North River Wealth - 4Q 2024 Market Recap

Market Returns

The US stock market reigns supreme yet again. Although the fourth quarter was a bit choppy due to a variety of factors from the election to ongoing geopolitical concerns, the US stock market remained resilient. The S&P 500 finished the quarter up 2% and nearly matched its 2023 return finishing the full year up 25%, producing the best two-year gain since the late 1990’s. The usual suspects led the charge over the quarter with growth stocks handily outperforming value-oriented stocks. It seemed anything associated with AI stocks continued to fuel growth for the quarter with communication services and technology stocks the top performing sectors on the year. Small-cap US stocks struggled to find their footing after initially performing well post-election. Small-cap stocks represented by the Russell 2000 were nearly flat on the quarter but still produced positive returns of 12% on the year.

In a reversal from what we saw in the 3rd quarter, international markets felt the wrath of potential tariffs and a strong US dollar. The MSCI EAFE index, which includes stocks from developed countries in Europe and Asia, was down 8% on the quarter, but still eked out a gain of 4% on the year. Emerging markets stocks also fell 8% this quarter, but up 8% for the year. Despite a volatile fourth quarter, Chinese stocks snapped a 3-year losing streak and posted gains near 20% for the year.

Interest rates rose during the quarter, with the 10-year US Treasury bond yield moving from 3.77% to 4.58% hurting overall returns for the bond market (interest rates and bond prices have an inverse relationship, so rising interest rates hurt bond returns). The overall US aggregate bond market finished the quarter down 3% and up about 1% in 2024. 

Source:  BlackRock

Trump Wins

The predictive betting sites were right. There was no waiting weeks after the November 5th election. Donald Trump handily defeated Kamala Harris, winning nearly every close race across the country setting up for his second term in the White House. Republicans also gained control over Congress. Republicans now hold a 53-47 lead over the Democrats in the Senate, picking up four seats and hold a five-seat lead in the US House as Democrats gained one seat.

What does this mean for markets? As we have stated in the past, it usually doesn’t matter much. Over long-term time periods, the stock market has performed well in any scenario (see chart below). What matters more is the economic environment and with a strong labor market, moderating inflation, and the potential for a broader market rally, there seems to still be legs in this bull market. While there certainly will be volatility, it is important to remember your goals and what you are trying to achieve. Different investment accounts can have different objectives, so make sure you are not making short-term or reactionary moves to what is happening in the market.

Source 1: Fidelity. https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/fidelity/party-in-power.pdf

Source 2: Retirement Researcher, “Are Republicans or Democrats better for the Stock Market”, retrieved 2/19/24. Data from 1926 through 2023. Unified government means that the Presidency, the House of Representatives and the Senate are all controlled by a single party. Divided government means that at least one house of Congress or the Presidency is controlled by the other party. Stocks are represented by the S&P 500® index. It is not possible to invest directly in an index. Past performance is no guarantee of future results.

The Fed Cuts Rates & Markets Fall?

In December, the Fed cut rates for the third consecutive time, but instead of a favorable reaction, markets had one of the worst performing days of the year. The S&P 500 fell nearly 3% that day alone and fueled greater skepticism for the quarter as hopes for a Santa Claus market rebound couldn’t gain traction. Longer term interest rates also spiked causing additional pressure in the bond market. The main reason for the sell-off was the Fed indicated a slower pace of rate cuts heading into 2025. With signs of a strengthening labor market and moderating inflation, only two cuts are expected over the year. The Fed now views 3% as its neutral rate and with rates in the 4.25%-4.50% range, it seems that further cuts are inevitable, the question remains how long will it take to get there?

Crypto Rally

Although we do not directly hold Bitcoin or any cryptocurrency in client accounts, it is tough to ignore the outsized market returns that Bitcoin and other cryptocurrencies experienced during the year. Bitcoin finished the year up nearly 120% as SEC approval of spot ETF’s, a risk-on rally, and support from the Trump administration helped lift the asset class higher. Because Bitcoin does not have underlying cash flow like most stocks, the price is driven by demand and the likelihood of increased adoption. While the returns have certainly been juicy over the past year, there is still a tremendous amount of volatility in Bitcoin and other cryptocurrencies. Oh, and beware of the “memecoins.”

What To Expect in 2025

In case you missed our outlook for all things 2025, you can check it out here!

Blessings to you and your family as you start the new year!

Authored by Stephen Blahovec and Michael Rausch of North River Wealth Advisors.  We are an independent, fee-only financial planning and investment management firm located in Pittsburgh, PA servicing clients locally and across the country.  To learn more, contact us here.

This content is developed by North River Wealth Advisors from sources believed to be providing accurate information. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.