Summary Transcript:
The fourth quarter of 2024 proved volatile, reflecting a shifting geo-political landscape, rising global conflict, and direction changes by central bankers.
October 2024 experienced a strong start for equities and bonds. Still, it was met with downturns by the month’s end due to uncertainties around the presidential election and potential Federal Reserve interest rate changes. Tech stocks were particularly impacted, leading to a 2.8% decline for the Nasdaq Composite Index (NASDAQ). However, the Financials sector made strides, increasing by 2.7% due to strong earnings and a steeping yield curve.1
In contrast, November 2024 marked a significant positive turn for U.S. stocks, as a quick resolution of the contentious election season helped deliver the highest monthly gain of the year, with the S&P 500 recording a roughly 6% increase. Consumer Discretionary and Financials sectors led the pack with 13% and 10% growth, respectively. Additionally, mid- and small-cap stocks experienced remarkable growth, and the Russell 2000 index attained a new all-time high.2
December marked a pullback across global equities and fixed income, as the successive collapse of the French and German governments, the near collapse of the Canadian government, and a currency crisis in Brazil weighed heavily on international markets.
While the Fed announced another 25bps cut to the federal funds rate in December, marking the third consecutive reduction and bringing borrowing costs to the 4.25% to 4.5% range, Federal Reserve Chairman Jerome Powell’s remarks afterward cooled expectations for a slew of rate cuts in 2025.3 The S&P 500 finished the month down –2.38%, led by declines of –10.72% in Materials and–9.47% Energy sectors, respectively.4
In 2024, U.S. stocks had a notable performance, with the S&P 500 rising by 25% and achieving 57 record closes, reflecting a healthy economy and a lower inflation rate. Despite minor setbacks in the last trading days, it was one of the best consecutive years for the broad U.S. stock index since 1997 and 1998. The top-performing tech stocks, often referred to as the “Magnificent Seven”—Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla—contributed over 53% of the total return of the S&P 500 index. Particularly noteworthy was Nvidia, a maker of Artificial Intelligence chips, which alone accounted for 21% of the return and saw its market value soar past $3 trillion. However, stocks from various industries also played a part in the rally, with the financial sector increasing 28%, utilities 20%, and industrials 16%.5
Despite the big tech sector’s dominance, stocks in other sectors also present attractive valuations, opening up opportunities for these sectors to potentially “catch up” with tech. There is increasing interest in small-capitalization stocks, which have lagged large caps for several years.
Post-election, the small caps experienced a significant spike, with the Russell 2000 marking its first all-time high in years. There is a notable increase in recent trends, which could potentially influence the market in 2025, considering factors such as lower interest rates and improved economic conditions. Further, domestic revenue generation is a key component for about 80% of Russell 2000 firms, which could potentially influence their resilience in the face of any trade war under Donald Trump’s presidency.6• U.S. Markets were the best performing region, up 2.79% this quarter. International Developed markets and Emerging Markets both declined, losing 7.36% and 7.84%, respectively.
• Factors performed poorly this quarter, with negative performance across all factors. Momentum fared best, losing 0.09%. Quality dropped 2.75%, Small Cap Stocks fell 3.17%, Minimum Volatility lost 3.38%, and Value decreased 4.55%.
• Sectors experienced varied performance in the fourth quarter. Consumer Discretionary performed best, gaining 12.1% for the quarter. Communication Services and the Financial sector also had strong gains, returning 7.31% and 7.07%, respectively. Technology also saw positive performance ending the quarter with gains of 3.12%. All other sectors performed negatively through the quarter.
• Fixed Income also had poor quarterly performance with Global Bonds losing 0.95%, and U.S. Bonds falling 3.06%.
• At the end of December, short-term Treasury yields were flat with the 1-year to 30-year all trading within 0.70%. The 10-year treasury yield increased by 0.77% and the 10-year TIPS note yield rose by 0.61% through the fourth quarter. The Federal Reserve continued to decrease rates through the fourth quarter. However, in the December meeting Chair Jerome Powell emphasized an importance on the balance between inflation and labor, with the Fed scaling back the expected number of interest rate cuts in 2025.
Disclosures:
Symmetry Partners, LLC is an investment advisory firm registered with the Securities and Exchange Commission (SEC).
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The S&P 500 Index represents the 500 leading U.S. companies, approximately 80% of the total U.S. market capitalization. The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the Nasdaq Composite Index (NASDAQ). The NASDAQ measures all NASDAQ domestic and international based common type stocks listed on The Nasdaq Stock Market and includes over 2,500 companies. The MSCI World Ex USA GR USD Index captures large- and mid-cap representation across 22 of 23 developed markets countries, excluding the United States. The index covers approximately 85% of the free float-adjusted market capitalization in each country. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets (as defined by the MSCI). The index consists of the 25 emerging market country indexes. The Bloomberg Barclays US Aggregate Bond Index measures the performance of the U.S. investment grade bond market. The index invests in a wide spectrum of public, investment-grade, taxable, fixed-income securities in the United States—including government, corporate, and international dollar-denominated bonds, as well as mortgage-backed and asset-backed securities, all with maturities of more than 1 year. The Bloomberg Barclays Global Aggregate (USD Hedged) Index is a flagship measure of global investment grade debt from 24 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate, and securitized fixed-rate bonds from both developed and emerging market issuers. The Index is USD hedged.
1 Morningstar Direct as of October 31, 2024
2 S&P Dow Jones Indices as of November 29, 2024
3 Schneider, H. and Saphir, A. “Fed Lowers Rates But Sees Fewer Cuts Next Year Due to Stubbornly High Inflation,” Reuters, December 18, 2024, https://www.reuters.com/markets/us/fed-expected-combine-interest-rate-cut-with-hawkish-2025-outlook-2024-12-18
4 Morningstar Direct as of December 31, 2024
5 Langley, K., “Stocks Cap Best Two Years in a Quarter-Century,” The Wall Street Journal, December 31, 2024, https://www.wsj.com/finance/stocks/stocks-on-pace-for-best-two-years-in-a-quarter-century-c5b5f9b3
6 Sheldon, M., “Analysts Unveil Surprising Small Cap Stocks Forecast for 2025,” TheStreet, December 22, 2024, https://www.thestreet.com/investing/analysts-unveil-surprising-small-cap-stocks-forecast-for-2025
7 Ashworth, M. and Gilbert, M., “Politics, Economics and Markets Create a 2025 Three-Body Problem,” Bloomberg, January 2, 2025, https://www.bloomberg.com/opinion/articles/2025-01-02/politics-economics-and-markets-create-a-2025-three-body-problem
8 Lu, M. “The World’s Biggest Stock Markets, by Country,” Visual Capitalist, March 14, 2024,. https://www.visualcapitalist.com/the-worlds-biggest-stock-markets-by-country