Clearview Portfolio Consulting Year End Review
Key Points:
- The US economy grew in 2024 despite fears of a recession from elevated inflation and higher interest rates.
- The S&P500 had a second consecutive year of +20% returns with large growth stocks leading the charge.
- Bonds were positive but struggled during the year from rising long-term yields.
2024 began with many economists and financial analysts expecting a recession for the US economy. The Federal Reserve hiked interest rates aggressively in 2023 to bring down inflation and slow economic activity. A recession was avoided, and the economy and financial markets grew despite higher borrowing costs for companies and consumers. Domestic stocks had an impressive year with the Dow Jones Industrial Average gaining 15%, the S&P500 up 25% and the tech-heavy NASDAQ Composite over 29%. It was the second consecutive year for +20% returns for the S&P500. Communication services (+40%) and technology (+36%) led the markets as the Magnificent 7 and companies dealing in artificial intelligence soared higher during the year. Value stocks dramatically underperformed their growth counterparts and small caps continued to lag against large caps. Value and small cap stocks are relatively inexpensive compared to long-term valuations in large growth. Market indices are unmanaged and are not available for direct investment.
The Fed began cutting interest rates at the end of the summer as inflation slowed throughout the year. However, the 2% inflation target has still not been achieved, as the last few months of price data seem to be stuck around 3%. The sticky areas continue to be shelter and auto insurance. Typically, when the Fed gets into easing mode (cutting short-term rates) long-term yields usually drop or stay stable. This year has been different with long-dated Treasury yields moving higher. Higher long-term yields seem to be driven in the market from expectations of higher fiscal deficits and upcoming tariffs, which may reignite inflation. As longer dated bond yields moved higher, the Bloomberg Aggregate Bond Index saw just a 1.25% return for the year.
The election of Donald Trump saw enthusiasm in risk assets in November as the idea of lower regulation, more mergers and acquisitions, and increased domestic manufacturing from deglobalization. International stocks underperformed the US for another year but their valuations should not be ignored. With the S&P500 trading at elevated values from strong performance, investors should not abandon bonds, small caps or international stocks. Having a long-term perspective suggests that a globally balanced diversified portfolio should help limit some of the volatility expected this year. Happy New Year!lation in the Middle East, increased demand from China from stimulus, rising energy prices and strikes along US ports. The US election seems to be a tight race, adding additional uncertainty to the markets. Heightened volatility in stocks and bonds for the rest of the year should be expected.her than longer ones. Cash investors are enjoying higher yields, but for how long remains uncertain.
Sources: Morningstar Direct, Wall Street Journal, Merrill Lynch, JPMorgan
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