
GHAdvisor - Newsletter
News
U.S. equities have generally delivered strong returns in recent years, despite economic and political fears. 2024 was no exception, with both earnings growth and price/earnings ratios exceeding expectations. Growth was highest in the US Large Cap sector. Over the past two years, the S&P growth was driven by artificial intelligence and technology stocks, concentrated in a few mega cap tech stocks like Nvidia, Alphabet, Amazon, Apple and Meta.
The rest of the index started to catch up in the latter half of the year, including Consumer Discretionary, Financials, Utilities, Industrials, and Consumer Staples. In fact, the Financials sector was the best-performing sector during the middle of the year.
U.S. Equities: Total returns reached approximately 23.8%, driven by strong performance in technology and growth sectors.
International Equities: Delivered 5% total returns, underperforming U.S. markets.
Bonds: Modest returns with the Bloomberg U.S. Aggregate Bond Index up 1.4%, reflecting a challenging environment for fixed income.
These figures highlight a strong year for risk assets like growth equities, while bonds and international markets lagged.
It was another strong year for investors despite the uncertainty and fears of 2024. There were only two periods of high market volatility last year. This may be surprising given how nervous investors were throughout the year. These occurred in April and August when the market pulled back 5% or more due to concerns around inflation, the Fed, and tech stocks.
There is change and uncertainty heading into the new year as well. The biggest question mark for the markets and the economy in 2025 is likely the policy path in Washington. President-elect Donald Trump campaigned on sweeping changes, including new tariffs, tax cuts, and deregulation, but it’s unclear how those promises will translate into policy action.
Continued tax cuts and pro-business deregulation bode well for the economy and investors, but mass deportations and tariffs would be negative for economic growth. It will be a balancing act keeping growth on track while attempting to fulfil campaign promises.
Another potential risk going into 2025 is a resurgence of inflation. Inflation data over the past few months has shown slowing progress in bringing prices down. Inflation has been sticky with the inflation rate staying above the Fed’s target rate of 2%. Tariffs and lower worker availability could move inflation in the wrong direction. Again, we will see what policy changes actually come about that might affect the Fed’s willingness to cut rates further.
“How [Trump’s] policies are executed will be very important for near-term growth,” says Seth Meyer, global head of client portfolio management at Janus Henderson Investors. While the long-term outlook won’t change as much, he thinks the way Trump implements tariffs or other changes “will have a big impact on the way we think about growth in 2025, which will affect valuations.” *)
This past year and the uncertainty of future policy direction underscore the importance of staying invested during periods of uncertainty. While trying to time the market or holding cash may often feel more comfortable, the opportunity cost of doing so is high. There is no doubt that 2025 will present similar challenges for investors, so working with a trusted advisor to build the right portfolio and financial plan is always important.
It’s difficult to predict which asset classes, sectors, and styles will outperform in any given calendar year. Having exposure to each of these areas in a diversified portfolio is often the best way to stay balanced, participating in the growth and building in downside protection.
We continue to monitor policy and market changes for client portfolio allocations. Your investments must align with your long-term goals and what you need your money to do for you; regardless of economics, fear, and politics in the short term.
MyMoneyBlog 01/02/2025
*) Morningstar – 6 pros on the Biggest US Market Risks for 2025.