2024 Q4 Market Commentary

For the past few years, I have used the first commentary of the new year to look back at our anticipated top stories of the prior year and to look ahead to potential themes of the coming year.

First, here are the stories we anticipated would impact investment markets and the economy in 2024. I’ve included our original hypotheses versus how it played out:

• “Presidential Election – The election will dominate the headlines in 2024. I don’t see a whole lot of good that could come from me saying much about the election other than the fact that it will add volatility to the markets.”
  • Update – Overall, the markets did not see substantial volatility leading into the election. The market jumped the day after the election and was up around 1.5% after the election until December 31^st.
• “Magnificent 7 – Will these stocks continue to soar, or will they pull back (and pull back the entire stock market with it?) Or…”
  • Update – The Magnificent Seven[1] continued to soar. They returned an average of 66.9% in 2024 (helped by Nvidia returning 171.2%) and all but Microsoft beat the S&P return of 23.3%.
• “Stock Rotation – A third possibility: investors sell and/or trim their gains in the Magnificent 7 but reinvest in sectors of the stock market that did not experience much growth in 2023.”
  • Update – There was no stock rotation in 2024. Using the Russell 1000 Growth Index as a proxy, growth stocks returned 33.4% versus 14.4% for value stocks, based on the Russell 1000 Value Index. In 2023, growth outperformed value by nearly 31%.
• “Interest Rates – Is the Fed really done raising rates, and will its next move be to cut? This could turn out to be the case, but current GDP, inflation rates, and unemployment rates make that far from a certainty.”
  • Update – The Federal Reserve (the Fed) lowered rates by 1% in 2024. The original line of thought was an expectation of more rate cuts in 2025, but now that possibility looks less clear.
• “International Issues – Will the conflicts in Gaza and Yemen lead to a bigger conflict, possibly involving Iran? Will China’s military posturing around Taiwan escalate into something more than just postering, and if it does, what will the West do about it?”
  • Update – Thankfully, nothing from China yet regarding Taiwan. There have been incidents that could have triggered a more widespread conflict in the Middle East, but a greater escalation has not yet occurred.
• “Russia and Ukraine – Will the U.S. and EU continue to fund Ukraine’s defense (as it becomes increasingly unpopular), and if not, will it force Ukraine to seek peace?”
  • Update – Throughout 2024, the U.S. continued to support Ukraine. As of today, there are calls for an immediate ceasefire.
• “Is India the New China? – In 2023, India overtook China to become the most populous country on earth. It is investing heavily in infrastructure and bringing in foreign investment.”
  • Update – India’s economy slowed in 2024 compared to 2023 but still shows signs of growth. GDP decreased from 8.2% to 6.4%.[2] India-based stocks had a positive 2024, returning 12.46%. However, these returns were down from 25% in 2023.[3]
• “Soft Landing – Will the Fed be able to bring down inflation enough (by increasing/holding rates) without causing a recession?”
  • Update – The U.S. recession that has been anticipated over the past 24 months has yet to materialize.
• “AI – Where will the Artificial Intelligence revolution go in 2024, and what companies will be the big winners?”
  • Update – Up, up, and away in 2024. Many companies related to AI saw their stocks soar in 2024. For example, Broadcom stock was up 109%, Nvidia up 171% in 2024, and Palantir was up 340%!
• “Will Bonds Be Back? – If interest rates decrease and the economy slows, will bonds be a safe haven for investors?”
  • Update – It’s hard to say bonds were a safe haven, as there was no sell-off in equities. Bonds were positive in 2024 with a 1.31% return, as reflected by the Bloomberg Agg.[4] The lowering of interest rates by the Fed has not had the expected result of lowering intermediate and long-term rates, leading long-term fixed income to post negative returns for 2024.

Now that we’ve reflected on 2024, on to the themes we are watching in 2025:

• Continuation of a Bull Market – The current bull market in stocks, specifically domestic stocks, is now over two years old. How can this continue? Simplistically, either companies’ earnings continue to grow and/or the price earned per dollar that an investor is willing to pay (P/E ratio) goes up. With the P/E ratio at historic highs, the stock market could be relying on the growth of earnings.
• Second Trump Term – This could have filled the rest of the page, but I will try to fit everything in here. How serious is Trump on tariffs? How much influence and success will the Department of Government Efficiency (DOGE) have? If “successful,” as determined by DOGE’s own metrics, how will that impact the economy and both the stock and bond markets? What will Trump’s foreign policy look like? Are his comments on acquiring Greenland to be taken at face value?
• Market Volatility – or Lack Thereof – 2024 was the least volatile year for the stock market as measured by the CBOE Volatility Index or VIX since 2019.[5] The biggest drawdown during the year was 7.5%, versus an average of 13%.[6] It would not be surprising to see more volatility as the stock market reacts to changes by the new administration. As we have said in the past, volatility creates opportunity.
• Concentration of the S&P – The top ten stocks by weight in the S&P now stand at 36.9%. The next 493 (yes, there are more than 500 stocks in the S&P 500) make up 63.1%. For context, in year 2000 the top ten made up…23.3%.[7] When I see this drastic variation, the old saying, “Big trees fall hard” comes to mind. If these stocks reverse, will it spark a greater sell-off?
• Inflation, the Federal Reserve and Interest Rates – Like theme number two above, this could likely take up more than one bullet point, but if Trump only gets one, so does this. How the markets, both stock and bond, fare in 2025 will likely be shaped by inflation. If inflation stays where it is or even goes down, the Fed might get cover for more interest rate cuts, which the markets would love. However, although not likely, a spike in inflation could cause the Fed to increase rates, which the markets would hate.
• Bonds – It is a little confusing as to what the bond market is trying to signal. While the Fed can only control short-term interest rates, longer terms usually trend lower when the Fed cuts rates. In turn, the prices of existing bonds increase. However, since the Fed started cutting rates in September, longer term rates have increased, sending bond prices down. It appears that the bond market is signaling it does not believe interest rates are sustainable as they stand.
• Artificial Intelligence (AI) – Will the hoopla over AI subside in 2025? Unlikely, as most large companies will see it as a way to increase efficiency and boost their bottom line. That does not mean, however, every company that name-drops AI in their conference call will continue to see their stock price increase.
• Good News is Bad News – If I had to pick one phenomenon I hate to see in the stock market, this would be it. For example, if a good jobs report is released, showing millions of jobs have been added, the market could have a huge sell-off. It’s frustrating to witness, but there is logic behind it. Good news in the economy means the Fed is less likely to cut rates, and we have already discussed how the markets tend to react to that.
• International Issues – Copy and paste, every year. Russia/Ukraine, Middle East, China. While it is unlikely we will see closure on any of these global conflicts, de-escalation would be nice. For once, there might be some good news. An Israel-Hamas cease-fire in Gaza, involving a prisoner exchange and a release of hostages, took effect on January 19^th, 2025. Will it hold?
• Will Any of My Teams Ever Win Again? – Back in 2021, I was flying high. The Atlanta Braves were World Champs, and the Georgia Bulldogs were about to win their first of two National Titles in college football. Since then, it has not been an easy road. Two straight years of no Championships. Let’s hope it all changes in 2025 – here’s looking at you, Georgia Basketball.

I write this after spending part of the day watching the United States inaugurate a new President. Politics continue to be an emotional subject and one I will not comment on here. I personally know and respect people on both sides of the political spectrum and try to listen to different opinions and learn from each one. I enjoy following politics, especially their ripple-down effects on the markets and our clients’ investment goals, but I don’t let it define or upset me.

There it is: a look back and a look ahead. At Persium, we will continue to follow these themes and any others that develop throughout the year and assess the impact on the economy and the markets.

– Will Bowen

The views and opinions expressed are of Persium Advisors, LLC. This commentary is provided for educational purposes only and should not be construed as investment advice. Persium Advisors is an investment advisor firm located in Atlanta, GA.