Markets in 2024
The Big Question Should Always Be: Is it Sustainable?
After two years of double-digit gains, investors are financially flush and chock full of confidence. Household net worth is up substantially and at record levels. Not a small number: $160 trillion. (Source: St. Louis Fed)
Most asset classes did well in 2024, even as most performance horsepower was concentrated in a small segment of of the investment universe: large growth stocks. As we note below, investors have been piling into the same popular stocks trumpeted daily in the media.
Back to Back Gains: It's interesting to note that 2023 and 2024 produced a level of double digit gains not experienced since 1997 and 1998.(1) The last two years produced recovery gains from 2022 COVID/interest rate shock declines experienced just twenty-four months ago and apparently quickly forgotten.
The Final Month and Quarter of the Year
December Market: We would note that post-election euphoria gains largely evaporated in December. With valuations high relative to earnings, the short-term pullback undid some speculation. The Dow had a challenging December: down 5.3% while the tech heavy S&P 500 declined by 2.5%.(1) We have further commentary below noting the huge performance variances among the Dow, S&P 500 and several other indices.
2024 4th Quarter: Most market gains in 2024 occurred in the first three quarters of the year. By September, we would argue that it made sense to raise cash from selected overvalued securities. Our title above asks the question: Is it sustainable? The pace of gains made early in the year were not.
Maybe difficult to fathom, but even with a frenzy of market activity in the final quarter of 2024, the S&P 500 was up a small 1.9% in the fourth quarter, and the Dow up a mere .5%.(1) There was no need to rush into markets in that 2024 final quarter as markets digested early 2024 gains. We would also suggest that the popular large tech segment that has driven the S&P 500 and NASDAQ this past year is ripe for disruption in 2025.
What Were the Standouts in 2024?
Something Missing: 2024 was one of the few years in market history that didn't experience a bona fide correction (10% or more decline).(1) On the surface, the absence of market pullbacks might seem ideal. But markets without correction or pullback for a period of time have consequence. They sow seeds of speculation. The pain of corrections is a remedy for speculation. No corrections = greater speculation.
Something Crowded: Higher performance in 2024 was contingent on owning a tiny slice of the market. As we've noted, investors in 2024 crowded into the same securities/same sectors. Think technology, artificial intelligence, crypto, etc. There were concentrated bets on just a handful of companies. The Magnificent Seven companies dominated 35% of the S&P 500's composition as of midyear 2024.(3)
Something Concerning: The level of concentration in the few securities just noted suggests that many investors' portfolios are unbalanced. For reference, the concentration of the top seven companies in the S&P 500 in the tech boom (dotcom bubble) of the early 2000's (remembered by those with long investment experience) was 22% of the index. This compares to the 35% concentration in the index currently. Those with long memories (or those with google close at hand) will note that the consequence of this bubble-like period was problematic in the years 2000, 2001 and 2002. The tech-heavy NASDAQ saw three years of double-digit declines resulting in a cumulative 75% loss in that index.(4)
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