Market Review - Quarter 4, 2024
Source: FactSet
The S&P 500 climbed 25% for the year, fueled by a strong economy and an AI-driven rally in big-tech stocks. The S&P 500 notched 57 record highs during the year and delivered two consecutive years of 20%+ returns, a feat not seen since the late 1990's. A handful of AI-driven technology stocks dubbed the Magnificent Seven—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla—accounted for 55% of the stock index's total return in 2024. Across the pond, both developed and emerging market stocks struggled in Q4'24 on tariff concerns and ended the year with muted returns as the U.S. dollar strengthened.
2024 once again delivered a bifurcated market. The number of stocks outperforming the S&P 500 index is close to its post-1990 low, nearly 30%, and the top ten stocks now make up 39% of the S&P 500 index – creating a market concentration that has blown through the last peak. For investors, it is important to not use the S&P 500 index as the sole bogey for their diversified portfolios as not all stocks participated in the party equally.
Within the S&P 500 sectors, there was wide dispersion. AI-related sectors, such as communication services and technology, were the top-performing sectors and gained 40% and 37%, respectively. Materials, the worst-performing sector, fell -0.04% due to concerns about an economic slowdown in China. Across size, small-cap stocks trailed their larger peers but managed to gain 8.7% on optimism from the pro-business policies of the new administration. Within style, growth stocks beat value as investors bet on AI.
Even as the Fed began cutting rates, the yield on the 10-year U.S. Treasury note rose 70 bps for the year to 4.58%, based on deficit and inflation concerns. The rise in yields led to lackluster returns for bonds. Longer-dated bonds fared the worst. Lower quality bonds, such as high yield, outperformed as the economy remained resilient.
Finally, across other asset classes, gold outperformed the S&P 500 for the year. Demand for gold was fueled by central banks, including China, Turkey, and India, seeking to diversify away from the U.S. dollar, in addition to other investors concerned about the size of the U.S. deficit. Overall, 2024 was a great year as a globally diversified moderate risk 60/40 stock bond portfolio gained 10.1% to close out a record year.
