2024 4th Quarter Investment Review

Picture of Neelesh Champaneri, CFA®, CAIA®
Neelesh Champaneri, CFA®, CAIA®
2024 investment market update

In our quarterly investment update, we’d like to:

  • Summarize market activity for 2024
  • Discuss updated portfolio benchmarks
  • Provide various market returns information

Market Summary for 2024

2024 proved to be an outstanding year for global stock markets, with meaningful gains in the US and across the globe, with positive performance for both large and small companies. The MSCI All Country World Index (ACWI), a broad measure of global stock market performance, delivered a total return of ~17.5% for the year. This strong performance was driven by several factors, including economic resilience, easing inflation concerns, and enthusiasm surrounding technological advancements, particularly in artificial intelligence.

U.S. Market Leadership

The U.S. stock market, particularly large-cap stocks, led the global rally in 2024.  The S&P 500 index posted a notable total return of ~25% for the year, which marked the second consecutive year of returns exceeding 20% for the S&P 500, an accomplishment not seen since 1998.

The U.S. market’s strength was largely attributed to the high performance of the “Magnificent 7” stocks (Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA, and Tesla), which surged by nearly 67% as a group.

Sector Performance

Within the U.S. market, sector performance varied widely, as a multitude of factors supported or hindered companies in different industries.

Communication Services and Information Technology led the market, with returns for their S&P sector indexes of ~40% and ~38%, respectively.  These sectors hold many of the companies benefiting from the growth of artificial intelligence, such as Nvidia, Microsoft, Alphabet, and Meta.

The Materials sector performed the worst, with an S&P sector index return of approximately zero.  Materials stocks such as Linde and Freeport-McMoRan suffered from weak demand for commodities and industrial gases, particularly in China.

Small-Cap Performance

While large-cap stocks dominated headlines, small-cap stocks also showed signs of life, particularly in the final months of 2024.  The Russell 2000 index, a benchmark for U.S. small-cap stocks, delivered an ~11% gain for the year.

This resurgence in small-caps was partly attributed to expectations of lower borrowing costs and improving economic conditions, which tend to benefit smaller companies more significantly than their larger peers, which tend to be less indebted and somewhat more consistently profitable through economic cycles.

Global Market Trends

Outside the U.S., other markets also posted positive returns, with the MSCI World ex-US index of developed countries delivering a ~5% return, and the MSCI Emerging Markets index delivering a ~7% return.

Notably, Japan’s Nikkei 225 index rose ~19.2% in local currency, as their export-driven economy benefited from a weak yen, low borrowing cost, and an increasing corporate focus on delivering shareholder returns.

China’s Shanghai Composite index increased by ~13%, as China’s government introduced stimulus to support corporate borrowing, share buybacks, and individual consumption.

Looking Ahead

As we move into 2025, investors should be mindful that past performance doesn’t guarantee future results. While 2024 was dominated by U.S. large-cap stocks, particularly those in the technology sector, market leadership can shift. Diversification across regions, sectors, and company sizes within the global stock market remains an appropriate strategy for long-term investors and a key part of our approach to investing in support of our clients’ long-term goals.

Bond Market Performance

 The bond market in 2024 delivered modest gains despite facing challenges. The Bloomberg U.S. Aggregate Bond Index, a key benchmark for the overall bond market, posted a total return of 1.25% for the year. High-yield bonds were standout performers, with returns over 8%, while U.S. Treasuries managed a small positive return of 0.6%

The bond market navigated a complex environment of changing economic conditions and monetary policy expectations, with central banks beginning to normalize policies and yields rising in many sectors. By the end of 2024, the Bloomberg Aggregate Bond Index yielded ~4.2%, offering investors improved income potential going forward. Despite underperforming the strong stock market, bonds continued to play a crucial role in portfolio diversification due to the potential to retain value through a period of significant stock market losses.

Moderating Inflation Through 2024

In 2024, inflation in the United States showed signs of moderation but remained above the Federal Reserve’s 2% target. The Consumer Price Index (CPI) rose 2.9% for the 12 months ending December 2024. This increase was driven by several factors, including a smaller decline in energy costs and accelerations in food and transportation prices. Core inflation, which excludes volatile food and energy prices, stood at 3.2% in December. Throughout the year, shelter costs continued to be a significant contributor to inflation, rising 4.6% annually.

The annual average inflation rate for 2024 was 2.4%, a notable decrease from 3.9% in 2023, indicating a gradual return to more stable price levels. While inflation has eased from recent highs, it remains above pre-pandemic levels, suggesting that a return to the low-inflation environment of the 2010s has not yet fully materialized.

Updates to Our Portfolio Benchmarks

For our portfolio benchmarks, we seek to remain consistent in our approach, as it allows for meaningful comparisons over time. However, we also recognize the need to make adjustments as needed to ensure the continued usefulness of benchmarking, and as a result, we have modified our benchmarks for the first time since 2017. We’ve made two carefully considered changes to our benchmark, detailed below.

Substitute Alternative Investments Index:

We are incorporating the Wilshire Liquid Alternatives Index to replace our prior alternative index, HFRX Equal Weighted Strategies, which will not be available for us to reference in the future. The Wilshire index better represents the alternative investment options available to most investors and is maintained by a well-established index provider.  Because the Wilshire and HFRX indexes have generally similar risk and return characteristics, this change will not result in a meaningful difference in your portfolio benchmark.

Rebalancing of Bond Index Weightings:

We’ve adjusted the balance between global and U.S. bonds in our benchmark to better reflect our goals of moderating sources of volatility within bonds and aligning with the US-based spending needs of our clients.

Within the bond component of our benchmarks, we’ve reduced the proportion of the Global Aggregate Bond Index from ~25% to ~12%, with the U.S. Aggregate Bond Index having a corresponding increase from ~75% of bonds to ~88%.

This shift provides a more relevant comparison for many of our investors, particularly those based in the United States.  While there is an adjustment in the proportion of global bonds in your benchmark, this will not drive a corresponding change in your portfolio, as we have previously maintained a lower level of investment in global bonds in client portfolios than is represented in the benchmark.

We want to assure you that these adjustments have been implemented after careful consideration and analysis. If you have any questions about these changes, please reach out to our team.

Market Returns for the 4th Quarter of 2024

Returns as of 12/31/2024, for trailing periods. Returns for periods over one year are annualized.

If you would like to review any aspect of your investments or have any questions regarding this message, please contact us and we would be glad to discuss further.

Thank you,

The Wade Financial Advisory, Inc. Team

Portfolio commentary pertains only to portfolios directly managed by Wade Financial Advisory, Inc.  Please reach out to us if you would like to discuss a change in management of any portfolio not directly managed by Wade Financial Advisory, Inc.

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions.

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