Market Review
In the fourth quarter, U.S. stocks returned 2.6% to finish the year up 23.8% overall. International stocks lagged in the fourth quarter with developed market and emerging market stocks down 7.5% and 8.0% respectively. The bar chart below highlights how much U.S. stocks have outperformed international stocks over every recent time period – pretty incredible stuff. As Warren Buffett once said, “For 240 years, it’s been a terrible mistake to bet against America.” Indeed, U.S. stocks now represent over 70% of the MSCI World index which is the highest percentage since 1970.
Bonds (down 3%) and REITs (down 9%) both declined in the fourth quarter as the yield curve steepened due to higher medium & long-term interest rates. Inflation in the U.S. ticked slightly higher in the fall (CPI chart below) and the Fed reduced the number of expected rate cuts in 2025 at their meeting in December.
Index performance is provided as a benchmark. It is not illustrative of any particular investment. An investment cannot be made in an index. Past performance is not an indication of future results. Russell 3000 Index, MSCI World ex USA Index, MSCI EM Index, S&P Global REIT Index, US Aggregate Bond Index. Returns as of 12/31/2024.
Economic Review
[Keep in mind: the economic data usually lags a bit]
Real (inflation adjusted) GDP growth remained strong at 3.1% in the 3rd quarter.
Inflation ticked up to 2.7% in November which was up slightly from the 2.4% increase in September.
The Fed reduced rates by 0.25% at both the November and December meetings to the 4.25-4.50% range and (based on their internal economic projections) they expect another 0.5% reduction over the course of 2025.
30-year mortgage rates reversed their summer decline and got back close to the 7% level.
Home values continued to increase (although at a decreasing rate) with October prices +4% higher than the prior year.
Unemployment came in around 4% which is where it has been since May.
Tax, Legal, & Legislative Updates
- Social Security Fairness Act passed which repealed the Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) – this is a huge deal for those with government or teacher’s pensions who also did some work in the private sector.
