So, You Wanted Some Action – 4th Quarter Commentary 2024
For a fourth quarter chock full of holidays, the stock market was a very lively place. October was a relatively slow month, but all the buzz and excitement of the post-election results inspired positive returns in the stock market, buoyed by the fact that President-Elect Trump is presumed as business friendly. As Santa wrapped up the holiday, traders and short-term options portfolios took their profits as the year ended. The S&P 500 finished the year slightly below its highs, and the larger capitalization companies were the big winners. Interest rates were a big focus of this quarter. Every day people were talking around the water cooler about how big a rate cut Federal Reserve Chairman Jerome Powell might announce, and the bulls were hopeful. Ironically, with hindsight being 20:20, since that time, interest rates have risen the full percentage point that the Federal Reserve cut last year. We all started wondering in December if the rate cut was even necessary and maybe did more harm than good? As the new year was born, the market began raising its legitimate concerns about not getting any more rate cuts and possibly even getting an increase in rates. This whole environment lent itself to ever increasing and higher interest rates which is not what we wanted at all! Most of the return of 2024 was provided by the Mag 7 (Microsoft, Apple, Alphabet, Meta platforms, Amazon, Nvidia, and Tesla). It’s interesting to note that for the second consecutive year, only 30% of the S&P 500 companies beat the index; therefore, the returns were very skewed. Micro, Small, and Mid-Caps delivered returns in the 10-15% range. Thus, the market returns of 2024 were dominated by a small number of tech and high growth companies, and the corresponding breadth of the market was pretty thin. This kind of performance is often telling of a market that needs to take a break. Strong markets have broad institutional sponsorship and usually the rising tides raise all boats. This wasn’t the case last year.
As we venture into early 2025, we are beset with wildfires covering a considerable area in Los Angeles, and political rhetoric is high with an upcoming inauguration. President-Elect Trump is promising big budgetary cuts, and we will see. My best prognostication tells me that this year, returns may be much more muted then we have seen over that the last two years. There has been a run on some Chinese banks, and globally interest rates are as high as they have been in quite some time. If the U.S. Ten Year Treasury breaks 5%, it will be a pretty serious headwind for stocks; thus, our strategy would be to continue holding the quality companies that continue to perform, making some profitable sales in the new year, and being cautious in how we operate for the near-term. Since we invest for the longer term, we have little doubt that with the quality of earnings and companies that we own in our portfolios, we will ride out any short-term turbulence in the market. Additionally, should the market really offer some great entry points to our favorite companies, we will take advantage of that occurrence as well.
God bless you all, and may you have a safe, healthy and prosperous 2025.
Zandy Campbell