Market Commentary December 31, 2024
Index | 4Q 2024 | 2024 |
S&P 500 | 2.1% | 23.3% |
S&P 500 Equal Weight | -2.3% | 10.9% |
MSCI EAFE | -8.1% | 1.2% |
Bloomberg US Int. Term Corporate Bond | -1.4% | 4.2% |
As 2024 has ended, stock market returns were once again driven by banner years for many of the largest companies, while peering under the hood we see that more broadly, financial market performance was muted and even challenging in some areas.
The S&P 500 increased 2.1% in Q4 bringing the total for 2024 up 23.3%, the second consecutive year of greater than 20% performance. While once again we saw the S&P 500 Equal Weighted (S&P EW) lag the market cap weighted S&P, ending Q4 down -2.3% and finishing 2024 up 10.9%`. International stocks had a challenging quarter as the MSCI EAFE Index decreased -8.1% in Q4, nearly wiping out its annual gain and finishing 2024 up 1.2%. Bonds were also down in Q4 as the Bloomberg US Intermediate Term Corporate Bond Index declined -1.4%, finishing the year up 4.2%.
Following the election in early November it appeared that equity markets could start to favor small caps, as the long out of favor investment factor outperformed its large cap peers. However, this rally was short lived and by late November small cap momentum faded and market preference for large cap growth stocks returned.
Narrow breadth persisted throughout the year in the S&P 500 with the 50 largest stocks representing over 61% of the total market capitalization of the index, higher than the 20-year average of 52%. Additionally, the S&P 500 outperformed its equal weighted peer index by over 12% for the second consecutive year. Double digit outperformance by either the S&P 500 or the S&P EW over each other has been fairly rare over the last 35 years, with only five other occurrences over that time frame and four of those five being the S&P EW outperforming the S&P.
Looking ahead to 2025 there are several things we are monitoring that may have significant influence over financial markets. First, interest rate policy could be a key factor in market performance. Currently market expectations are for limited Fed interest rate cuts in 2025. Ultimately economic data will likely drive the actual outcome, but sticky inflation and labor market data could leave short term rates not far from where they currently sit.
Additionally, tax and trade policy loom large for 2025. Tax policy may impact financial markets with expectations of lower corporate tax rates as a benefit to the stock market. However, any changes in tax policy would need to get through the legislature to be implemented, which over the last number of years has been easier said than done. Trade policy on the other hand, can be implemented through the executive branch, making it much easier to enact. Financial markets remain in a cautious posture on trade as excessive tariffs will likely drive prices on imported goods higher for American consumers, especially in the short term. We believe this would negatively impact inflation and economic growth in the US. How much trade protectionist rhetoric is being used as a negotiating tool remains to be seen. In his first term, President Elect Trump was very sensitive to stock market reactions to his polices, and we believe there is a possibility that continues in his second term. Should financial markets react unfavorably to his trade policies we may see the administration walk back threats of trade war to some degree.
Q4 2024 for bonds represented a meaningful sea change in expectations in several relevant ways. Catalyzed both by changing Federal Reserve rhetoric and the election results, both yields and the shape of the yield curve underwent fundamental changes. Across the curve, yields were broadly higher (equating to lower bond prices). And notably, after the longest and deepest yield curve inversion ever – the yield curve largely “normalized”, meaning longer term bonds now offer higher yields than their short-term counterparts.
As always, if you have questions regarding your portfolio, please consult your financial advisor. We appreciate your continued trust in SG Long Financial and look forward to working with you in the future.
Rob Richardson, CFA
Chief Investment Officer
Important Disclosures
Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal. The S&P 500 Index is a recognized benchmark used by investors and the investment industry for the equity market. Indexes are not a managed portfolio and are not subject to advisory fees or trading costs. Investors cannot invest directly in the S&P 500. Indexes and/or market benchmarks references used throughout this report remain the copyrighted property of their respective owners. Before investing, please carefully consider your investment objectives, risks, charges, and expenses. Views expressed do not necessarily represent the views of S.G. Long Financial Service Corp. (“SGLFS”) and are subject to change at any time based upon market or other conditions. The information provided is for general informational purposes only and should not be considered individualized or personalized investment advice.
SGLFS is the parent company of S.G. Long & Company and SGL Investment Advisors, Inc. S.G. Long & Company is a broker-dealer registered with the SEC, a FINRA member firm and a state-registered investment advisor. SGL Investment Advisors, Inc is a SEC registered investment advisory. Clients and employees of SGLFS may maintain positions discussed herein.