At Modern Family Finance, we summarize Q4 2024 performance and key points In our most recent quarterly investment review (see full document).
Key points:
- The S&P 500 returned 25% in 2024, marking its second consecutive year of 20% return. This has only happened only a few times in the past. Right now, the S&P 500 is historically expensive and more concentrated than ever, with just 10 stocks making up a third of its value.
- International markets returned 5.5% (MSCI ACWI ex-US) for the year. Currency was a huge drag. When the USD gets stronger, it makes the money earned from foreign investments worth less when converted back to USD. As example: Int’l developed Large-cap stocks returned only 4.7% in USD vs. 12.4% in local currency. In short – International companies are earning solid returns, but we’re just not experiencing it due to the USD. If/when the USD weakens, we will see a boost.
- After a strong Q3—where global REITs gained 16% driven by anticipated aggressive rate cuts—the outlook changed in Q4. The market began to expect fewer rate cuts and a potential resurgence in inflation, leading to an 8% decline in Q4.
- Bond returns were mostly negative in Q4 but overall positive for the year. During 2024, the Fed lowered short-term rates but longer-dated yields actually rose. Why? This could be due to investors’ optimistic outlook (e.g. less risk, less demand for safety of Treasuries). Or, it could be due to concern over inflation from Trump’s policies. The Fed has signaled two further cuts for 2025, but they are keeping a wait-and-see approach.
Questions we have heard from clients:
What is Trump going to do to the market?
- Tariffs and immigration are the two potential policies that are causing the most concern among investors. Both could be inflationary. But it’s important to remember that these are only *potential* policies. And, we need to ask ourselves whether higher inflation (relative to Fed’s 2% target) means 3% or 5% or 9% as we saw in 2022,. The level of inflation absolutely matters.
- Looking back at Trump’s first term, tariffs were a hot topic then as well. You would think that Chinese stocks would have fallen, but in 2017 when he came into office, emerging market stocks grew 37% as the highest returning asset class for the year. Just another example of how the news doesn’t always translate into stock performance.
Should we just go all in with big tech stocks?
- To be clear, we’re optimistic about AI, big tech, and the long-term strength of the US economy. But the challenge is that the S&P is expensive, with big tech *really* expensive. And while we believe in AI’s transformative potential, high valuations come with equally high expectations.
- Looking back at the internet bubble of the early 2000s, it wasn’t that the internet failed to deliver on its promise—it just didn’t do so quickly enough to justify the sky-high expectations at the time. That mismatch contributed to the bubble bursting.
- With the S&P so concentrated in the biggest companies, and with all those companies playing in essentially the same industry, their performance significantly impacts U.S.-focused investors. If AI’s growth doesn’t meet expectations fast enough, it could ripple across portfolios. Bottom line: When you buy into big tech today, you don’t get yesterday’s growth. Instead, you’re counting on great expectations coming true tomorrow. Chasing performance increases portfolio risk, and as individual investors who need our money to fund our most important goals, strategic diversification remains critical.
Further insights:
To gain more insight into these important topics please follow this link to our Quarterly Webinar. In this webinar, Mario Nardone, CFA, our Chief Investment Strategist, reviews the economic environment and puts recent stock and bond market results into perspective.
If you are interested in becoming a client of Modern Family Finance, we’re happy to discuss an investment strategy that makes sense for your household. You can schedule a call here.