Ho Ho No

January 7, 2025

Santa Rally Fails To Materialize But Stocks Log Epic Year

Stocks ended 2024 with a whimper, as the S&P500 lost -2.4% in December to close at 5,882. The fabled “Santa Claus rally,” which generally sees the market post strong gains in the final days of the year, was not meant to be this time as a combination of profit-taking and rebalancing resulted in December losses. Nonetheless, the fourth quarter and calendar year were strongly positive, with the benchmark index gaining 25% in 2024 and registering 57 new all-time highs. This strength comes on the back of a solid 2023, and the market’s two-year performance is the best in nearly 25 years. Despite Santa’s conspicuous December absence, equity investors were indeed on the good list this year and were rewarded accordingly.

Looking under the hood, 2024 was a story of large-cap domination, with mega-cap names outperforming the broader S&P500 by more than 8%. The “Magnificent Seven” stocks turned in another blockbuster year, gaining 67% in 2024 and representing 55% over the overall market return! This dynamic has been consistent over the last several years and reminds us that concentration risk in the broad indices remains a key consideration for asset allocators. Small- and mid-cap stocks performed well on an absolute basis, registering double-digit gains but lagging far behind their large-cap brethren. “The bigger the better” as they say.

The Federal Reserve cut its benchmark interest rate by a quarter point in December, just as expected. This reduction came despite increased inflation expectations, with year-end estimates for 2024, 2025, and 2026 all being revised higher. Arguably more important than the cut itself, the bank’s messaging implied fewer cuts in 2025, which has landed squarely front of mind for many investors and market participants. Immediately following the announcement, bond yields rose – especially in the 2–3-year maturity range – which reflect the market’s expectation of a “Fed pause.” The bond market, commonly referred to as the “smart money,” is clearly telling us that it has concerns over the Fed’s ability to push inflation lower from here. Accordingly, the month of December and the entire fourth quarter were challenging for bonds, as rising yields forced prices down resulting in modest losses across the major indices. The Bloomberg US Aggregate index fell -1.64% during the month, but still managed to close 2024 in the green with a meager 1.25% total return.

Alternative investments – namely gold and cryptocurrency – were in the headlines all year long. The former, although slightly down in December, was the bright and shiny star amongst alternatives in 2024, turning in a +27% year and outperforming the S&P500. This was the precious metal’s best year since 2010, and was fueled mainly by incessant central bank purchasing, easing monetary policy and geopolitical strife. This strong performance for gold was achieved in spite of traditional headwinds in the strong US dollar and rising bond yields.

Bitcoin also attracted major attention during the year, as the launch of several ETFs catapulted the digital asset into the mainstream. One particular bitcoin ETF has seen its assets under management grow to $50B in less than a year, making it arguably one of the most successful new product launches ever. BTC’s price rose 100% in 2024, driven by the above ETF adoption (and associated inflows), general risk-on positioning, and pro-crypto sentiment on the part of the incoming administration. Rumors of President Elect Trump using bitcoin as a reserve asset on “day one” of the administration have only added fuel to the fire.

Looking forward, investors are relying on robust corporate earnings as the primary means for the bull market to continue. Earnings are forecasted to grow 2.1% in 2025, which should provide support for equities at current or slightly higher valuations. But we must always be prepared for the unknown, which is everywhere around us as we enter the new year. Of particular note are the effects of the incoming administration’s policies on international trade, immigration, deregulation, and taxes (among others). As ever, we will do our best to be prepared for a wide range of outcomes, and position portfolios accordingly. While we cannot predict what 2025 will bring, we can and will stick to the knitting which has served us so well in the past: a well-reasoned, disciplined process that is adhered to across all market environments.

We are excited to embark on another year with our valued friends, family, and clients. We hope it is fruitful and prosperous for all. Until next month, we wish you a happy new year and thank you for your ongoing trust and support.

Sincerely,

Jason D. Edinger

Chief Investment Officer

Boston Wealth Strategies