Abstract
That is a Wrap: A Constructive 2024 To chop to the chase, 2024 was a extremely optimistic yr for shares. However the begin and center have been higher than the end, as confidence that inflation and rates of interest have been heading decisively decrease started to decrease. There have been additionally a number of positives, a few of which intensified into year-end. Market participation throughout sizes and kinds was extra even in 2024 than in 2023, which was equally an excellent yr for shares. Company earnings of the biggest U.S. firms (the S&P 500) shook off a multi-quarter unfavourable development exiting 2023 and confirmed accelerating progress into year-end 2024. Inflation was decrease at year-end 2024 than at year-end 2023, however momentum towards reaching the Fed’s 2% goal slowed because the yr progressed. Rates of interest eased together with inflation throughout most of 2024, however lengthy charges rose into year-end resulting from a wide range of elements. A kind of elements was the reelection of Donald Trump, as his promised insurance policies carry a mixture of threat of alternatives and challenges. All through 2024, we mentioned the general market outlook when it comes to easy vowels. The three ‘Es’ (of employment, earnings, and the economic system) acted as optimistic offsets to the ‘Is’ (of inflation, nonetheless too excessive for consolation, and rates of interest, at ranges excessive sufficient to cut back spending on big-ticket objects corresponding to vehicles and homes). At year-end 2024, we discover these 5 key ideas persevering with to drive the market. The Inventory Market in 2024 Regardless of some December weak spot, and however a collapse within the last buying and selling classes of the yr, U.S. inventory indices have been all extremely optimistic for 2024. As of market shut on 12/27/24, the S&P 500 was up 25.2% on a capital-appreciation foundation and (assuming reinvestment of dividends) up 26.9% on a total-return foundation. The Nasdaq was up 31.4% on a capital-appreciation foundation and 32.2% on a total-return foundation. The DJIA was up 16.2% and 14.1%, respectively, with dividends representing greater than 2% of hypothetical whole return for the blue-chip index. Though the Dow lagged the opposite main indices in 2024, its mid-teens acquire was nonetheless higher than the efficiency by the broad market (the S&P 500) in an ‘common’ yr. The efficiency map for the three main indices stands in distinction to 2023, when the Nasdaq Composite rose almost twice as a lot because the S&P 500, and the DJIA was a deep laggard. The more-even efficiency between S&P 500 and Nasdaq can also be mirrored within the sector map for 2024. Throughout the S&P 500, and utilizing the S&P sectors, 5 of the 11 U.S. sectors are up at the least 20% on a total-return foundation in 2024. Utilizing the iShares sector ETFs, 5 sectors are additionally up over 20% on a capital-appreciation foundation. Based mostly on the S&P sectors, one of the best performances got here from Communication Providers and Info Know-how, each up over 40%. In a surprising restoration from mid-year weak spot, Client Discretionary rose 34%. And the Monetary sector was up 32%. The ultimate 20%-plus sector in 2024 was Utilities, up 24%. The opposite income-dependent sector, Actual Property, had an up-and-down yr. REITs have been down at mid-year, rose in excessive teen percentages within the third quarter, and completed the yr largely unchanged from opening ranges. In 2023, the S&P 500 additionally rose greater than 20%. However solely three sectors have been sturdy, whereas the opposite eight had a median acquire of lower than 4%. Whereas the three 2024 leaders are repeating their 2023 success, the Monetary sector delivered half the market efficiency in 2023, whereas Utilities have been down 8%. In our view, this sector breadth is the most-important function of the 2024 U.S. inventory market — and we predict this can be a very optimistic indicator for 2025. The Financial system, Earnings, and Employment In December 2023, we offered base case, bull case, and bear case eventualities for 2024. The 2024 yr unfolded primarily consistent with our base case, in that inflation fell beneath 3%; the Fed started to chop charges, although within the fall moderately than our forecast for mid-year cuts; recession was averted; and a victor was effectively declared within the presidential race. However the market did a lot better than our base-case forecast of 8%-12% acquire. The S&P 500 in 2024 rose greater than twice as a lot as we forecast in our base-case situation. U.S. GDP, which elevated 2.9% in 2023 and a couple of.5% in 2024, started the yr with 1.6% progress in 1Q24. However the economic system grew at the least 3% in each 2Q24 (3.0%) and 3Q245 (3.1%). In line with the Atlanta Fed’s GDPNow Tracker, the U.S. economic system is on monitor for 3.1% progress once more in 4Q24. GDP progress is cumulative and never a easy common of the 4 quarterly adjustments. On that foundation, the U.S. economic system is on monitor for progress within the high-2% vary for 2024. Argus Director of Financial Analysis Chris Graja, CFA, appears for two.6% U.S. GDP progress for 2024. For 2025, he’s modeling low-2% GDP progress with a stronger second half. We count on the U.S. economic system to keep away from recession in 2025. A key supply of this progress and the economic system’s general well being is resilient, employed customers. November nonfarm payrolls elevated by a better-than-consensus 227,000, reflecting a bounce-back from hurricanes in October and the decision of the Boeing machinists’ strike. The 12-month common by way of November 2024 is 184,000, beneath the 2023 tally however higher than our expectations coming into 2024. Unemployment was 4.2% in November. However the days of job-jumping look like over, because the employment scenario has entered a ‘low-fire, low-hire’ section. There are nonetheless extra job openings than people who find themselves unemployed, although the hole is narrowing. And better-paying jobs at the moment are more durable to seek out. The Fed’s unemployment forecast is 4.4% in 2025 and 4.2% over the long run. Unemployment in a variety of 4.0%-4.5% is close to full employment, which is the bottom fee in step with value stability. In mid-December 2024, we raised our 2025 and 2026 forecasts for S&P 500 earnings from persevering with operations. For 2025, we raised our earnings forecast for to $276, from $265. Our revised 2025 forecast fashions full-year EPS progress of about 12%. Our elevated optimism towards 2025 earnings displays anticipated higher efficiency for 3 sectors that have been unfavourable in 3Q24: Vitality, Supplies, and Industrials. Supplies and Industrials may swing to optimistic comparisons as quickly as 4Q24 (Supplies) and 1Q25 (Industrials). Vitality may take a little bit longer, producing optimistic comparisons by 2Q25. For 2026, we raised our forecast for S&P 500 earnings from persevering with operations to $307. Our revised forecast fashions full-year EPS progress of about 11%. The marginally extra average progress outlook for 2026 is because of tougher comparisons. We count on the AI transformation to proceed to drive progress in Communication Providers, Info Know-how, and Client Discretionary. We search for progress to gradual in defensive sectors however to select up in Vitality. Whereas general financial progress is sound, it’s at the moment maybe too reliant on the absolutely employed shopper. The economic and business economic system remains to be being impacted by excessive financing prices and by the continuing struggles of a number of former trade leaders (Intel and Boening, for instance). On a optimistic observe, the long-struggling housing sector is exhibiting indicators of life. U.S. pending dwelling gross sales rose 12.1% yr over yr in November, the largest improve since 2021. Greater than mortgage charges, which stay stubbornly excessive, restoration in housing probably displays the pent-up demand from the post-pandemic interval as inflation and rates of interest rose. Inflation and Curiosity Charges Inflation measures are trending in direction of the Federal Reserve’s said purpose of two%, however even the Fed has famous slowing momentum within the struggle. Total costs should not declining, they’re
