressure the Fed to pause on the cuts. When the Fed lowered short-term rates a few months ago, long-term rates rose which was counterproductive and may prevent them from moving again in the near term. Chairman Powell feels inflation is under control trending toward their target of 2%, but that could be wishful thinking so rate cuts could continue to be a hot topic.
Some good news at this stage is the bond market now has a more normal yield curve than it has in ten years! This means the longer the maturity you invest in, the higher the return you get. This is healthy for the economy if things simply stabilize here for the next year or two. One potential concern if Congress spends excessively and the Federal deficit stays elevated – the bond market could go on strike and force longer term rates up sharply. Way different scenario than the last 10 years and it probably would hurt economic growth and cause serious problems in both the bond and stock markets. So watching what Congress does with spending is of paramount importance.
At this stage, most strategists are forecasting strong growth in 2025 with inflation under control. There will probably be a sharp correction or two along the way, but strong economic growth usually means a strong stock market. Cash should be put to work on these dips, and our highly diversified portfolios should enjoy continued gains.
Have a healthy and prosperous 2025! Please call with any questions.
Tim Rigby