Market Insights: Fourth Quarter 2024

Equities Deliver Strong Year Despite December Dip

The S&P 500 powered through a tumultuous election-year posting impressive gains. The U.S. economy remained resilient, AI enthusiasm continued on, and the Federal Reserve began to cut interest rates, leading to positive returns for the S&P 500 for the second consecutive year. 

The 4th quarter began with heightened anxiety, as political uncertainties and fiscal concerns caused volatility. In October, the presidential race tightened, creating uncertainty about future policies. The fiscal implications of both candidates' proposals became a central topic of concern, pushing Treasury yields higher and stocks lower.

Markets rebounded following a decisive election outcome and optimism for pro-growth policies in 2025. Investors interpreted the election results as a bullish signal, anticipating tax cuts, deregulation, and a business-friendly administration. 

However, momentum stalled in December amid fresh tariff threats from President-elect Trump, unconventional cabinet appointments, and the 10-year Treasury yield rising. Despite the Federal Reserve's December rate cut, reduced projections for 2025 rate cuts sparked a sell-off, ending the year with stocks well off their highs.

Despite these challenges, 2024 was a strong year for equities, driven by the Fed's likely successful navigation of a soft economic landing and impressively resilient markets in the face of political turbulence.

Markets enter 2025 with optimism centered around the incoming administration’s pro-growth agenda. Expectations include an extension of the 2017 Tax Cuts and Jobs Act, further tax reductions, and sweeping deregulation. If realized, these policies could boost corporate earnings, household incomes, and consumer spending—all positives for equities.

The Federal Reserve’s success in achieving the elusive soft-landing is looking more and more likely, also contributing to the positive tone. With inflation easing and unemployment at historic lows, the Fed has room to continue cutting rates, albeit at a slower pace than previously anticipated.

Despite the positive outlook, significant risks remain. Trade tensions, geopolitical unrest, tariff threats, tax legislation facing delays, and the potential of ‘sticky’ inflation could all create headwinds. Elevated stock valuations and persistent growth risks also require close attention.

A diversified, long-term investment strategy remains essential. As recent years have shown, markets can be unpredictable. By managing risk and capitalizing on opportunities, investors can navigate volatility and achieve their financial goals.

We appreciate your continued trust and confidence. Please feel free to reach out with any questions or to schedule a portfolio review.

The Primoris Wealth Advisors Team