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A noticeable shift occurred in the markets this quarter. After a strong run over the past two years, US stocks hit a roadblock while diversification outside of US stocks has rewarded disciplined investors.
The final quarter of 2024 closed on an upbeat note, with stocks finishing the year on solid footing. The S&P 500 posted an impressive 25% gain for the year, marking its second consecutive year of 20%-plus returns. Notably, this represents the fourth time in six years that the index has delivered returns of 20% or better.
Investors have a reason to smile as stocks, bonds, and cash all posted positive returns this quarter. Tamer inflation gave the Federal Reserve (Fed) room to reduce rates for the first time since March 2020, with a 0.5% cut marking a shift toward a more balanced policy. For the year, the S&P 500 is up 22.1%, which is the best start to a year since 1997 and the best presidential election year since 1928 (Herber Hoover versus Al Smith for the history buffs).
The Federal Reserve’s recent decision to cut interest rates is making waves across the U.S. economy, signaling the start of
Stocks finished the first half of the year on a high note, marking its best start to an election year in the last century. Returns were driven primarily by the largest companies in the US, thanks to a surge in spending on Artificial Intelligence (AI). Smaller US companies and the global market experienced slight pullbacks. The quarter was relatively calm, with only one day when the market moved more than 1.5%, which is unusual. The Federal Reserve kept short-term interest rates steady. Inflation continued to cool but it remained above the 2.0% target. Bond markets were also stable, with rates ending the quarter about where they began.
The year started on a strong note for stocks with the S&P 500 posting its best first quarter since 2019. The index is sitting at new all-time highs, being driven by resilient corporate profits, optimism that the economy has avoided a recession, and a continued boom in Artificial Intelligence (AI) spending. International and US small-cap stocks rallied along with their larger peers.
At the start of the year, Wall Street strategists were predicting 2023 would see a recession and we would experience a tough year for stocks and bonds. We are glad that the experts missed the mark! The year’s final quarter saw a strong rally across all asset classes, capping an excellent year for the markets.
Rising interest rates weighed on stocks and bonds this quarter. The Federal Reserve increased short-term interest rates by 0.25% at their July meeting and left rates unchanged in their September meeting. The September meeting went as expected, the Fed signaled its commitment to keeping short-term interest rates higher for longer.
Stocks winning streak continued, marking the third straight quarter of positive performance. The Federal Reserve (Fed) had two meetings in May and June. They increased rates by 0.25% in their first meeting, but elected not to raise rates in their second meeting.
