A Year in Review: Economic Updates from 2024

Written By: Nick Ziarek, CFA, CFP®

It was hard not to feel euphoria after 2023 in which the S&P 500 rose 26.3% as inflation cooled and the Fed signaled interest rate cuts were on the way. Many started to believe the Fed had pulled off the magical soft landing of bringing inflation down without sending the economy into a recession.

Economy

Declining inflation led to real wage growth for consumers, spurring both consumer spending and confidence throughout the year. The labor market remained tight with the unemployment rate staying low, around 4%. For comparison, the Federal Reserve considers an unemployment rate of 5% to be full employment.

Core inflation remained somewhat sticky due to rising wages and housing costs, but by the end of 2024, the Fed’s target of around 2% inflation was closer in sight. The reduction in inflation pressures provided relief to both consumers and businesses, though borrowing costs remained relatively high.

Interest Rates

Markets had started the year expecting the Fed to cut early and often, with futures markets suggesting the first cut would come in March and that the Fed would cut seven times despite only signaling four cuts the entire year. In September the Fed finally began its long-anticipated cutting cycle with a 50bps cut followed by two more 25bps cuts.

By the time the Fed started cutting, markets had already begun to look past the first cut in more than four years. A less optimistic Fed who signaled fewer cuts in 2025 than expected caused the 10-year Treasury yield to climb higher than where it had started in 2024.

With the long delay in Fed cuts and the market unexcited by the outlook put forth by the Fed, the Bloomberg US Aggregate Bond Index will finish up just over 1% for the year.

Markets

Despite the Santa Claus rally never materializing and the initial “Trump bump” fading (markets stand to close near the same levels as the day after the election) the S&P 500 will do something it has not done in over 25 years: have back-to-back gains of over 20%. The index is set to gain nearly 24% this year as tech companies like Nvidia, Microsoft and Google maintain their leadership, benefiting from advancements in AI-driven automation and innovation.

The blue-chip Dow Jones increased 12.6% while the tech-heavy NASDAQ was up 28.7%. Large growth stocks once again dominated the markets up 37%, while small cap value returned a respectable but lagging 7.1%. International stocks also trailed their domestic counterparts, with emerging markets outpacing developed countries, 7.8% vs 3.7% respectively.

It may surprise some, but US stocks have now been in a bull market since October 2022 with the S&P 500 up over 65% since the lows. Historically, bull markets average about 4.3 years and a cumulative total return of about 150%.

The consensus for 2025 is continued growth as unemployment remains low, wage growth outpaces inflation, corporate earnings increase and there are expectations for a business-friendly administration.