January 7, 2025

The Markets

Hello, 2025!

As we head into a new year, it can be helpful to look back at the previous year—and 2024 was a doozy. Stocks in the United States delivered a double-double—posting double-digit gains for a second year in a row. That kind of performance is a relative rarity and has only occurred nine times over the last 96 years, according to Tony DeSpirito of BlackRock.

So, how well did U.S. stocks perform? Here are annual returns for major U.S. stock indexes over the past two years—plus the return for 2022 as a reminder that stocks don’t always move higher.

	2024	2023	2022
Standard & Poor’s (S&P) 500 Index	23.3%	24.2%	-19.4%
Nasdaq Composite Index	28.6%	43.4%	-33.1%
Dow Jones Industrial Average	12.9%	13.7%	- 8.8%

Throughout 2024, share price gains were supported by several factors, including:

• Enthusiasm for Artificial Intelligence (AI). Magnificent Seven stocks had another big year. “The group… averaged a gain of 65% this year, compared with an average of 111% last year, according to Dow Jones Market Data,” reported Emily Dattilo of Barron’s in December 2024. “The Mag 7 has made up 57% of the S&P 500’s… market [capitalization] gain this year versus 65% last year.”
• Strong corporate revenue and earnings growth. Many publicly traded companies have been making more money and growing profits. For the full year 2024, analysts expect companies in the S&P 500 to report year over year earnings growth of 9.4% and revenue growth of 5.1%. In 2025, expectations are even higher. Earnings growth was forecast to be 14.8% and revenue growth 5.8% for the year, reported John Butters of FactSet.
• A solid U.S. economy. “Over the last few years, the U.S. economy has consistently defied expectations for a slowdown, and 2024 was no different. Despite uncertainty around a presidential election, elevated interest rates and a cooling labor market, economic growth remained solid this year,” reported Augusta Saraiva of Bloomberg.
• Steady consumer spending. A key driver for the economy was robust consumer spending. “Even as hiring slowed, wage growth continued to outpace inflation and household wealth reached new records, supporting an ongoing expansion in household spending,” wrote Saraiva.
• Anticipation of Federal Reserve rate cuts. For much of the year, investors eagerly anticipated Federal Reserve (Fed) rates. In general, when the Fed lowers the federal funds rate, borrowing becomes less expensive which can boost corporate earnings and share prices, explained Mary Hall of Investopedia.

These factors helped U.S. stocks repeatedly set new record highs during the final quarter of the year. However, the stock rally stalled in December after the Fed expressed concerns about inflation and modified its forecast for 2025 rate cuts “amid slower progress on inflation and an uncertain policy outlook,” reported Sarah Hansen and Bella Albrecht of Morningstar.

In the bond market, many sectors delivered positive returns over the full year 2024. However, quite a few gave back some gains in the last months of the year. “Bond markets saw a major selloff in the fourth quarter, sparked by the outcome of the U.S. presidential election and the potential for stronger economic growth, inflationary policies, and more deficit spending in the years ahead,” reported Hansen and Albrecht. The yield on the benchmark 10-year U.S. Treasury note started the year at 3.95% and finished the year at 4.58%.

Last week, which was shorter than usual due to the New Year’s holiday, major U.S. stock indices finished lower. The yield curve continued to steepen as yields on shorter maturities of U.S. Treasuries fell, while yields on longer maturities rose.

Data as of 1/3/25	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor's 500 Index	-0.5%	1.0%	26.3%	7.4%	12.9%	11.4%
Dow Jones Global ex-U.S. Index	-0.8	-0.2	5.0	-1.9	1.6	2.7
10-year Treasury Note (yield only)	4.6	N/A	3.9	1.6	1.8	2.0
Gold (per ounce)	1.2	1.4	29.6	13.5	11.3	8.2
Bloomberg Commodity Index	0.3	-0.3	0.2	-0.3	3.9	-0.5

A Brrr-y Cold New Year’s Tradition

People around the world like to welcome the new year by putting on a bathing or wet suit and immersing themselves in cold water. The name of the event—Polar Bear Plunge, Christmas Swim, or New Year’s Dive—varies by location. Of course, water and air temperature vary greatly, too, depending on where the plunge takes place. Here are a few examples from the United States on January 1, 2025.

Coney Island, New York/Atlantic Ocean
Air temperature: 50.0° F
Water temperature: 40.5° F

Myrtle Beach, South Carolina/Atlantic Ocean
Air temperature: 60.0° F
Water temperature: 58.4° F

Milwaukee, Wisconsin/Lake Michigan
Air temperature: 30.0° F
Water temperature: 39.7° F

San Diego, California/Pacific Ocean
Air temperature: 60.0° F
Water temperature: 57.1° F

According to Cleveland Clinic Health Essentials, submerging yourself in cold water for short periods may have health benefits. For people who are in good health, cold-water baths may ease sore muscles, reduce inflammation, improve circulation, and promote better sleep. (It remains unclear whether New Year’s Day plunges confer any of these benefits.)

How did you celebrate the start of the new year?

Weekly Focus – Think About It

“Write it on your heart that every day is the best day in the year.”

—Ralph Waldo Emerson, philosopher

Wishing you and your families well,
Sean M. Dowling, CFP, EA
President, The Dowling Group Wealth Management

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