During a banner year that defied expectations, business activity flourished across most major economies, inflation rates moderated, and the S&P 500 Index achieved fifty-seven new all-time highs in 2024. U.S. stocks led the way again, producing a second consecutive year of 20% plus returns – an accomplishment only achieved four times since the 1930’s. These strong results can be attributed to impressive corporate earnings reports, optimism around Artificial Intelligence (AI), and increased productivity levels throughout the economy. With a two-year uptrend in stocks firmly established and recognizing that an average bull market lasts five years, equity investors are envisioning good times ahead for companies that are profitable, growing, and innovative.
The past year was an active one politically as nearly half the world’s population held elections. Of course, results at the ballot box typically engender change, and we expect that to be the case for policies in 2025 and beyond. Globally, investors will also be monitoring trade developments, given Trump’s threat of 60% tariffs on Chinese imports and 10%-20% on all other countries. These levies would be either the highest tariff levels in over one hundred years or merely negotiating tactics to achieve other policy goals. Either way, trade agreements will influence the health of the global economy and be particularly relevant to multinational corporations which serve as key members of the S&P 500 and Dow Jones Indices.
In a historically notable development, the U.S. economy recently completed a rare “soft landing” where the Federal Reserve intentionally slowed the economy to bring down inflation, while simultaneously preserving overall economic growth and avoiding a much-feared recession. In hindsight, Chair Jay Powell and his Fed colleagues did a masterful job cutting rates in the Fall while not losing control of inflation. Fortunately, the markets proved resilient in 2024, not succumbing to the ongoing geopolitical conflicts and wars which tested overall business sentiment.
With the new Presidential administration comes hopes for lower energy costs, business deregulation, and tax cuts. Bullish investors are betting on a continued economic expansion, commensurate with the Federal Reserve Bank of Atlanta’s prediction of 2%-2.5% GDP growth for the U.S. economy in 2025. There is also renewed optimism coming from the banking sector, where executives are laying the groundwork for Initial Public Offerings (IPOs) and corporate mergers after a couple years of dormant capital markets. One sector of the U.S. economy in need of a boost is manufacturing, where December economic activity contracted for the month, marking the 25th time in 26 months of lower production.
