Fourth Quarter 2024 Market Review

By
Posted on January 15th, 2025

The U.S. equity market trends that were persistent throughout 2024 continued in the 4th Quarter; and U.S. equity markets had their second consecutive year of returns over 20%.  While most assets did well on the year, equity returns continued to be focused on larger cap technology stocks with other areas of the market faltering towards year end. 

Throughout the year foreign markets generally followed the path of U.S. stocks, albeit at a slower pace until a Trump victory (with attendant protectionist policies) and an anticipated slowdown in the European economy caused foreign equities to retrace gains in the 4th quarter while U.S. markets continued ringing up all-time highs.

Focus on the Fed

The Fed continued the much anticipated rate cutting cycle that began in Q3; decreasing rates on the discount window by .25% at both its November 7 and December 18 meeting.  The November rate cut was well telegraphed and in line with the September projections the FOMC relies on; showing the Fed’s preferred indicators of the U.S. economy were all well within the bounds that would continue future rate cuts. In fact, for a short period, the market appeared to shift its focus, reacting positively to the anticipated victory of Donald Trump and that administration’s focus on slashing regulations, maintaining low tax rates and protectionist industrial policies. 

While the Fed’s cutting rates by .25% to 4.25/4.5% in its December 18 meeting was well anticipated, the economic projections that accompanied it were not. 

The Fed’s outlook changed with the release of its December economic projections for 2025, showing the resilient strength of the U.S. Economy.  With projected 2024 GDP moving from 2% to 2.5% and the Fed’s preferred inflation metric for 2025 moving from 2.1% to 2.5%; above its stated goal of 2%.  This resulted in changing the FOMC’s consensus judgement of the appropriate Fed fund rate at the end of 2025 shifting from 3-3.5% to 3.5-4%,moving the anticipated rate cuts in 2025 down from about 1% to only .25-.5%, causing the U.S. markets to drop about 3% on the day. 

Most sectors were down in the fourth quarter with the S&P 500 and Growth being carried by the Magnificent 7 (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla). Interest rate sensitive investments, such as bonds and real estate were generally down as the longer end of the yield curve shifted up as investors digested the fed’s anticipated path forward.