Quarterly Market Review 2024 Q4

2024 brought multiple global stock market record highs and delivered 17.5% returns in global equities in 2024. Despite ending the year on a weak note, the global gains were led largely by the U.S., which posted strong returns in 2024, with the S&P 500 rising 25%. The tech-heavy Nasdaq gained 29.6% with artificial-intelligence-related stocks leading the market higher, despite some sell-off late in the year. Value stocks and small caps lagged their growth and large cap counterparts in 2024, but closed the gap in the second half of the year.

While the year started with multiple rate cuts on the horizon, inflation remained stickier than expected, in the U.S. and globally. Bond markets were impacted by decreased expectations for rate cuts, creating more volatility than is typical.

The final quarter of the year was a drag on total year returns globally, with only the U.S. stock market and international bonds posting positive gains. Here are a few interesting data points from Q4 and the year overall:

• U.S. stocks finished up 2.6% in Q4.

• The S&P 500 gained 25% in 2024, following 2023 gains of over 26%.

• Growth and tech stocks regained ground in Q4 after trailing the broader market in Q3.

• Value stocks lagged growth stocks in the U.S. and globally but fared better internationally.

• The Fed lowered interest rates twice in Q4, putting the federal funds rate range at 4.25%-4.5%.

• Bonds saw a rough quarter with the election decided, as the market interpreted possible future economic policies including increased deregulation and tariffs, and their potential growth and inflationary impacts, which changed the expected interest rate trajectory.

• Short-term interest rates fell while longer-term rates rose in Q4.

  
  

Below is a snapshot of key top-line economic indicators:

U.S. Stocks

Central to Q4 was the economic and political backdrop of the U.S. elections. As we shared back in September about how elections impact the markets, history shows that the U.S. stock market trends upward regardless of elections outcomes and political parties in office. The U.S. stock market shot up after the election results in November, but the highs were short-lived. December brought uncertainty around the future policy outlook and U.S. fiscal direction, and the Fed’s announcements in December changed projections for 2025, the combination of which quickly quieted the stock market rally as the year came to an end.

Overall, U.S. stocks finished up 2.6% in Q4 and the S&P 500 gained an impressive 25% in 2024. Fourth quarter gains were led by technology and growth stocks, which were up 6.3%, for a total 2024 return of 23.4%. Continued investor excitement around artificial intelligence (AI) drove the “Magnificent Seven” stocks (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) to deliver strong returns. While large cap growth stocks lagged in Q3, the pendulum swung the other way in Q4 with nearly 9% returns. Value stocks, after performing well in Q3, were down 2.2% in Q4, but fared well overall in 2024, rising 13.8%

International Stocks

Q4 weighed down international and emerging markets stock returns in 2024, and both lagged well behind U.S. stocks. International stocks fell 7.4% in Q4 but ended the year with 4.7% gains. Emerging markets were down 8% in the final quarter, but finished the year up 7.5%.

Geopolitical tensions remained high in 2024 with war continuing in Ukraine and unrest spreading in the Middle East. Europe faced economic challenges, political turmoil, and a struggling manufacturing sector hit hard by high costs, new regulations, and increased competition from Chinese manufacturers aided by government subsidies. The U.K. economy recovered from 2023 lows, and despite significant tax increases that lowered outlooks, yielded 9.5% returns.

China had a strong second half of the year with economic stimulus announcements made in September, and China ended up 19.8%. Japanese stocks had a great year, up 20.5%, with gains driven largely by a long-awaited exit from a decades-long deflationary period. India and Taiwan also boosted emerging market returns, while Brazil suffered a 28.4% decline due to increased fiscal uncertainties.

Fixed Income

The bond market experienced an unusual amount of volatility in 2024, particularly in longer-term bonds. Overall, U.S. bonds up 1.36% in 2024 despite being down 3.06% in Q4, with shorter-term bonds faring better than long-term bonds. The election results impacted final quarter returns as the bond market braced for potentially inflationary policies and uncertainty around the future economic outlook.

Another headline in the bond market was the Fed lowering the federal funds rate to the 4.25%-4.5% range after three rate cuts in September (0.50%), November (0.25%), and December (0.25%). The September rate cut normalized the Treasury yield curve, meaning that bonds with longer maturities were again paying higher yields to compensate for the additional risk involved with longer-term investments, particularly when it comes to inflation risk. The yield curve had been inverted (meaning short-term bonds had higher yields than long-term bonds) for two years, well exceeding the prior record in the late 1970s.

The Fed’s rate reductions were the first since March 2020, were largely in response to cooling inflation, and in spite of conflicting economic indicators and job reports. Inflation, although sticky, remained near multi-year lows, with the November core consumer price index (which excludes food and energy prices, which can be more volatile) showing prices rose 3.3% from a year earlier. For perspective, the Fed's inflation target is 2%.