What’s Next?
What a great year for the U.S. stock and bond markets. We experienced growth in the two main asset classes, Equities and Fixed Income. This is where advisors allocate client funds for building client investment strategies. A mixture of solid economic growth, contained inflation, interest rate cuts, and strong corporate earnings fueled the growth in the stock and bond markets. Big Tech in the form of Artificial Intelligence (AI) paved the way for a second straight year, pushing stock market indexes higher.
In the 4th Quarter of 2024, the markets recovered from a late summer correction and proceeded to make new highs. The markets waived off pre-election concerns and moved higher because of a decisive political win, helping to create a surge that pushed markets higher into December. In late December, the Fed signaled there may be fewer rate cuts in 2025, causing investors to hit a wall of worry thus fending off a 2024 Santa Claus rally. Despite the worry, stocks finished the year strong to close out 2024. Communication and technology stocks that focus on AI boomed. Growth stocks outperformed value stocks, and large-cap stocks mostly outperformed small cap stocks.
The Federal Funds Rate remains a key driving influence on the economy and investment markets. The Federal Reserve made its third consecutive interest rate cut with a quarter-point reduction that moved the Fed Funds interest rate from 4.5% to 4.25%. The market made it clear by its sell-off reaction to the announcement of a slowdown in rate cuts that lower rates equal economic and market growth. However, inflation on goods continued to be persistent, and consumers felt it this holiday season. The Fed may also be in a wait and see holding pattern as the newly elected president positions America’s economic strength in the form of tariffs. This may create a level playing field for international trade and continue the expansion economic cycle.
What is going on in China? The kids are not working. Unemployment for children ages 16 to 24 is at a record high of 16%. The situation China faces is problematic both in the short and long term for the Chinese economy and markets. In the short term, a tight job market and tighter regulations on entrepreneurship limit the opportunity for business creativity to expand products to fuel economic development and growth beyond the confines of government oversight. Adding to these challenges is the economic deceleration that China experienced in August, with key indicators such as factory output, consumption, and investments falling short of expectations. In the long-term, business market expansion is stifled as there is a limit to the creation of new businesses that would mature into developed corporations to fuel future economic growth (GDP) and stock market expansion.
Elsewhere in global markets, international stocks lagged behind U.S. stocks in the 4th Quarter. Emerging markets struggled as geopolitical tensions remained high due to conflicts around the world. Europe, Australia, and the Far East markets underperformed the S&P 500 by high single digits. The largest factor contributing to the downtrend in developed country markets has been the strength of the U.S. dollar. Possible tariffs on foreign goods in 2025 will not help international markets, and is creating significant uncertainty for the possibility of future growth in international stocks.
A new year brings a new political administration. With the change of guard across the U.S., investors have hope that the policies put in place will be attractive to stimulate an acceleration of market growth in the U.S. and beyond. If there are favorable tariff negotiations, all would benefit from fair trade deals and the expansion of economies globally.
Are you uncertain about how the ever-changing market environment affects your investment plan? If so, it would be worth having a conversation with us to determine if a partnership would make sense for your situation and determine what the impacts of market trends are on your investment strategy. At Renew Family Wealth, it is our goal that our clients invest according to their appropriate risk tolerance. When the market environment and life circumstances change, it is important to understand how these conditions impact your finances and how you invest. We welcome the opportunity to assist in evaluating how these conditions are affecting you, your family, and those you know. Please do not hesitate to contact us to schedule a meeting to discuss how we can be of service to you.
Thank you for the opportunity to serve you.
Sincerely,
Scott Miller
