Key takeaways
For the second year in a row, the stock market is on track to post annual gains of more than 20%.
Market leadership recently broadened out to include small-cap stocks and sectors beyond technology stocks.
With the election over, investors are waiting to see how the administration’s policies could impact capital markets.
The S&P 500 is on track to gain more than 20% for the second year in a row.1 One of the major uncertainties facing investors, 2024’s election outcome, was settled with former President Donald Trump’s victory, earning a second (non-consecutive) term. In addition, Trump’s Republican party won control of the U.S. Senate and appeared on course to maintain narrow control of the House. In early November, stocks rose sharply. This followed the S&P 500’s modest pullback in October, only the second negative month of performance so far in 2024.
“The market today appears to be pricing for economic growth through fiscal measures like the Trump administration’s anticipated lower taxes,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “The economic backdrop remains a good one, particularly for corporate earnings.” In the third quarter, the U.S. economy grew at an annualized rate of 2.8%, consistent with the second quarter’s growth rate.2 Corporate earnings growth continued as well.
“Historically, November and December tend to be solid equity performance months,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “It appears even though stocks have risen significantly for two years in a row, more upside potential remains.”
Equity markets, for much of 2024, continued trends established in 2023. Large-cap, technology-oriented stocks dominated market performance. By mid-year, other sectors such as utilities and financial stocks began to rank among the leaders, joining technology and telecommunications services. Those four sectors are, as of early November, the only ones outpacing the broader S&P 500 index. For the year, however, all sectors are in solidly positive territory.
With the election over, investors are increasingly focused on what’s to come from the second Trump administration’s policies and its potential market impact. On the day after the election, the stock market soared. “Investors hadn’t priced in the outcome, particularly of a Republican elections sweep,” says Haworth. “The real question is the economic impact of the new administration’s policy proposals.”
During the campaign, Trump promoted several key initiatives, including extending tax cuts that were part of 2017’s Tax Cut and Jobs Act (those cuts are set to expire at 2025’s close) and potential new tariffs on imported goods. Markets will closely monitor the subsequent impact on economic growth and inflation. “We are still waiting for clarity on whether the new administration’s and Congress’ policies prove to be inflationary,” says Eric Freedman, chief investment officer with U.S. Bank Asset Management. “Because we don’t yet have full details, our preference is to be mindful of short-term opportunities provided by market dislocations, but we don’t want to draw conclusions without sufficient evidence.”
In mid-September, the Federal Reserve (Fed) implemented, for the first time in more than four years, a cut to the federal funds target rate (a key interest rate banks charge each other for overnight lending that tends to influence rates on such items as consumer credit cards, automobile loans and mortgages). The Fed’s 0.50% September rate cut was followed by another 0.25% cut in November, with expectations of another 0.25% rate cut in December. Despite the Fed's actions, long-term bond yields such as the 10-year U.S. Treasury bond are moving in the opposite direction. Since mid-September the 10-year Treasury bond yield rose more than 0.75%.3
How will the Fed manage monetary policy moving forward in light of potential Trump administration fiscal policy changes? “Fed Chair Jerome Powell has made clear that Fed policymakers will wait for data and not engage in conjecture as they determine interest rate decisions,” says Haworth. “The market is beginning to assume that if the economy gets a boost from tax cuts, the Fed may scale back 2025 rate cuts.”
A key trend dating back to 2023 was investors’ preference for large-cap stocks. In late 2024, small- and mid-cap stocks began to narrow the performance gap. For the year, large-cap stocks still generated the highest returns.4
While stocks from certain sectors may be better positioned based on Trump administration proposals, Haworth says a broader approach seems appropriate. “Our position is to own a globally diversified equity portfolio, not specifically focusing on U.S. stocks or particular sectors.” Haworth also believes the market may be well positioned to end 2024 on a strong note. “Historically, November and December tend to be solid equity performance months,” says Haworth. “It appears even though stocks have risen significantly for two years in a row, more upside potential remains.”
“We still think it’s a great time to be invested and for those with money in cash, it represents an opportunity to put capital to work in longer-term assets,” says Eric Freedman, chief investment officer with U.S. Bank Asset Management. He encourages investors to view markets with a long-term lens. “Timing the markets and trying to be precise on when to be in and when to be out is challenging,” says Freedman. “Investors should be aware there’s a lot of noise. We urge clients to take a deep breath, go back to your plan. That will increase your odds of success.”
This is an important time to check in with a wealth planning professional to make sure you’re comfortable with your current investments and that your portfolio is structured in a manner consistent with your time horizon, risk appetite and long-term financial goals.
The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. Diversification and asset allocation do not guarantee returns or protect against losses. The Russell MidCap Index provides investors with a benchmark for mid-sized companies. The index, which is distinct from the large-cap S&P 500, is designed to measure the performance of mid-sized companies, reflecting the distinctive risk and return characteristics of this market segment. The Russell 2000 Index refers to a stock market index that measures the performance of the 2,000 smaller companies included in the Russell 3000 Index.
Stocks are shares of publicly traded companies can be bought and sold. These transactions occur on exchanges and over-the-counter (OTC) marketplaces. The activity of pricing, buying and selling stocks is all activity that occurs in what is generally called “the stock market.”
Stocks frequently move up and down. Between November 2023 and August 2024, the stock market trended higher (following a generally downward trend between August and October 2023), except for a modest setback in April 2024. Stocks started August with a significant setback, putting the S&P 500 on the edge of a correction (a decline of at least 10% from a recent peak).1 Yet stocks quickly recovered lost ground as investors anticipated Federal Reserve interest rate cuts, which began in September 2024. “The Fed’s interest rate stance is a prime consideration for equity investors in today’s market,” says Haworth.
These three indices are frequently quoted on daily news reports reflecting daily performance of the stock market. The Dow Jones Industrial Average, perhaps the most quoted index, reflects the performance of 30 prominent stocks listed on U.S. exchanges. The Standard & Poor’s 500 tracks a broader universe of 500 large U.S. stocks. The NASDAQ Composite Index provides a measure of performance of 2,500 stocks listed on the National Association of Securities Dealers (NASD) Automated Quotations exchange. These represent small-, mid- and large-cap stocks. Investors often track these indices, particularly over time, to measure broader stock market performance.
With inflation retreating and more interest rate cuts likely coming, how should investors position their portfolios to capitalize on potential opportunities, while guarding against risks?
A fresh look at managing your cash and investments in today’s changing interest rate environment can help support your pursuit of the goals that matter most to you.
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