2024 Fourth Quarterly Letter

By David K. MacLeod, CFA, CFP®

The markets and economy proved resilient in 2024. Despite numerous headwinds, stocks climbed to new highs and risk assets broadly performed well. Large cap stocks rose 25% and small cap stocks increased 9%. International developed country stocks gained 4% while emerging market stocks gained 8%. Bond funds gained 3 – 5%. Although the Fed cut short-term interest rates 4 times in 2024, long-term interest rates based on the U.S. Treasury bond market actually increased meaningfully (by 0.7%).

Although economists expected economic growth to slow dramatically in 2024, U.S. real GDP growth accelerated to a healthy growth rate of over 3% for the past two quarters. Consumer spending continues to power the economy as workers have seen 20 consecutive months of real wage growth and the unemployment rate remains at a low 4%. Household wealth grew by $15 trillion in 2024, further increasing consumers’ confidence to spend.

Looking ahead, there are reasons to be optimistic and risks, as always. President Trump and Congress are likely to pursue an extension of the current tax regime through the reconciliation process early this year. Inflation continues to trend toward the Fed’s 2% target, though if President Trump’s tariffs proposal is fully implemented it could cause inflation to reaccelerate. We think President Trump will ultimately use the proposal for negotiations and reduce or remove tariffs. It’s still too early to tell whether global trade tensions escalate this year, but we would note that tariffs were used by recent presidents prior to President Trump. President Bush imposed steel tariffs on China in 2003 and President Obama imposed tariffs on Chinese tires in 2009. President Biden maintained many of President Trump’s tariffs and added new ones of his own.

Corporate profits are expected to remain strong, growing over 10% this year, supporting the U.S. stock market where valuations appear stretched in some sectors. The so-called “Magnificent 7” stocks (Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla) contributed more than half of the S&P 500’s return last year with an average return of 48%. We don’t expect the high returns to continue when these companies experience decelerating earnings growth.

Please do not hesitate to call if you have questions or want to schedule a meeting.