Stock Market

Stocks stumbled in December, limping to the finish line of 2024 with three straight days of significant losses, including the Dow’s worst monthly performance in more than two years.

Despite December’s sluggishness, the major indexes posted sizable gains for the year.

In fact, U.S. stocks concluded another extraordinary year on Wall Street on December 31st, driven by 2024’s surging demand for artificial intelligence, a surprisingly robust U.S. economy, and the Federal Reserve’s interest-rate reductions. These factors propelled the major stock indexes to numerous record highs throughout the year.

The S&P 500 delivered another year of double-digit growth, climbing over 23% to close at approximately 5,881. This large-cap index built on a gain of more than 24% from the previous year, marking its strongest two-year performance since the late 1990s.

The stock market’s major indices performed as follows for December as well as 2024:

December Performance:

• S&P 500: -2.78%
• The Dow: -4.83%
• Nasdaq Composite: -0.87%

2024 Yearly Performance:

• S&P 500: +23.31%
• The Dow: +12.88%
• Nasdaq Composite: +28.6%

Employment

In November, total nonfarm payroll employment increased by 227,000, while the unemployment rate remained relatively steady at 4.2%, according to the U.S. Bureau of Labor Statistics. Key employment gains occurred in health care, leisure and hospitality, government, and social assistance sectors, while retail trade experienced job losses.

The unemployment rate of 4.2% represents 7.1 million unemployed individuals, showing little change from the previous month. However, both figures are higher compared to a year ago, when the unemployment rate was 3.7% and 6.3 million people were unemployed.

Those figures suggest the labor market might be loosening—a development that could encourage the Federal Reserve to proceed with another interest rate cut this month. This dynamic balance of job growth and a slightly higher unemployment rate presents a nuanced picture for policymakers aiming to sustain economic stability.

Inflation

The U.S. Consumer Price Index for All Urban Consumers (CPI-U) rose 0.3% in November 2024, marking an annual inflation rate of 2.7%, according to the Bureau of Labor Statistics. Shelter costs accounted for 40% of the monthly increase, rising 0.3%. Food prices grew 0.4% overall, while energy costs edged up 0.2% in November but remained 3.2% lower year-over-year.

Excluding food and energy, the core CPI increased 0.3% month-over-month and 3.3% annually, aligning with market expectations.

Fed Watch

At their December 18 meeting, the Federal Reserve implemented its third consecutive interest rate cut of 2024, reducing its benchmark rate by 0.25 percentage points to a range of 4.25% to 4.5%. This move follows previous cuts of 0.5 percentage points in September and 0.25 points in November, collectively lowering rates by 1 percentage point since September.

The rate cuts provide some relief to Americans with credit card debt and loans, as borrowing costs have become less expensive. However, the Fed’s latest projections indicate a more cautious approach for 2025.

The central bank now anticipates only two rate cuts in 2025, down from the four forecasted in September. This would leave the federal funds rate at a median level of 3.9% by the end of 2025, higher than the previously expected 3.4%.

Additionally, the Fed revised its inflation outlook for 2025, predicting inflation at 2.5%, up from the earlier forecast of 2.1%, reflecting persistent price pressures.

While the Fed’s recent cuts aim to support borrowing and economic activity, its tempered outlook for 2025 underscores concerns over stubborn inflation and the need for a measured approach to further rate reductions.

GDP

The U.S. economy grew at an annual rate of 3.1% in the third quarter of 2024, marking a slight increase from the 3.0% growth in the second quarter and updating the second estimate of only 2.8% growth. The upward revision primarily accounts for higher exports and consumer spending, partially offset by a decrease in private inventory investment. Imports, which reduce GDP, were also revised upward.

Compared to Q2, the acceleration in GDP largely stemmed from stronger growth in exports, consumer spending, and federal government spending, despite slower private inventory investment and a steeper decline in residential fixed investment.

This update underscores continued economic momentum, fueled by robust consumer and government activity.

Real Estate and Mortgage

In 2024, the U.S. real estate market experienced modest growth, with home prices increasing by approximately 3.4% year-over-year as of September. Despite some progress, mortgage rates remained elevated, averaging around 6.8% throughout the year., thwarting many would-be buyers and causing affordability challenges.

Looking ahead to 2025, experts anticipate home prices continued to rise uncharacteristically, with forecasts predicting a 4% increase over the year.

Part of the reason for continued hot home prices is that mortgage rates are expected to fall slowly but steadily, stabilizing near 6% by the end of 2025, offering potential relief to prospective buyers

With improved inventory levels and a balanced market, providing buyers with more options and time to make decisions.

These projections suggest a marginally more favorable environment for homebuyers in 2025, with increased inventory and stable mortgage rates contributing to a balanced market.

Notable Quote

“You get recessions. You have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.”
-Peter Lynch