Markets fell across the board in December, with investors taking gains from what was otherwise a positive year across most major asset classes. The S&P 500 fell -2% in December but booked a +25% gain for 2024, the third time in four years the blue-chip index has advanced over +25%.
This year was a continuation of growth outperforming value, with AI-driven tech stocks leading the charge higher, though we did start to see more broad-based gains across sectors.
Small caps gave up their post-election gains in December, with the Russell 2000 index falling -8% for a +11.5% full-year gain, marking the fourth consecutive year of small cap stocks underperforming large caps.
Overseas equities continued their post-election slide, with the MSCI ACWI ex-US Index falling -2% this month for a 2024 return of just +5.5%, as the prospect of new tariffs combining with ongoing geopolitical concerns dragged returns lower.
Within fixed income, bond prices fell on the month despite getting the expected Fed rate cut, as markets reincorporate expectations for a higher-for-longer rate regime. The Bloomberg Aggregate Bond Index lost -1.6% in December for a full-year return of +1.25%, with the ten-year treasury yield advancing 70 basis points during 2024 despite the Fed delivering four rate cuts on the year.
Commodity markets advanced +5% during 2024, with gold and Bitcoin prices hitting new record highs while oil markets were roughly flat on the year.
Our proprietary Three Dials readings were unchanged in 2024 which we snapshot below:
- Market Sentiment and Momentum: (Positive ➕)
The S&P 500 spent the entire year above its 200-day moving average, a remarkable show of strength in a year where most other assets classes saw more intense bouts of volatility.
While equities will need to take a breather at some point, for now we see no end in sight for the current uptrend, and our Momentum Dial remains Positive at year-end.
- Economic Fundamentals: (Negative ❌)
The US economy spent 2024 bucking recession fears, as a strong labor market managed to offset weak industrial production and an inverted yield curve to drive growth higher. Now as economists attempt to digest how Trump’s pro-growth policies will aim to overcome inflation concerns and spending cuts, we’re seeing positive signs in key leading areas like housing and consumer confidence.
For now, our Fundamental Dial remains Negative, though we will be closely watching how the economy responds to Trump’s second term in 2025.
- Valuation: (Negative ❌)
The consequence of a 50% surge in stock prices over a period where earnings have grown in the low double digits is that valuations have become dangerously stretched, most notably with forward price-to-cash flow ratios over two standard deviations above their long-term average.
If anything, these high prices give stocks little to no margin for error, and as such our Valuation Dial remains Negative.
Our composite Three Dials reading remains in a Moderately Defensive position through year-end, with two dials Negative and one dial Positive.
Sources: Morningstar
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