Stocks Overcome Uncertainty to Notch Another Strong Year
Posted on 17th January 2025
Financial markets showed resilience in 2024, extending the bull market that began in late 2022 as stocks weathered interest-rate changes, uncertainty around the US elections, and the ups and downs of the Magnificent 7 stocks. The S&P 500 posted a gain of more than 20% after falling short of that mark a year earlier, when it rose 19%. While there were some notable downturns through the year, they were followed by quick recoveries.

Advances in the US and other developed markets led to positive returns globally, although emerging markets lagged developed markets. In the fall, the US Federal Reserve cut interest rates by a half point, which preceded two subsequent quarter-point cuts. Overall, US bond prices rose for the year, but US Treasury prices were mixed; the benchmark 10-year fell, pushing its yield above 4.5%.
The Fed lowered the federal-funds rate to the 4.25%–4.5% range after three rate cuts totaling a full percentage point in September, November, and December. The reductions, which were the first since the COVID-19 pandemic in March 2020, came amid easing inflation and conflicting readings on the job market. Inflation remained near multiyear lows, with the November core consumer price index, which excludes more-volatile food and energy items, showing prices rose 3.3% from a year earlier.
While investors may worry about the impact of interest-rate changes, it’s helpful to remember that the market and the Fed don’t necessarily travel in lockstep. In months since 1983 when the Fed has cut or hiked rates, the 10-year Treasury yield has moved in the same direction as the federal-funds rate nearly two-thirds of the time—which means the 10-year moved in the opposite direction around a third of the time. Nor have stocks seemed to take their direction from policymakers at the Federal Reserve. Over that same period, the average US stock market return was similar in months with target rate increases, decreases and no change. It’s a reminder that the market is constantly incorporating new information into prices—including expectations for moves by the Fed.
The US elections concluded with Republicans winning the presidency as well as control of the Senate and House of Representatives. Election outcomes aside, history shows stocks have trended higher regardless of which party is in power in Washington. And while uncertainty about what comes next remains, investors wondering about the postelection world can remember that markets have moved forward even in difficult times like 2020. The message is that, whether you are optimistic or pessimistic about the future, there’s reason for optimism about the market. Market prices continually reset to offer investors positive expected returns
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