Fourth Quarter 2024 Market and Economic Review

With many elements creating different levels of push-and-pull influences on investment markets and economies, the fourth quarter can perhaps best be described as unsettled. The most notable pressures were caused by the lead-up and results of this year’s U.S. Presidential and congressional elections. Those elections created several domino effects—some in opposing directions.

For much of October, markets were business as usual, with trends consistent with most of the third quarter. As we moved deeper into the month and got closer to the election, investors slowed their trading, and market indexes across the board showed noticeable drops.

The Results are In

Going into the election on Tuesday, November 5th, there was a general sense of uncertainty. In the investment world, it wasn’t so much about who might win as when we would know. Would the results be definitive enough to declare a winner right away, or would we endure a lingering battle in the media and courts to determine a resolute victor? The fact that an answer was clear by Wednesday morning helped create a surge in the market that pushed markets mostly north for several weeks.

It wasn’t so much a reaction to one candidate winning over another. It was more a reaction to simply knowing the answer and understanding where to make moves based on campaign policies and party tendencies. With the election resolved, the flow of investments could resume its normal course and clear the clog built up over the prior few weeks.

At Slaughter Associates, we’re more focused on the long-term needs of our clients’ portfolios. Certainly, we’ll make adjustments that benefit the overall health of your portfolio, but elections commonly have more impact in the near term, with long-term results determined more by large-scale policy implementation and shifts in regulations.

What’s Going on with Crypto?

That’s a question we’ve heard from several clients over the past month. It’s also a good example of a short-term market reaction to November’s election results. Because a winner was declared quickly (or at least not prolonged over days and weeks), and because President-elect Trump is considered to have a favorable view on cryptocurrency – along with some of his close associates, like Elon Musk – there has been a significant surge in crypto assets.

There have not been any other significant changes in the various forms of cryptocurrency. It is still a relatively volatile investment type with sizeable associated risks. Notable market analysts, economists, and investors still hold many reservations about cryptocurrency as it does not create any tangible economic value. It does not generate a product, provide a service, or produce any kind of wage. There is no input or output, so the only way to realize a value is to trade it to someone else for a higher price than it was acquired. However, there are technologies all around cryptocurrency that do provide more traditional investment characteristics, benefit from the excitement of cryptocurrency, and produce value for other business technologies that generate marketable goods and services. Ventures involving blockchain, network capacity, and processing power are already areas of investment for us.

Other Top Headlines of Q4

The Federal Funds Rate continues to be a major driving force for the economy and investment markets. At the December meeting, the Federal Reserve made its third consecutive rate cut with a quarter-point reduction that reduced its target range to 4.25 – 4.5 percent. On the surface, the rate cut would seem like good news, and continued progress was being made in reducing the inflation rate. However, the Fed also provided projections that indicate no further rate reductions are anticipated until the second half of 2025. News that sent all markets into a steep decline that has experienced only modest recovery in the final two weeks of the quarter.

The Fed’s potential change in rate strategy (they can certainly change their mind again in late January) is due to multiple factors. Notably, the inflationary environment of everyday goods continues to be very sticky. There is also likely a desire by the Fed to wait and see how aggressively President-elect Trump pursues his promise of increased tariffs on imported goods. If he follows through with stringent new tariffs, it will certainly stoke new pressures on prices and likely cause the inflation rate to reverse course from its present slow decline. If Trump uses tariffs as a negotiating tactic to win some other foreign trade considerations, then the inflation rate may continue to draw down and permit additional rate cuts sooner than present forecasts.

Another noteworthy shift in the markets in the past quarter revolves around the dispersal of investment dollars within the S&P 500. For many months, we’ve told you about the growing chasm between the ‘Magnificent 7’ (the top 7 companies within the index) and the rest of the field. The past quarter saw a bit of a cooling-off effect of that reality. Make no mistake, Apple, Microsoft, Nvidia, Alphabet, Amazon, Meta, and Tesla are still dominating the index, but there was some leveling off for each of them in recent months. Much of it is due to the natural ebb-and-flow of very large companies, but some of it is also thanks to the reduction in the Fed rate and investors feeling more comfortable searching deeper in the weeds for potentially better opportunities.

On the global stage, many countries (mostly less economically developed) are dealing with a lot of turmoil. Aside from the human catastrophes occurring, there are ripple effects being felt economically around the world, as well. Ukraine and Russia are nearing the end of three years of fighting. The conflict has been crippling to the Ukrainian people, and Russia is only able to stave off massive inflation through government war spending. Neighboring countries across Europe also feel the impact, as trading with either country is difficult for myriad reasons. In the Middle East, Israel’s retaliatory conflict with Hamas (and its supporting nations) and the fall of Syria’s government have put many relations on hold throughout that region.

Looking Ahead

As discussed above, much of the investment world is in a bit of a wait-and-see pattern. Activity is still operating as usual but there is much anticipation for what lies ahead. The November elections put the Republican party in control of all three branches of government. How they choose to use that power, and what policies they put forward, will dictate how investors and the markets respond.

Slaughter Associates will continue to evaluate the investment environment with a vision for our client’s long-term goals. Adjusting for short-term needs will be done on a case-by-case and decision-by-decision basis. If you ever have a question about how a specific policy may impact your portfolio, we’ll be happy to discuss those details and our approach to ensuring your goals are kept in full focus.