2024 Market Recap: Lessons, Surprises
12/31/2024
As we wrap up 2024, it’s clear the year defied many early expectations. Coming into January, markets widely anticipated a rate cut in the first half, following a five-month pause in rate hikes. Concerns around persistent inflation dominated sentiment, leading to a “good numbers are bad numbers” environment where strong economic data prolonged the Fed’s patient approach. Inflation declined slowly, and monetary action was postponed until the second half of the year.
Looking at the above chart, mid-year was marked by heightened volatility. The Bank of Japan’s unexpected rate hike reversed the carry trade, shaking global markets. Meanwhile, consecutive weaker-than-expected jobs reports raised investor concerns, leading to the Fed’s first rate cut of the year—a surprising 50bps reduction in September. This moves injected fresh momentum into the markets, even as uncertainty persisted.
The final quarter brought a notable “risk-on” rally. This was fueled by two major developments: the return of Trump to office and the Fed delivering on its promised rate cuts. While the rally was robust, markets have since begun to stabilize, reflecting a shift toward caution as the inauguration date approaches.
Throughout the year, sectors like semiconductors, AI, financials, utilities, and weight-loss drug companies drove market performance due to their exceptional profit growth. Early gains came largely from semiconductor stocks and the “Magnificent 7” tech giants, while a brief broadening of market participation in the second half tapered off by year-end. The year closed on a high note, with the S&P 500 delivering an impressive return of over 20%.
Looking ahead to 2025, familiar patterns and new dynamics are shaping the outlook. The Fed remains focused on taming inflation, maintaining a stance where “good numbers are bad numbers” as it seeks signs of economic slowing. The Bank of Japan is expected to further raise rates in the first quarter, potentially creating more global market volatility. Meanwhile, the elevated valuations of tech and AI firms will put greater emphasis on earnings quality in the coming year. At the same time, the new administration’s policies, coupled with lower interest rates, are introducing a fresh backdrop to the market.
The interplay of these forces sets the stage for an eventful 2025. As always, navigating these dynamics will require careful attention and adaptability.
Sources: PWC
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