Q4 2024
Dear Client,
Happy New Year!
As we end one year and begin the next, we once again take time to reflect on the relationship we have with each of you. Our feelings of humility and gratitude for your continued trust and confidence in us cannot be overstated. Clearly, we cannot control the vicissitudes of the public markets. However, we feel and appreciate your confidence in us as we do our best to navigate the ups and downs of the market as we work toward accomplishing your financial goals together. To that end, if things have changed in your financial life or if you would like to discuss your situation in a more detailed or specific way, please reach out. We would be happy to talk or meet with you. One note and caveat: I (Bo) am planning to be out of the country January 17th to 26th. I will be checking in and staying abreast of market news, but will not be as readily available as I usually am. If you know you will need some help with your accounts during that time, please let me know now, so I can pre-arrange things. Or you can reach out to Lesley as your first resource while I’m gone.
The fourth quarter was an interesting end to a year where the markets were fairly relentlessly positive. During the quarter we had a quick and decisive presidential election, the Federal Reserve (Fed) cut rates twice more, and the equity markets reacted mostly as expected to the various political and economic stimuli. The strong rally leading up to and following the election gave way to a selloff in December after the Fed meeting which delivered a cut, but also sought to ratchet down expectations for the pace and quantity of cuts moving into 2025.
The index changes for the quarter were as follows (calculated from wsj.com/market-data):
S&P 500 change: 2.15% Q4, 23.95% Full Year (FY)
S&P 500 Equal Weight Index: -2.32% Q4, 11.46% FY
Nasdaq Composite change: 6.37% Q4, 29.83% FY
Nasdaq Composite Equal Weight Index: -0.53% Q4, 7.15% FY
Dow Jones Industrial Average change: 0.67% Q4, 13.25% FY
Ten Year Treasury Yield change: 22.11% Q4, 15.22% FY
Crude Oil (WTI Front Month Contract) change: 4.84% Q4, 0.01% FY
Gold (GLD ETF) change: -1.25% Q4, 26.48% FY
Our immediate takeaways from these numbers are: It was a very strong year for equities in general on top of a strong year in 2023. Specifically, the Nasdaq (tech-focused) stocks continued to lead the way. Even more specifically, the largest few stocks in both the S&P and the Nasdaq were responsible for an outsized portion of the returns. Gold had a very strong year as well. We think this speaks to general concern about global unrest both economically and politically. Finally, the strength of the Ten-year treasury yield, up significantly in a year when the Fed was cutting the short-term rate, merits paying close attention.
Clearly, after the election of Donald Trump for a second term, the markets are waiting to hear about policy implementation. Many of the policies espoused during the campaign will have impacts on the economy and the markets. It remains to be seen what policies will be actively pursued, and to what extent they will eventually be implemented. What is known is that the Trump policy agenda will include increased tariffs, some immigration changes, and a generally transactional approach to both political and economic initiatives within the country and with our trade partners. As of now, most corporate entities and market participants are anticipating a less restrictive regulatory environment, which they interpret as good for business. The heads of many of the largest companies are also making efforts to align with the new administration seemingly in hopes of creating a less oppositional relationship than during the first Trump administration.
Monetary policy as directed by the Fed is also somewhat dependent on the policy initiatives pursued by the new administration. We feel that Fed chair Powell is still quite concerned about the stickiness of inflation. That will likely lead to a slower pace of rate cuts, as the Fed seeks to confirm declining inflation before making further cuts.
We are also coming into a new earnings season as companies begin to report their results from the final quarter of 2024. According to FactSet, the expectation for the S&P 500 earnings growth rate for Q4 of 2024 is 11.9%. That is a strong rate of growth and would be a good indicator that companies are still healthy and growing. However, given the valuation of the S&P 500 at 21.4 times expected earnings, growth will have to continue to be quite strong to justify that multiple.
We are grateful to be moving into another year of working together with each of you. We intend to proceed with the same combination of optimism, skepticism, and determination to work through the details underlying each, that has served us all well over the preceding many years.
All our best wishes for a Happy, Healthy, and Prosperous 2025!
Take care, Bo and Lesley
