HWM Market Recap - January 2025
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After an impressive return of more than 24% for the S&P 500 in 2023, few economists predicted that 2024 would deliver another consecutive big year for stocks. In fact, of the 20 firms we reviewed in last month’s newsletter, the most optimistic forecast for 2024 predicted an increase of just over 13%.
Defying expectations, the index posted a more than 23% return in 2024, setting 57 new all-time highs in a single year – an achievement matched only four times in the index’s history. Together, 2023 and 2024 delivered the highest-performing two-year stretch for U.S. stocks since the late 1990s.
S&P 500 Has a Record Year in 2024
Most All-Time Hights Recorded by the S&P 500 in a Calendar Year
Source: Yahoo Finance, X/@charliebilello
The chart below shows the S&P 500’s cumulative return with various market, economic, and pop culture events. It reminds us how various uncertainties challenge investors, and even record market highs may have contributed to some investors’ nervousness, as they often spark fears of a possible impending correction. Ultimately, 2024 serves as a reminder of the importance of discipline and maintaining a long-term perspective.
S&P 500 Return and Headlines in 2024
Data from 1/1/2024 - 12/31/2024. Source: FactSet, Avantis Investors. Chart designed by Avantis Investors.
The charts below highlight some of the most followed economic metrics for 2024. The key takeaway is that the U.S. economy closed on solid ground. U.S. GDP remained stable in 2024 primarily due to persistently low unemployment relative to long-term averages, wages outpacing inflation, and robust consumer spending. In addition, the U.S. economy and interest rates remained in focus for investors throughout 2024. As we began the new year in 2024, the consensus was that the Federal Reserve (Fed) would likely cut interest rates. In the end, the Fed cut rates by a total of 1% spread across three reductions throughout the year.
U.S. GDP, Unemployment, and Inflation for 2024
Panel A Source: U.S. Bureau of Economic Analysis. *Estimate from Atlanta Fed GDPNow as of 1/3/2025. Panel B Source: FRED. Data from 1/1/1948 – 11/30/2024. Panel C Source: U.S. Bureau of Labor Statistics. Data from 1/1/2024 – 11/30/2024. Chart designed by Avantis Investors.
So, what are the expectations for 2025? Here is what some of the largest money institutions are saying about their outlook for 2025:
Bank of America: 2025 is expected to be a launchpad for innovation-driven growth, marked by strong corporate profits, broadening market participation, and a normalization of bond markets. While risks such as policy shifts, inflation, and global tensions remain, diversification and a steady, forward-looking investment approach are emphasized to navigate opportunities and challenges.
BlackRock: BlackRock highlights a transformative period shaped by AI, geopolitical shifts, and the low-carbon transition, with persistent inflation and elevated interest rates. They favor U.S. equities and advocate pro-risk, thematic investment strategies to navigate these structural shifts.
Charles Schwab: Schwab foresees a year marked by uncertainty driven by potential policy changes, inflation pressures, and global economic shifts. While U.S. equities may remain strong, heightened volatility and valuation concerns call for investor discipline. Internationally, moderate growth and central bank rate cuts could support returns. However, trade tensions and policy risks may drive volatility, underscoring the importance of diversification.
Citi: Global economic growth is expected to continue into 2025-2026 at a rate of 2.9% (compared to 2.6% in 2024) despite geopolitical tensions. Among the world’s advanced economies, Citi sees the U.S. as the primary engine of growth and has a positive view of an ongoing bull market for stocks with broader participation beyond U.S. tech giants. In fixed income, they favor credit investments (i.e., bonds issued by companies) as the Federal Reserve looks set to continue cutting interest rates from its current 4.75% to about 3.75% by year-end.
Fidelity: Fidelity presents a more cautious outlook for 2025. They warn that inflation may persist even though the Federal Reserve is expected to continue to cut rates. Also, market returns could disappoint due to high valuations and overly optimistic expectations.
Goldman Sachs: Global economic growth is poised for another solid year, and the U.S. will outperform expectations and grow faster than other developed-market countries for the third year in a row. As a result of Trump’s re-election, they predict higher tariffs on China and imported cars, lower immigration, new tax cuts, and regulatory easing. They warn that broad new tariffs pose the most significant risk to their outlook.
JPMorgan: The U.S. economy is settling into a more normal pace, unlikely to trigger a recession but more vulnerable to shocks, including potential policy changes. With elevated market valuations and unbalanced portfolios after recent strong performance, investors should prioritize rebalancing to navigate the shifting landscape.
Morgan Stanley: Growth drivers of the U.S. economy are shifting. The economy is expected to slow in 2025 and even more in 2026 as new tariffs and immigration restrictions weigh on activity, consumer spending, and inflation. While inflation continues to normalize globally, the U.S. may see a rebound in late 2025 before a downward trend resumes in 2026.
Vanguard: Global easing of interest rates will be in full swing in 2025, with inflation in most developed economies nearing their central banks’ targets. High productivity growth and increased available labor have propelled the U.S. economy. Challenges like potential price increases from policy changes, expensive stock market valuations, and trade issues could create uncertainty.
Wells Fargo: The lingering economic impacts of the COVID pandemic are steadily subsiding, with U.S. economic policy set to take center stage in 2025. Proposed tariffs could impose moderate stagflation (higher inflation, stagnant economic growth, elevated unemployment). Globally, major central banks are expected to ease monetary policy (lower interest rates or take other actions to make borrowing cheaper and increase the money supply). Wells Fargo also boosted its forecast for inflation in 2025 and decreased it for inflation-adjusted GDP growth.
2024 was a standout year for investors, but does that mean 2025 will be without uncertainties or potential concerns? Not at all. Unpredictability is part of investing – the tradeoff for higher potential returns is increased volatility and the risk of short-term losses. But that does not necessitate a bad investment experience if you stay disciplined. Despite doubts at the start of 2024, those who stayed invested reaped the rewards.
Of course, not every year will be as generous. Take 2022, when the S&P 500 dropped almost 20%. Investors endured some pain that year, but those who continued to stick with their investment strategy saw their patience pay off in the years that followed.
So, who knows where 2025 will take us? But as demonstrated, hanging on to sound investment principles like broad diversification, a long-term outlook, and staying the course paid off in 2024, as is often the case over time.
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Monthly Changes in Indices
| Changes in Indices for 2024
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Monthly Performance By Sector
| Sector Performance for 2024
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Interest Rates: In its final meeting of 2024, the Federal Reserve (Fed) announced that it would lower interest rates by 0.25%. The cuts are the third announced by the Fed this year. In its meeting, the Fed signaled fewer rate cuts for 2025 than previously expected.
Inflation: The Consumer Price Index (CPI) rose 0.3% month-over-month in November after rising 0.2% in each of the previous 4 months. Over the last twelve months, CPI increased 2.7%. Core CPI (which excludes food and energy) increased by 0.3% in November compared to October and rose by 3.3% compared to a year ago.
Housing: According to the National Association of Realtors, existing home sales increased on a month-over-month basis by 4.8% in November and accelerated 6.1% from one year ago – the largest year-over-year gain since June 2021. The median existing-home sales price also rose 4.7% from one year ago to $406,100 – the 17th consecutive month of year-over-year price increases. Sales of new single-family houses increased 5.9% in November from the month prior and increased by 8.7% from November 2023. The median sales price of new houses sold in November was $402,600.
Mortgage Rates: As of January 9th, 2025, the weekly average for a 30-year fixed-rate mortgage is 6.03%, slightly above the 52-week average of 6.73% and up 0.27% from a year ago.
Employment: According to the Bureau of Labor Statistics's Employment Situation Summary, unemployment was little changed in November at 4.1%. Employment increased in health care, government, and social assistance. The Job Openings and Labor Turnover Summary (JOLTS) indicated a decrease in individuals quitting their jobs. Otherwise, job openings, hires, and layoffs and discharges changed little.
Consumer Sentiment: In its first reading of the new year, the University of Michigan's Surveys of Consumers shows consumer sentiment is relatively unchanged month-over-month. Compared to its reading one year prior, consumer sentiment is down 7.3%. Year-ahead inflation expectations increased from 2.8% in last month's reading to 3.3%. Long-run inflation expectations also rose from 3.0% last month to 3.3%.
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About the Author
Holzberg Wealth Management is a family-owned and operated financial planning and investment management firm based in Marin County, CA. As your financial advisors, we serve you as a fiduciary and are fee-only, so we never receive commissions of any kind. We help individuals and families like you in the greater San Francisco Bay Area and nationwide with the financial decision-making process to organize, grow, and protect your assets.
** This writing is for informational purposes only. The author and Holzberg Wealth Management do not guarantee or otherwise promise any results that may be obtained from using this report. No reader should make any investment decision without first consulting their financial advisor and conducting their own research and due diligence. These commentaries, analyses, opinions, and recommendations represent the personal and subjective views of the author and do not constitute a recommendation, offer, or solicitation to make any securities transaction. The information provided in this report is obtained from sources that the author believes to be reliable. External links to third parties are being provided for informational purposes only. Holzberg Wealth Management is not affiliated with the third-party websites linked to, unless otherwise explicitly stated, and does not constitute an endorsement or approval by Holzberg Wealth Management of any of the third party’s products, services, or opinions. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Any charts and graphs provided are hypothetical and for illustrative purposes only, are not indicative of any investment, and assume reinvestment of income and no transaction costs or taxes.