After a historic year, investors have much to be thankful for this holiday season. Despite periods of uncertainty around the Federal Reserve, the presidential election, and geopolitical conflicts, the stock market has delivered exceptional returns in 2024. With only a few weeks left in the year, the S&P 500 has gained 26.7% with dividends year-to-date, the Dow 19.5%, and the Nasdaq 27.4%. International stocks have also performed well, with emerging markets advancing 9.0% and developed markets 4.8%. Economic growth has exceeded expectations, with inflation returning to pre-pandemic levels, unemployment still low, and GDP growing steadily.
Just as many express gratitude in their personal lives, the holidays are a good time to do so in our investing and financial lives. This is important because investors tend to focus only on what can go wrong. Even after two strong market years, there is no shortage of concerns on issues such as market fundamentals, the direction of the economy, the size of the national debt, global instability, and more.
While past performance is no guarantee of future success, what history shows is that staying focused on the long run is the best way to achieve financial goals. Over the course of days, weeks and months, markets can fluctuate significantly just as they did in April and August, or in 2020 and 2022. However, over longer time horizons, markets have tended to rise due to the strength of economic growth. What can investors pause to appreciate this holiday season?
Financial markets have performed well this year
First, the U.S. stock market has demonstrated impressive strength in 2024. This is due to robust corporate earnings, better-than-expected economic conditions, and improving investor confidence. The accompanying chart shows that except for one quarter, the last two years have experienced steady market returns. While technology and AI stocks have led the way, many other sectors have contributed this year. In fact, most parts of the market are positive year-to-date, and eight of the eleven S&P 500 sectors have generated double-digit returns.
The strong bull market since the end of 2022 does mean that valuations are no longer as attractive. The price-to-earnings ratio for the S&P 500 is now 22.3, nearing both recent highs and the dot-com peak of 24.5.
Rather than a reason to avoid the stock market, stretched valuations are a reminder to hold a properly constructed portfolio. Owning stocks, or any risk asset, needs to be balanced with asset classes such as bonds to achieve portfolio goals. The end of the year is a perfect time to review your asset allocation, especially after this year’s market movements.
Inflation is returning to normal levels
Second, investors can be thankful that inflation rates have slowed to pre-pandemic levels. While this does not mean that prices will fall for most everyday necessities, including food and rent, it is a positive sign, nonetheless. This is especially true for investment portfolios since they are sensitive to interest rates, which are directly affected by inflation.
Normalizing inflation has allowed the Federal Reserve to begin cutting policy rates for the first time since early 2022. Much of this year’s stock market volatility was the result of investors guessing when and by how much the Fed would do so.
In the end, trying to determine the exact timing was far less important than understanding the general trend of lower short-term interest rates. Thus, for investors with long time horizons, constructing a portfolio based on these factors, rather than the trends that have driven markets over the past several years, is more important than ever.
The economy and job market remain strong
Finally, for everyday individuals, there is perhaps nothing more important from an economic standpoint than the strength of the job market. The fear as the Fed raised rates was that the economy would face a “hard landing” – i.e., bringing inflation down would cause a collapse in hiring.
Fortunately, hasn't occurred yet. Unemployment is still near historically low levels and job gains have been steady. Wages have also risen, although not as fast as overall inflation. The accompanying chart shows that the economy has created 28.6 million new jobs since the pandemic, far eclipsing the previous level. While job gains differ from sector to sector, this means that many consumers, on balance, are in an okay financial position.
More broadly, the U.S. economy continues to demonstrate remarkable resilience, with real GDP growing at an annualized rate of 2.8% in the most recent quarter. This is largely due to the strength of consumer spending, which has contributed greatly to overall growth. While this can’t last forever – consumers have largely spent their excess savings from the past few years and debt levels are rising – the hope is that lower rates, clarity around tax policy, and increased business investment will continue to support the economy.
The bottom line? Markets never move up in a straight line, and this year was no exception. Still, returns have been historically strong despite periods of volatility. This holiday season, investors should focus on the positives and ensure that their portfolios are aligned with their long-term financial goals.
Pursuit Planning and Investment, LLC is a fee-only fiduciary financial planning firm in Portland, Oregon. We offer virtual financial planning services. Feel free to review our services and place a commitment-free 30-minute discovery meeting on the calendar.
Have something on your mind?
Pursuit Planning and Investments, LLC (“PPI”) is a registered investment advisor offering advisory services in the States of Oregon, Indiana, and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. We may, from time to time, have a position in the securities mentioned and may execute transactions that may not be consistent with this communication's conclusions. Past results do not guarantee future results. Please contact us at 971-803-5948 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions. Additionally, we recommend you compare any account reports from PPI with the account statements from your Custodian. Please notify us if you do not receive statements from your Custodian on at least a quarterly basis. Our current disclosure brochure, Form ADV Part 2, is available for your review upon request, and on our website, www.planyourpursuit.com. This disclosure brochure, or a summary of material changes made, is also provided to our clients on an annual basis.
This communication is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision.
Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal the performance noted in this publication.
The information herein is provided “AS IS” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Pursuit Planning and Investments, LLC (referred to as “PPI”) disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.
All opinions and estimates constitute PPI’s judgement as of the date of this communication and are subject to change without notice. PPI does not warrant that the information will be free from error. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall PPI be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the information provided herein, even if PPI or a PPI authorized representative has been advised of the possibility of such damages. Information contained herein should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized.
Comments