Market Update: Fourth Quarter 2024

The final quarter of 2024 was nothing if not eventful. (What else is new?) The Federal Reserve lowered interest rates, providing further relief to borrowers and markets alike. The U.S. election captivated national attention and has sparked uncertainty about the year ahead. Stocks failed to maintain the rally established in the first three quarters of the year. Outside the largest US technology stocks (the ‘Magnificent Seven’), most equities were flat or down. For the quarter, the S&P 500 was up +2.4% but the equal- weighted S&P 500 was actually down -1.9%, US Small Cap was up +0.3%, and International Developed was down -8.4%.

Despite the challenging quarter, it was a strong 2024 for most equity asset classes due in large part to a resilient US economy, moderating inflation, and strong employment. While there were some notable downturns through the year, they were followed by quick recoveries. The S&P 500 finished +24.8%, US Small Cap was up +11.4%, and International Developed was up +3.5%. Fixed income investing was more problematic, particularly in longer duration bonds due to the rise in long-term yields. Intermediate-term bonds were down -0.6% for the year and treasuries with maturities beyond twenty years were down -8.1%. 

The Fed lowered the federal-funds rate to the 4.25%–4.5% range after three rate cuts totaling a full percentage point in September, November, and December. The reductions, which were the first since the COVID-19 pandemic in March 2020, came amid easing inflation and conflicting readings on the job market. Inflation remained near multiyear lows, with the November core consumer price index, which excludes more-volatile food and energy items, showing prices rose 3.3% from a year earlier.

A Few Thoughts on a Roaring Market

Two years of strong stock returns can lead to emotional responses—the flip side of the feeling you might get after a couple down years. You probably know by now that it’s risky to sell in a panic when the market drops. But what about when the market just keeps going up?

On one hand, strong market performance can be exhilarating and inspire optimism about your future. On the other hand, it can create a kind of retroactive FOMO—a wish you had invested more aggressively so you could have made more money. You might even be tempted to invest more in stocks, so you don’t miss out if the bull run continues.

Don’t let the giddiness that can accompany a bull market throw you off. Your diversified portfolio is never going to keep up with the top-returning asset class in a given year. That’s by design—and similar to why it will never fare as badly as the worst performer. Despite solid returns on an absolute basis, it was difficult for diversified investors to keep up with the returns of the headline S&P 500. The ten largest stocks in the S&P 500 now account for almost 40% of the weighting, the largest level by far in modern history. To give you a sense of the return difference for the year, the equal-weighted S&P 500 underperformed the cap-weighted index by 11.6%!  Portfolio allocations that did help portfolio performance included our underweight to International Developed and US Small Cap and a large overweight to shorter duration bonds, one of the few areas in fixed income that had decent returns in 2024 (short-term Treasuries were up +3.9% for the year). 

When you think about all of this, you realize that lagging the stock market during a generational bull market isn’t a failure of diversification—it’s all part of the plan. And consider this: the top performing markets globally last year were Argentina at 63.46% and Israel at 28%! Not many saw that coming and allocated accordingly.

Remember: Investing isn’t about chasing the biggest returns; it’s about maximizing your ability to achieve your life goals.

Returning to the Heart of the Matter

The core of your investment plan isn’t the markets, individual securities or even returns. It’s you—your aspirations, values and vision for the future. What do you hope to achieve in the years ahead? What brings meaning and fulfillment to your life? These are the questions that should guide your financial strategy.

The beginning of a new year is an ideal moment to refocus on these questions. We encourage you to take this time to reflect. Perhaps you’re looking forward to retirement and want to ensure you have what you need to live comfortably and pursue your passions. Maybe you’re thinking about your family and how you can best provide for their future. Or you might be contemplating trying new experiences that bring you joy, whether it’s taking that bucket list trip, finally learning how to play the guitar or volunteering at a local organization that means a lot to you.

The markets will undoubtedly have their ups and downs in the coming year. With a strong investment plan—including a well-diversified portfolio—your financial journey won’t be defined by those fluctuations. Instead, it will be shaped by the long-term goals you set and the steps you take to achieve them.

Navigating the complexities of financial markets and life goals can feel overwhelming. Using the best evidence available, we’re here to help shape a strategy that aligns your financial resources with your aspirations. Let’s make 2025 a year of progress, purpose, and partnership.

Information is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products, or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this post (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of Angela Wright, an Investment Adviser Representative of Gemmer Asset Management LLC (“GAM”) and should not be regarded as the views of GAM, or a description of advisory services provided by GAM or performance returns of any GAM client.  References to securities or market-related performance data are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others