Markets and Events
For such an eventful period, the market didn’t make much progress during the fourth quarter with the S&P 500 rising just 2.5%. It did, however, post a very solid 25% return for the full year 2024. U.S. Election, of course, was the main event in early November. The market reacted strongly to the winning candidate and the conclusive nature of the vote. In the immediate aftermath of the election, Bitcoin, US dollar, small caps, growth stocks and financials rallied strongly. Gold, foreign stocks, and bonds, on the other hand, experienced the biggest declines. Time will tell which of these areas will be the winners of the second Trump administration. After the election, Trump’s nominations and congressional leadership jockeying dominated the political discourse.
On the market news front, the economy continued humming with a strong job market and cooling inflation. The Federal Reserve cut interest rates two more times, bringing the total rate reduction to 1.0% since September. They did signal a likely pause in the rate cutting campaign with the market currently pricing in only 7% chance of another reduction on January 29th. China made some waves with stimulus announcements but their positive effect on the Chinese stock market wore off quickly. There was a lot of activity in the AI space with Nvidia, Microsoft and many other stocks driven by developments there. It does seem that the frantic pace of investing in AI is slowing down, so we’ll see what that means for the market in 2025. Discount airline Spirit filed bankruptcy, but the other airline stocks are doing great at consumers spending continues unabated. Tesla swung around with robotaxi announcement (meh), Elon’s role in the Trump campaign and later disappointing 2024 car deliveries. Ford paused production of its electric F-150 Lightning truck and GM decided to shut down its Cruise robotaxi division. Google’s Waymo remains the only major player in the self-driving taxi space. Speaking of Google, it made the news with major advancement in quantum computing using its Willow computer, although any real-world applications of this technology remain far off. United Healthcare CEO’s murder and the ensuing manhunt captivated the nation and brought our broken healthcare system into focus.
Outside of the U.S., Israel continued tit-for-tat with Iran and Hezbollah as well as its campaign in Gaza. There were some political developments on the Russia/Ukraine war but not much has changed on the ground. South Korean president attempted to declare martial law and was subsequently impeached.
Asset Classes
With major influence from the election’s outcome, Bitcoin, gold, and oil had a strong quarter. While foreign stocks and bonds had disappointing returns. Looking at the full year 2024, Bitcoin and gold led the way followed by U.S. stocks (Exhibit 1). While still positive, high-quality bonds and foreign stocks didn’t do as well. U.S. Dollar’s 13.5% rise in 2024 was the strongest in years and it contributed to massive underperformance of foreign stocks (again!), which lagged the domestic counterparts by almost 20%.
Sectors and Stocks
On the industry/sector side, Internet, consumer and financial stocks did best in Q4 (Exhibit 2). Homebuilders, gold miners, materials, and healthcare had double digit losses in the quarter. For the full year, the results are similar at the top, while steel and biotech stocks brought up the rear. Interestingly, semiconductors only returned about half of the overall market despite all of the AI hype in Nvidia and other stocks. In fact, boring old utilities outperformed semis by 10%+. However, a lot of that can actually be attributed to the AI revolution as electricity demand by data centers is skyrocketing.
Digging a little deeper, Exhibit 3 shows the best and worst performing stocks in the S&P 500 during the full year 2024. The left section features top/bottom 5 names by dollar change in market value (and thus largest actual impact on the cap-weighted S&P 500 index). The usual suspects of Nvidia, Apple, Amazon, Google and Meta (Facebook) accounted for nearly 45% of the market’s rise last year. In fact, Nvidia alone was responsible for almost 20% of the entire S&P 500 growth. All of the big winners have some exposure to AI growth, which was a popular investment theme last year. On the bottom of that side, company-specific missteps at Intel, Adobe, Nike, CVS and AMD resulted in big loss of value. Although, their relatively small size meant only 3% headwind for the broader market. That’s the funny math of mega trillion company concentration for you. But let’s remember that it works both ways should the giants run into a rough patch of their own.
The right section normalizes for the sheer company size and shows best/worst performers by percentage change in market value (as opposed to dollar change). Palantir (big data, AI), Vistra (electricity for AI), Nvidia (king of AI) are on top here with 170% to 360% returns. GE spin-off Vernova (electrical equipment) had a great start and United Airlines led its industry in sound business management. On the losing side, we had Walgreens (drug store bust), Intel (completely missed AI boat), Moderna (post Covid vaccine blues), Celanese (lower demand for industrial coatings and mis-management), Enphase (slowing solar).
International Markets
Let’s also review the performance of foreign stock markets by country in 2024 (Exhibit 4). Argentina was tops despite being a serial mess and Israel came in second (not sure why, maybe it’s consolidating power in the Middle East?). Several Asian countries did well also, including China and Japan. O the bottom, we have Brazil, Mexico and Chile in the Americas, as well as Korea, Vietnam and Indonesia in Asia. European countries ranged from mediocre (Germany and Italy) to negative (France, Sweden, etc). The U.S. was once again near the top.
Economy and Rates
I will do a separate post in late January reviewing the 2024 economic data after a few more important data points get released.