Key takeaways
For the second year in a row, S&P 500 stocks posted total returns in 2024 of over 25%.
As was the case in 2023, technology-oriented stocks led the market last year.
Volatility flared in the fourth quarter.
Despite a sluggish December, the S&P 500 managed its second consecutive year earning total returns above 25%. 2024’s fourth quarter featured significant contrasts in month-to-month performance. In October and December, the S&P 500 retreated, but in November, the index recorded its best monthly return of the year.1
The most significant late year event was a December 18 announcement by the Federal Reserve (Fed) that it would likely slow the pace of 2025 interest rate cuts. The announcement came just after the Fed cut rates for the third time in four months. The Fed now projects just two 2025 rate cuts.2 Reflecting investor concerns about the news, on the day of the Fed’s announcement, the S&P 500 lost nearly 3% of its value. “After that one-day setback, the market spent December’s final weeks working in a trading range,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management. “The market is still interpreting what the Fed is signaling along with everything else going on with Washington’s political transition.”
“It appears even though stocks have risen significantly for two years in a row, more upside potential remains.” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management.
Many favorable underlying fundamental factors remain in place. “Unemployment remains low, inflation has slowed, and the economy continues to grow at an above-average rate,” says Haworth.
In the third quarter, the U.S. economy grew at an annualized rate of 3.1%, consistent with the second quarter’s 3% growth rate.3 Solid economic expansion also continues to propel corporate earnings growth.
As 2024 unfolded, equity markets “spread the wealth.” Unlike trends throughout 2023 and early 2024, when technology-oriented stocks (communication services and information technology) dominated market performance, other market sectors rose to join them at the top. However, at year’s end, communication services and information technology stocks rallied and again set the pace for S&P 500 stocks. The seven largest tech stocks (most of which fall into those two categories) – Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla, accounted for more than 50% of the S&P 500’s gains in 2024.4 While all but the materials sector ended the year in positive territory, only the financials and consumer discretionary sectors joined communication services and information technology in outpacing the S&P 500’s total returns for the year.1
Haworth says artificial intelligence (AI) investments were the biggest factor boosting large, technology-related stocks in 2023 and 2024. “We’ll have to see some retrenchment in AI spending and more effective AI implementation that boosts profits of other types of companies to see market leadership broaden out,” says Haworth. “Additionally, continued strong consumer spending could contribute to broader market leadership beyond technology stocks.”
Large-cap stocks’ leadership narrowed by late November. But December’s market setback took a larger toll on mid-cap and small-cap stocks. By year’s end, large-cap stocks reasserted market dominance and small- and mid-cap stocks underperformed 2023 results.5
Will stocks maintain the momentum of the last two years in 2025? “Inflation is waning, interest-rate cuts are in motion and earnings are trending higher, all of which bolster sentiment and provide (stock) valuation support,” says Terry Sandven, chief equity strategist for U.S. Bank Asset Management.
A contributing factor could be the impact of potential new policies implemented by the incoming second Trump administration. During the 2024 Presidential campaign, Donald 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 the end of 2025), stricter immigration policies and potential new tariffs on imported goods. Markets will closely monitor the subsequent impact on economic growth and inflation. “The legislative process will take time,” notes Haworth. “Even if Congress could pass everything in a single, all-encompassing piece of legislation, which is being proposed, final action wouldn’t likely occur before May 2025.”
Anticipating continued solid economic growth, investors may wish to consider an equity overweight allocation, trimming fixed income positions within a diversified portfolio. “Our position is to own a globally diversified equity portfolio, not specifically focusing on U.S. stocks or particular sectors,” 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 November 2024, the stock market trended higher (following a generally downward trend between August and October 2023), except for modest setbacks in April and October 2024.1 Solid U.S. economic growth, which helped boost corporate earnings, appears to be fueling today’s stock market rally. In addition, the Federal Reserve (Fed) reversed its longstanding interest rate policy that, for more than a year, held the target federal funds rate at a top level of 5.50%. In September, November, and December 2024, the Fed cut interest rates a total of 1.0%, its first rates cut in more than four years. However, the Fed scaled back expectations for 2025, projecting just two additional rate cuts in the new year.2 “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 the stock market up, inflation retreating and interest rates in flux, 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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