2024 Year In Review
We hope you and your loved ones are experiencing a fantastic start to 2025! Reflecting on the past year, it’s clear that 2024 brought surprises, challenges, and opportunities in the ever-evolving financial and economic landscape. While we refrain from making financial market predictions, we remain committed to equipping you with clear and accurate information to make sound financial decisions. After a strong stock market recovery in 2023, 2024 continued to build on that momentum with notable developments across markets, interest rates, and inflation trends. Let’s take a closer look at what happened in 2024.
Flash-back article: 2023 Year in Review
Stock Market Performance | Entering 2024, market forecasters' expectations were quite mixed as investors weighed the Federal Reserve's monetary policy shifts and global economic uncertainties. Despite these concerns, global equity markets delivered another year of positive and “expectation-beating” returns.
S&P 500: The index posted a total return of 25%, driven by corporate earnings growth and improved investor sentiment toward technology stocks, focusing on artificial intelligence being a key theme in 2024.
Nasdaq: While not as explosive as 2023, the tech-heavy Nasdaq index still achieved a strong 25.5% return, fueled by continued enthusiasm towards AI and cloud computing advancements.
Dow Jones Industrial Average: Blue-chip stocks saw a respectable gain of just under 15% in 2024 as the U.S. economy and consumers remained strong.
MSCI World Ex-US Stocks Index: International equities (excluding U.S. companies) advanced by just 5% in 2024, underscoring the dominance of U.S. equity markets in that year.
As always, surprises abounded market forecasters’ expectations, this time to the upside, as in 2023. Below is a look at 2024 price targets provided by key Wall Street banks at the end of 2023:
As you can see, not a single bank was as optimistic as the actual result for the year. This is a prime example of why we caution against taking any market forecast as certainty. Ironically, Wall Street forecasters are more optimistic for 2025, after back-to-back years of 20%+ returns from the index that these forecasters broadly did not anticipate. Please Note: The last time we saw the S&P rise 20% in back-to-back years was 1997 & 1998 during the tech bull market. So, we believe it's important for investors to recognize that we’ve experienced a very strong bull market since the sell-off in 2022 and might be due for some healthy adjustments in 2025.
Stock Market Concentration | This brings us to our next point regarding market ebbs and flows and how market index funds are constructed. The S&P 500 is the most popular index fund, frequently quoted by financial media as the standard benchmark for the U.S. stock market. The S&P 500 is a collection of the largest 500 profitable companies in the U.S. This index has provided investors with passive exposure to the U.S. stock market over time. However, it is important to understand that the S&P 500 is not as diversified as it might seem at first glance owning 500 companies, and this introduces a concept known as concentration risk. The S&P 500 index is a “market-cap weighted” index, meaning that larger-valued companies have a disproportionate share of the index over the smaller-valued companies.
The strong performance of a handful of tech companies has led to a concentration of tech companies within the index that has not been seen before.
Nvidia represented over 20% of the total gains the S&P 500 provided in 2024. Nvidia is now the second largest S&P 500 company, holding over 6.66% of the index (as of 12/31/2024). Someone buying the S&P 500 index today has roughly 40% of their money invested in just 10 high-valuation technology stocks, as the chart below shows.
We do not bring this up to call for an imminent market crash or anything. Still, this situation does put the index at a heightened risk of downside volatility and potentially lower future returns. Because of this concentration, a downturn in just a few large companies could impact the index. We have been recommending that clients get further diversified at this time, mainly clients taking distributions from their portfolios, where high portfolio volatility can be detrimental to the long-term sustainability of portfolio assets. We are far from abandoning these companies altogether; however, unlike the “dot com” bubble, these large companies are very profitable and have healthy balance sheets.
Interest Rate Movements & Fixed Income Returns | The Federal Reserve shifted gears in 2024, pivoting from aggressive rate hikes of prior years to gradual rate reductions to support sustained economic growth. By year-end, the Fed Funds target rate was lowered from 5.25%-5.50% to 4.00%-4.25%. While the Fed has a strong influence on short-term interest rates, longer-term rates (10 years+) are more market-based instruments that the Fed has less control over. This was a phenomenon we experienced in 2024. Short-term rates went down while long-term rates rose.
The Bloomberg U.S. Aggregate Bond Index delivered a total return of just 1.25%. An investor in the bond index earned an interest income yield of approximately 4.5%. However, the value of the underlying bonds declined by roughly 3% in 2024 as long-term yields rose. (Total return= % yield received +/- bond value) As of 12/31/2024, the current yield to maturity for the index is approximately 4.93%, representing a healthy income yield on high-rated bonds for conservative-income investors.
CDs and money market accounts remained popular but saw declining yields as rates fell following the Federal Reserve’s interest rate cuts. 1-year CD rates went from a peak of around 5.5% in late 2023 to roughly 4.25% at the end of 2024. Investors increasingly turned to investment-grade bonds for higher yields on cash.
Despite the Federal Reserve cutting “short-term” interest rates, they don’t have as much control over long-term interest rates (10+ years). Long-term rates spiked in Q4, providing additional opportunities to lock in yields at higher rates for the long term. In most market environments, long-term rates are typically higher than short-term rates.
Inflation Trends | Inflation was again a focal point throughout 2024 but showed further signs of moderation:
The annual inflation rate hovered around 3%, slightly above the Federal Reserve's target but far lower than the peaks seen in 2021-2022. Inflation remains a bit elevated but is at a much healthier level for the economy.
Financial market indicators (breakeven inflation rate) suggest investors expect 2-3% annual inflation over the next 5-10 years. Mirus continues to use 3% yearly cost inflation in our financial planning projections.
For Social Security recipients, this translates into a 2.5% cost-of-living adjustment (COLA) benefit increase for 2025, the lowest % increase since 2021, again due to improved inflation metrics.
Looking Ahead to 2025 | As we focus on the new year, our advice remains consistent: Expect the unexpected. Economic cycles are inherently unpredictable, but having a robust financial plan and a well-constructed portfolio ensures you’re prepared for whatever financial markets come your way.
You will not see any market predictions from us directly; however, for those interested, we have sourced a few of the 2025 outlooks we deem objective from investment firms we respect.
Capital Group (American Funds)
Each of these organizations has differing opinions on what markets will do from here and the very nature of investing and markets!
At Mirus Planning, we are excited about what lies ahead and remain committed to providing personalized guidance tailored to your unique circumstances. Whether it’s optimizing your portfolio, planning for retirement, or navigating complex estate planning considerations, our team is here to support you every step of the way.
Thank you for your continued trust and relationship. We look forward to connecting with you in 2025!
Best regards,
Kyle Temple
CFP®, CPWA®
