Recap and Forecast: A Look Back at 2024 and What Lies Ahead
Stocks overcame uncertainty to notch another strong year in 2024
Looking Back
Financial markets showed resilience, extending the bull market that began in late 2022 as stocks weathered interest rate changes, uncertainty around the US elections, and the ups and downs of the Magnificent 7. Overall, the U.S. economy proved to be stronger than anyone (me included) predicted, and the labor markets remained strong which encouraged continued spending by consumers.
Throughout the year, the Fed lowered interest rates — in the fall, the US Federal Reserve cut interest rates by a half point, which preceded two subsequent quarter-point cuts. But the 10-year US Treasury yield moved in the opposite direction as its yield rose above 4.7%, which is certainly not helping the Real Estate Market.
The U.S. housing market has been in a sales slump dating back to 2022, when mortgage rates began to climb from pandemic-era lows. A shortage of homes for sale and elevated mortgage rates have discouraged many would-be homebuyers. Demand for office space remains weak with the vacancy rate for U.S. office buildings at 20.1% — an all-time high — through the first three quarters of 2024.
Like many, my forecast was a bit more cautionary. We chose to take advantage of higher short-term interest rates to de-risk the portfolios, while still managing to reach most clients’ goal based total return expectations.
Eyes on the New Year
As investors look ahead and as new leaders get to work in many countries around the world, it’s natural to wonder what impact their policies on taxes, spending, and trade may have on markets. And those are just some of the questions about 2025 that we know about. In 2025 investors must consider three very clear realities:
Resilient Economy: Growth has been stronger than anticipated. The economy continues to be much more resilient than most thought or forecasted. Many predicted we'd have a recession last year. While uncertainty about what comes next remains; a recession seems increasingly less likely, at least in the first half of this year.
Persistent Inflation: Inflation has been stickier than anticipated. Yes, the economy is more resilient, but so is inflation. It's stickier than anyone thought and remains an issue.
Deficit and Debt Problem: We still have a huge deficit and debt problem, and the likely extension of the 2018 tax cuts will only exacerbate it if spending isn’t reigned in. Extending tax cuts can have significant implications for a country's deficit and debt levels. The ultimate impact depends on how the extension is structured, the state of the economy, and whether accompanying measures are implemented to address the fiscal imbalance.
Heading into 2024 I was cautious. In 2025 I'm cautiously optimistic. I believe it could be a good year for investors…
Here are some potential tailwinds:
Predictable Policy Environment
Markets tend to respond positively to clarity and stability in monetary policy, reducing uncertainty.
Potential rate cuts if inflation continues to decline, the Federal Reserve and other central banks may pivot to more accommodative monetary policies, which historically support equity markets.
Signs of a "soft landing," where inflation is tamed without triggering a severe recession, would boost investor confidence.
Resilient Consumer Spending
If labor markets remain strong, consumer spending—a significant driver of economic growth—could continue to support corporate earnings.
Strong Corporate Earnings
Growth sectors like technology, healthcare, and energy are poised to benefit from ongoing innovation and favorable demand trends.
Companies that navigated inflationary pressures in 2023–2024 may see improved cost management margins as costs stabilize or decline.
Geopolitical Stability
A resolution or de-escalation of key geopolitical tensions would reduce market volatility and improve investor sentiment.
Sector Rotation
Potential leadership from undervalued sectors like industrials, materials, or financials as investors seek diversification and stability.
Additional Positive Momentum
I don't think the Fed will raise rates, nor are they in a hurry to lower them.
I am expecting more M&A this year with the new administration, which should be a boost to several sectors of the economy.
Less constraints and less regulation could lead to more free market activity.
The jobs numbers continue to be strong, speaking to the resiliency of the economy.
My Takeaway - While there are reasons to be optimistic, risks like geopolitical uncertainty, unexpected monetary tightening, or earnings disappointments remain. Diversification and a balanced approach to investment remain essential.
That’s why investors are best served by a well-thought-out financial goal plan, with an appropriate asset allocation plan to match. Planning for what could happen rather than trying to predict what will; by having a diversified portfolio that aligns with one’s risk tolerance and adjusting accordingly.
By focusing on these growth drivers and keeping an eye on economic indicators, there are solid reasons to remain hopeful about the stock market's performance in 2025.