by Jason Norris
Director
Equity Research and Portfolio Management
The S&P 500 is going to finish 2024 with a return close to 30%. This is coming off a year delivering 26% returns for investors. To have +20% returns in consecutive years is very uncommon. Below are the three periods when this occurred, but there is no clear pattern.
With such a small sample size, it’s impossible to identify any takeaways. Stock returns can take a “breather,” as we saw in 1937 and 1956, or continue a strong trend as investors experienced in the 1990s. Therefore, this data analysis does not help us forecast what may happen in 2025.
What is important to investors is the fundamentals of the U.S. economy, which translates to corporate profit growth elevating equity prices. The U.S. economy is driven by the consumer who generally speaking, remains employed, is making record-level income and continues to spend. Mastercard reported holiday spending in 2024 rose close to 4%. With the resilience of the consumer, we continue to believe 2025 should remain a healthy year for spending.
As we dust off our crystal ball for 2025, which we will soon present through our Outlook publication, webinar and events —we remain constructive. Should you feel nervous about the market based on its strength, remember that stock prices follow profits.
Could investors see muted returns in 2025 as they digest recent strength? We believe so; however, the skew to equity markets has always been positive. The chart below shows the last 99 years of annual returns for the S&P 500. While the average over that period is approximately 10%, it’s rare to see returns close to that number. The market has returned between 8% and 12% only six times. In fact, stocks return over 20% have occurred 38% of the time, while they’ve been negative 25% in that same timeframe.
There is going to be considerable noise heading into 2025 with a new administration touting potentially bold policies. As with any changes on the horizon, we remind investors to step back, focus on the fundamentals of the economy and understand their own long-term time horizon when evaluating their exposure to the equity markets. Don’t forget—remember your tomorrow.
Our Takeaways for the Week
Investors received a small gift this holiday week as stocks delivered a positive return, bringing forth headlines of a Santa Claus rally. With trading volumes very light, investors shouldn’t read too much into this as a signal for next year
Bond yields hit their highest level in over six months with the 10-year Treasury ending the week just under 4.6%. Rising yields have come from both good and bad instances: stronger economic growth, higher inflation and government deficits