The S&P 500 rose to an all-time high in the fourth quarter, extending 2024 gains as election results raised expectations for pro-growth policies, the economy remained on solid footing, and the Fed continued to cut interest rates. The S&P 500 logged a modestly positive return for the quarter, and an annual return greater than 20% for the second straight year (+24.9% ‘SPY’ ETF Proxy) for the first time since the late-1990s. However, the NASDAQ was the best performing major index, benefiting from its concentration of Artificial Technology stocks.

Markets initially experienced anxiety due to the presidential election and concerns about the US fiscal situation. This led to a round-trip rise in treasury yields and a modest decline for stocks. However, after Trump’s clear-cut re-election and the Republican party securing control of both houses of Congress, the market rallied. The S&P 500 initially continued its rally, reaching a new all-time high near 6,100. This was driven by the anticipation of economic benefits from the incoming administration and an on-going “Goldilocks” economic environment characterized by solid growth and Fed rate cuts.

However, the rally was mildly disrupted late December when the President-elect reaffirmed support for controversial cabinet nominees and threatened tariffs against major trading partners. Additionally, the Federal Reserve’s decision to reduce the number of expected rate cuts in 2025 based on firmer labor data and sticky inflation contributed to year-end market volatility. Indeed, long-term rates finished the year stubbornly high, leaving the Bloomberg Aggregate Bond Index up just +1.6% for the year (‘AGG’). A strong US Dollar also curtailed international stock results (+3.1% ‘VEA’), for similarly modest annual returns among globally diversified portfolios as compared to the heady US stock index headlines.

Markets enter 2025 with high expectations. Investors are optimistic about pro-growth policies, including extensions of the 2016 Tax Cuts and Jobs Act. The Federal Reserve’s successful economic soft landing, low unemployment, and declining inflation allowed for rate cuts, but future policy looks more hawkish. Despite on-going foreign wars, hopes for ceasefire agreements remain. However, risks include potential tax-cut delays and tariff induced trade tensions. Elevated stock valuations and global bond market influences could also pose challenges. While the overall outlook is positive, we will be closely monitoring these factors. Meanwhile, we wish you and yours a happy and prosperous new year ahead!

Source: Index proxies based on dividend adjusted ETF time-series data from CSI Data, Inc. Data considered dependable, but not guaranteed. Past performance is no guarantee of future performance or profitability. Statements herein do not constitute individual investment advice – please speak with your advisor about your particular situation.