Last year, the markets and US economy held up surprisingly well despite geopolitical tensions and stubborn inflation. The strength in the economy has been supported by a resilient consumer, healthy labor market, rising corporate profits and an accommodative Fed, lowering interest rates to support economic growth. The S&P 500 hit 57 new all-time highs throughout 2024. The S&P 500 has now gained over 20% a year for the past two years. Technology stocks again led the way in terms of performance.
One of the big stories in recent years has been around how market gains have been concentrated amongst a handful of dominant technology companies, driven by enthusiasm around artificial intelligence (AI). The magnificent 7 (Apple, Amazon, Microsoft, NVIDIA, Tesla, Alphabet, and Meta Platforms) accounted for over half of the gains last year in the S&P 500. In fact, less than a third of individual stocks in the S&P 500 outperformed the overall index. This helps to underscore the challenges with comparing the performance of a balanced, diversified portfolio to a narrow group of companies.
Although US stocks have outperformed their international counterparts, we continue to believe that international stocks play an important role in diversified portfolios, especially when factoring in their valuation discount compared to the US. In addition, valuations of small cap stocks relative to large cap are near multi-decade lows.
The Fed began cutting interest rates in 2024 for the first time in four years as inflation began to trend lower. The Fed cut rates for a third time in December and indicated fewer reductions ahead than the market was previously anticipating for this year. Inflation and economic growth will determine the future path of interest rates. Although the Fed cut short term interest rates, yields on longer term bonds trended higher as the year ended. High quality bonds, as measured by the Bloomberg US Aggregate Bond Index, were up about 1.4% last year (bond prices and yields move inversely). However, the current higher starting yields should result in better bond performance over the long term.
After back-to-back years of surprisingly strong market gains, future returns in the short term may be more modest. While a recession doesn’t appear on the horizon, we may see more normal levels of market volatility compared to recent years. Market volatility is a normal part of the way that markets behave and can create opportunities such as the ability to buy equities at lower prices and reposition holdings at a lower tax cost.
The last two years of strong market returns leave valuations elevated (more so in certain sectors like technology compared to others). History has shown that staying invested in a diversified, balanced portfolio is the most reliable way to achieve your long-term financial goals. We work with clients to align their investment portfolio with their goals and financial plan and help to keep them on track over the long term.
IMPORTANT DISCLOSURE INFORMATION
*Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Stephens Wealth Management Group [“SWMG”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.
Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from SWMG. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to their individual situation, you are encouraged to consult with the professional advisor of your choosing. Neither SWMG’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if SWMG is engaged, or continues to be engaged, to provide investment advisory services. SWMG is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the SWMG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at https://stephenswmg.com/.
Please Note: SWMG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to SWMG’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Remember: If you are a SWMG client, please contact SWMG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian.