Markets
The well known “Santa Claus” rally typically seen in December did not materialize in 2024 as the year came to a close. The S&P 500 declined by -2.4% for the month; however, it recorded an annual gain of 25%, which was primarily driven by large growth stocks. The index hit 57 new highs during the year, the fifth most ever. It also marked the first time in over 25 years that the S&P 500 gained more than 20% in back-to-back years.
Small and mid-cap stocks which had been at the forefront of the post-election rally, encountered considerable headwinds in December. Mid-cap stocks, represented by the S&P 400, fell by -7.1% in December but ended the year up 13.9%. Small-cap stocks, tracked by the S&P 600, experienced a decline of 8.3% for the month, yet they still managed to gain 8.70% for the year. Despite the December dip, the overall market performance for 2024 was robust, driven by enthusiasm for rate cuts, economic strength, and advancements in artificial intelligence.
Internationally, developed markets continued to face challenges, down -2.3%, while emerging markets showed a slight decline of -0.1%. The global market was hampered by ongoing tariff discussions and a strengthening U.S. dollar.
Economic Data
The U.S. economy ended 2024 on a solid note. In December, the Q3 GDP was revised higher to reflect a growth rate of 3.1%, indicating stronger-than-expected economic activity. The labor market remained robust with an unemployment rate of 4.2% and the addition of 227,000 new jobs in December. However, inflationary pressures persisted, with the Consumer Price Index (CPI) rising to 2.7% year-over-year. This represents consecutive monthly increases in CPI.
The Federal Reserve cut the federal funds rate by 25 basis points in December, bringing the target range to 4.25-4.50%. Fed Chair Jerome Powell emphasized a cautious approach moving forward, with fewer rate cuts anticipated in 2025.
Fixed Income Performance
Despite short term rates falling, longer-term rates continued to rise in December, with the 10-year U.S. Treasury yield jumping from 4.18% to 4.58%. For the year, it increased by 70 basis points from 3.88%. This rise pressured bond returns, leading to a -1.64% decline in the US bond market for December. However, despite the tough final month, the overall performance for the year was up 1.25%, breaking the consecutive negative annual returns for bonds experienced in 2022 and 2023.
Looking Ahead
December 2024 concluded a year of strong market performance despite a challenging final month. The U.S. stock market saw significant gains throughout the year, driven by large-cap growth stocks. As we move into 2025, investors will be closely watching the Federal Reserve’s policy decisions, inflation trends, and global economic and geopolitical developments.
