US Annual (2024) Recap: Dow +12.88%, S&P +23.31%, Nasdaq +28.64%, Russell 2000 +10.02% (FactSet)
Major US equity indices were notably higher for the year. The S&P logged its second consecutive year of 20%+ performance for the first time since 1998, setting 57 fresh record highs along the way (though finishing somewhat below the most recent, from 6-Dec). However, those returns received a big boost from the so-called Magnificent Seven names; the equal-weight S&P was only up 11.1% for the year. NVDA +171.2% continued its run higher; TSLA +62.5% saw the bulk of its 2024 gains in the wake of the November presidential election. Other areas of strength included the broader semi space, cybersecurity, networking/communications, airlines, larger-cap banks, credit cards, asset managers, and payments. Relative laggards included energy, industrial metals, chemicals, managed care, food/beverage, cosmetics, restaurants, auto suppliers, dollar stores, drug stores, casinos, and solar. (FactSet)
Treasuries were mostly weaker with the curve steepening; the 2/10 spread flipped positive in early September after having been inverted since July 2022. Despite the long-expected start to Fed rate cutting and 100bp in reductions already made, the 10Y yield rose 69bp for the year with policymakers expected to remain cautious in their moves. Bond-market investors also focused increasing attention on Treasury auction sizes and raised concerns about further deficit spending ahead. The dollar was stronger amid resilient US growth (and thoughts the Fed will need to be more cautious with rate cuts); DXY +7.0% after a 2.1% softening in 2023. The greenback was a notable outperformer on the yen cross. Gold rose 27.5%, logging its best year since 2010 and hitting an all-time high just above $2,800/oz on 30-Oct. Bitcoin futures were up ~122% y/y, boosted by some crypto optimism about the incoming Trump administration. Bitcoin broke above the $100K level in mid-December before pulling back. WTI crude was up just 0.1% in 2024, while Brent was down 3.1%. While WTI pushed near $90/barrel in the spring, prices over the final quarter of the year remained in a fairly narrow channel as the market debated prospects for both softening China demand and increased output. (FactSet)
Underperformers: Materials (1.83%), Healthcare +0.90%, Real Estate +1.72%, Energy +2.31%, Consumer Staples +11.98%, Industrials +15.64%, Utilities +19.58%
Notable 2024 Headlines:
The year's economic data largely confirm soft-/no-landing economic hopes:
Economic growth, job creation, consumer spending, and disinflation continued to make progress through 2024, though that progress was sometimes uneven. GDP printed at a 1.6% SAAR for Q1, the lowest since Q2'22, but Q2 came in at 3.0% and Q3 at 3.1%. Nonfarm employment grew by nearly 2M jobs for the 11 months through November, though the unemployment rate moved up to 4.2% in that report vs the 3.7% in December 2023 (though a triggering of the "Sahm Rule" in July was not seen as a significant threat). Retail sales remained solid, though several months saw dips on both the headline and control-group measures. Some post-Christmas headlines also suggested a stronger-than-expected holiday shopping season. The consumer price index printed at a 2.7% y/y rise in November, in contrast to the 3.3% from December 2023; core CPI was up 3.3% y/y vs last December's 3.9%. There has been some concern about "sticky" shelter prices, though these too have been easing (+4.8% y/y in November vs last December's +6.2%). That said, there has remained some focus on the health of the labor market (continuing jobless claims have risen to three-year highs) and its potential impact on consumer spending, one of the biggest drivers of recent economic growth. (FactSet)
Fed holds, then eases, then signals patience:
A big question at the start of the year was when the Fed would begin easing monetary policy off the 5.25-5.50% peak it had held since August 2023. However, some hotter-than-expected Q1 inflation prints complicated the debate, and Fedspeak suggested members were seeking greater confidence inflation was moving sustainably back to the 2% target. By summer it seemed clearer that the disinflationary narrative remained intact; moreover, there were emerging worries about potential cracks in the labor market. The key rhetorical shift came in August at Chair Powell's Jackson Hole remarks, when he said "the time has come for policy to adjust." September's FOMC led off with a 50bp cut, followed by 25bp each in November and December. But at the same time, the market remained concerned about both the pace and the eventual stopping point. December's meeting comments (and an updated Summary of Economic Projections) has the market largely expecting the Fed to pause in January and possibly easing only 25-50bp for the whole of 2025. (FactSet)
Market generally positive on Trump's election:
The US presidential election also turned out to be a meaningful factor in the year's performance. Early expectations for an easier road to reelection for the incumbent were challenged by a poor performance in the first debate, magnifying calls for him to step aside in favor of a new candidate. However, VP Kamala Harris, endorsed by Biden and nominated by the Democratic convention, failed to gain enough traction with the electorate to top Donald Trump, who ultimately secured a majority of the electoral as well as the popular vote; at the same time, Republicans also secured (narrow) majorities in both the House and Senate. The market's initial reaction was positive, with both the S&P and the Russell 2000 logging their best monthly performances of 2024 during November amid optimism about possible individual/corporate tax cuts and deregulation (potentially positive for themes such as M&A, energy production, and crypto). Nevertheless, a narrowly averted government shutdown in December raised questions about how effectively Trump will be able to use his congressional majorities, there are concerns about tariffs stalling progress on inflation, and investors will be watching to see how much impact a widening deficit could have on the Treasury market. (FactSet)
Corporate earnings keep growing (though with a lot of help from Big Tech):
Against this backdrop, US corporate earnings continued to log healthy growth. S&P 500 constituents posted average y/y EPS growth of 5.8% in Q3, which was the fifth consecutive quarter of positive earnings growth. Some 75% of index constituents topped analysts' EPS estimates, largely in line with historical averages, while the smallest proportion of S&P firms issued negative earnings guidance since Q4'21. For full-year 2024, S&P 500 firms are forecast to record annual earnings growth of 9.5%, ahead of the ten-year average of 8.0%. That said, performance concentration was on display here as well, with just the Mag 7 names accounting for a disproportionate share of earnings growth; analysts expect the earnings growth of the "other 493" for 2024 to be just above 4%. At the same time, corporate commentary was often somewhat guarded this year, with businesses noting more price-sensitive consumers, longer deal cycles with corporate clients, pressures from still-high interest rates, higher labor-market costs (and cautious hiring), and election uncertainties while also often expressing optimism about demand prospects. (FactSet)
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