Markets Have Decent 4th Quarter
The fourth quarter of 2024 was marked by a volatile performance in U.S. stock markets, with all three major equity indices – the S&P 500, DJIA, and NASDAQ – hitting their all-time highs in early December. These peaks were driven by strong economic data and investor optimism, fueled in part by positive corporate earnings.
However, this enthusiasm quickly faded as inflation proved more persistent than anticipated, forcing the Federal Reserve to adopt a more hawkish tone. Concerns about fewer rate cuts in 2025 weighed heavily on sentiment, eroding much of the early December gains and leaving indices with modest quarterly growth by the year's end.
For the forth quarter of 2024:
The DJIA added 0.9%;
The S&P 500 gained 3.0%;
NASDAQ jumped 7.8%; and
The Russell 2000 edged up 1.5%.
Markets experienced a notable surge in November following the midterm elections, which brought heightened expectations of deregulation under the incoming Trump administration. The prospect of a business-friendly environment initially bolstered equities, as investors anticipated reduced regulatory burdens for key sectors such as energy, finance, and technology. However, this optimism was short-lived.
During its December meeting, the Federal Reserve dashed hopes for aggressive monetary easing, revising its projection to only two rate cuts in 2025, down from the previously anticipated four.
This shift signaled to investors that the fight against inflation remained a priority, further dampening risk appetite and triggering a broad market pullback.
Further, we saw that:
Volatility, as measured by the VIX, trended up slightly this quarter, gaining almost 1%, although there was a huge spike of over 50% in the middle of December.
West Texas Intermediate crude traded within a fairly tight range, ultimately gaining over $2/barrel. For comparison, this time last year crude prices were about $1.50 less per barrel.
Market Performance Around the World
Investors saw weaker performance around the world, as 29 of the 36 developed markets tracked by MSCI were negative for the Q4, with 14 of those losing more than 10%. And for the 40 developing markets tracked by MSCI, 38 were negative.
Index Return
4Q2024
MSCI EAFE
-8.38%
MSCI EURO
-9.66%
MSCI FAR EAST
-3.89%
MSCI G7 INDEX
+0.81%
MSCI NORTH AMERICA
+2.26%
MSCI PACIFIC
-5.73%
MSCI PACIFIC EX-JAPAN
-9.62%
MSCI WORLD
-0.41%
MSCI WORLD EX-USA
-7.72%
Sector Performance Rotated in 4Q2024
The overall sector performance for the fourth quarter was mixed, as only 4 of the 11 S&P 500 sectors advanced, as two sectors (Health Care and Materials) slipped into correction territory. This contrasts sharply with the third quarter where 10 of the 11 S&P 500 sectors advanced, with only Energy (-3.12%) declining.
In addition, the range in sector-returns broadened considerably relative to previous quarters, with Consumer Discretionary leaping more than 13% and Materials losing more than 13% in just three months.
Reviewing the sector returns for just the 4th quarter of 2024, we saw that:
4 of the 11 sectors were painted green and 7 were painted red, as there were some big swings from quarter to quarter;
The tech-laden sectors – think Information Technology and Communication Services – outperformed relative to previous quarters.
The interest-rate-sensitive Financials sector continued to perform very well, fueled in part by the Fed's rate cut;
The differences between the best (+13%) performing and worst (-13%) performing sectors in the fourth quarter was very wide.
Fed Cuts Rates and Turns Hawkish
In December, the Federal Reserve reduced the federal funds rate by 25 basis points, setting the new target range at 4.25% to 4.5%. This marked the third consecutive rate cut, totaling a full percentage point reduction since September, as the Fed aimed to balance economic growth with inflation control.
Fed Chair Jerome Powell indicated a more cautious approach for 2025, suggesting fewer rate cuts than previously anticipated. He stated, "We are at or near a point at which it will be appropriate to slow the pace of further adjustments," and emphasized the need to "see more progress in lowering inflation" before making additional cuts.
These comments suggest that the Fed is likely to implement only two rate cuts in 2025, compared to the four cuts projected earlier.
GDP Increases 3.1%
Real gross domestic product increased at an annual rate of 3.1% in the third quarter of 2024, according to the "third" estimate released by the U.S. Bureau of Economic Analysis. In the second quarter, real GDP increased 3.0%.
In the second estimate, the increase in real GDP was 2.8%.
The update primarily reflected upward revisions to exports and consumer spending that were partly offset by a downward revision to private inventory investment. Imports, which are a subtraction in the calculation of GDP, were revised up.
Producer Price Index Up Slightly
The Producer Price Index for final demand rose 0.4% in November, seasonally adjusted, the U.S. Bureau of Labor Statistics reported. Final demand prices increased 0.3 percent in October and 0.2% in September.
On an unadjusted basis, the index for final demand advanced 3.0% for the 12 months ended in November, the largest rise since moving up 4.7% for the 12 months ended February 2023.
In November, nearly 60% of the broad-based rise in final demand prices can be attributed to a 0.7% increase in the index for final demand goods. Prices for final demand services moved up 0.2%.
The index for final demand less foods, energy, and trade services inched up 0.1% in November after rising 0.3% in October. For the 12 months ended in November, prices for final demand less foods, energy, and trade services advanced 3.5%.
Consumer Price Index Up Slightly
The Consumer Price Index for All Urban Consumers increased 0.3% on a seasonally adjusted basis in November, after rising 0.2% in each of the previous 4 months, the U.S. Bureau of Labor Statistics reported. Over the last 12 months, the all items index increased 2.7% before seasonal adjustment.
The index for shelter rose 0.3% in November, accounting for nearly 40% of the monthly all items increase. The food index also increased over the month, rising 0.4% as the food at home index increased 0.5% and the food away from home index rose 0.3%. The energy index rose 0.2% over the month, after being unchanged in October.
The index for all items less food and energy rose 0.3% in November, as it did in each of the previous 3 months. Indexes that increased in November include shelter, used cars and trucks, household furnishings and operations, medical care, new vehicles, and recreation. The index for communication was among the few major indexes that decreased over the month.
Consumer Sentiment Rises
According to the University of Michigan: "Consumer sentiment confirmed its early-month reading, rising for the fifth consecutive month and reaching its highest value since April 2024. Buying conditions exhibited a particularly strong 32% improvement, primarily due to a surge in consumers expecting future price increases for large purchases.
The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December. Importantly, for Independents, expectations were essentially unchanged from the past month or so for personal finances, short-run business conditions, and long-run business conditions.
Broadly speaking, consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving; sentiment is currently about midway between the all-time low reached in June 2022 and pre-pandemic readings."
New Home Sales Jump
In November 2024, the U.S. housing market experienced a significant boost, with sales of new single-family homes reaching a seasonally adjusted annual rate of 664,000, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. This marks a 5.9% increase from October's revised figures and an 8.7% rise compared to November 2023. November new home sales are up 2.4% on a year-to-date basis.
New single-family home inventory in November remained elevated at a level of 490,000, up 8.9% compared to a year earlier. This represents an 8.9 months' supply at the current building pace. A measure near a six months' supply is considered balanced.
Labor Market Remains Robust
In the fourth quarter of 2024, the U.S. labor market exhibited signs of cooling, though it remained relatively robust. Initial jobless claims, a proxy for layoffs, fluctuated during this period. For the week ending December 7, claims unexpectedly rose to 242,000, the highest level in two months, surpassing economists' forecasts of 220,000.
However, in the subsequent week ending December 14, claims decreased significantly by 22,000 to 220,000, indicating that the prior spike may have been an anomaly.
By the week ending December 28, initial claims further declined to 211,000, reaching an eight-month low and suggesting reduced layoffs.
Despite these fluctuations in initial claims, continuing claims – a which represent the number of individuals receiving unemployment benefits after an initial week – showed a gradual increase, indicating that some workers were experiencing longer periods of unemployment. For instance, continuing claims rose to 1.91 million in mid-December, the highest level in three years.
Sources
nar.realtor;bea.gov;umich.edu ;msci.com;fidelity.com;nasdaq.com;wsj.com; morningstar.com;
Comments