As we close the books on 2024, I can’t help but reflect on the past five years. What a turbulent period it has been: COVID-19, supply chain disruptions, soaring housing prices, an historic rise in inflation in 2022, extreme Federal Reserve policies with the steepest interest rate increases in modern history, and now an awkward normalization (if anything can be considered “normal” anymore).
Top Financial Takeaways for 2024
Interest Rates and Inflation
Interest rates and inflation have been major areas of concern for the economy and markets. COVID-19 caused significant shifts in demand, extreme stimulus measures, and stress on global supply chains. Add the war in Ukraine, and the result was a massive spike in inflation followed by a surge in interest rates.
As 2024 progressed, demand normalized, stimulus effects waned, and global supply chains began to stabilize. Consequently, the Federal Reserve reduced the overnight borrowing rate from 5.25–5.5% at the start of the year to 4.25–4.5% currently. They have signaled plans for further rate reductions over the next 12 to 18 months.
However, markets remain unconvinced that the fight against inflation is over. Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) data suggest that inflation remains somewhat "sticky" at around 2.7%, still above the Federal Reserve’s long-term target of 2%. There are also concerns that the new administration’s policies—such as tariffs and changes to immigration policy—could impede inflation’s march back to target levels.
The chart below illustrates the gap between market expectations (yellow dotted line) and the Federal Reserve’s forecast (blue dotted line) for future rate cuts. Markets are pricing in 50–75 basis points in cuts, compared to the Fed’s projection of closer to 150 basis points.
The U.S. Stock Market
The S&P 500, introduced in 1957, has delivered an annualized total return of 10.5% over its 67-year history (assuming dividend reinvestment). Of course, returns have varied significantly by decade:
It’s worth noting that the strong returns of the last 15 years can largely be seen as a natural rebound from the challenging decade that preceded them. History shows that periods of significant economic and market stress—such as the high inflation of the 1970s—can be followed by extended stretches of robust growth, as evidenced by strong performance during the 1980s and 1990s. This pattern reminds us that recovery and growth often emerge after difficult times.
The S&P 500’s 28% total return in 2024 follows a 24% return in 2023. Such strong back-to-back years are rare, making it reasonable to approach 2025 with some caution. While 2023’s rally stemmed partly from the dramatic selloff in 2022, 2024’s gains were driven primarily by a robust economic environment, Federal Reserve rate cuts, and excitement surrounding AI.
Election Impact
2024 Presidential election results sparked immediate market reactions. Since Election Day, the market has gained 5–6%, slightly above the median post-election return of 4%. Some sectors have emerged as clear winners based on anticipated policies of the new administration, including financials, cryptocurrencies, and mergers and acquisitions.
Looking Ahead to 2025
Concerns:
Optimism:
Artificial Intelligence and Innovation
AI dominated corporate America in 2024, surpassing even the election in importance. This trend reflects broader innovation themes, including big data, mobile technology, and automation, which continue to drive the U.S. economy.
One intriguing insight from a recent AI-focused talk suggested that manufacturing and production-oriented businesses, rather than traditional tech companies, may be the early beneficiaries of AI advancements. As corporate profits begin to shift, investors may need to adapt equity allocations to capture emerging opportunities.
Final Thoughts on 2025
The stock market remains in a strong uptrend, but signs of potential new leadership are emerging. Industries burdened by regulation and those with strong merger and acquisition potential may take center stage. Optimism among CEOs, both public and private, suggests a “pro-business” shift in sentiment.
At the same time, significant policy shifts from the new administration and the Federal Reserve could create market volatility. By viewing volatility as an opportunity rather than a threat, we can navigate these fluctuations and position ourselves for long-term success.
Wishing you a happy and healthy New Year!
Jordan Kaufman
Chief Investment Officer
Green Ridge Wealth Planning
Disclosure:
This commentary is provided for informational purposes only and reflects the opinions of the author as of the date of publication. The views expressed may change without notice and may not reflect the opinions of Green Ridge Wealth Planning as a whole. The information presented is not intended to constitute investment, legal, tax, or other professional advice and should not be relied upon as such. Past performance is not indicative of future results. Readers should consult with a qualified professional for guidance tailored to their specific circumstances.
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