It's time for our annual 2024 Year in Review, an economic and market commentary with Chief Investment Officer Matthew Harbert and CEO David S. Silver, CFP®, CEPA® from Instrumental Wealth. Their discussion provides a comprehensive examination of inflation trends, economic indicators, Federal Reserve policy, and market performance throughout 2024, along with insights for the year ahead.
Play the video recording, or see the transcript summary below organized by hyperlinked sections & topic. Each topic has screenshots from the presentation and hyperlinked timestamps in the section headings to take you straight to that video moment.
Hint: Want to jump right to the takeaways & 2025 forecast? Click here.
Table of Contents:
U.S. Economy (0:35)Key Takeaways & Looking Ahead to 2025 (31:33)
All graphs and charts are for illustrative purposes only.
Inflation:
Inflation made meaningful progress toward the Federal Reserve's 2% target throughout 2024, though momentum notably slowed in the fourth quarter. By December, headline CPI reached 2.9% year-over-year, an uptick from the previous quarter's 2.4%. While core prices maintained relative stability, the overall downward trend that characterized much of the year began to flatten.
Components of CPI:
Core goods provided significant deflationary pressure through most of 2024, declining 0.5% annually despite some upward pressure from rising vehicle prices in the latter months. Gasoline prices showed similar deflationary patterns until November, ending the year down 3.4% despite a December surge of 4.4%.
Shelter costs, comprising over one-third of the CPI basket, remained persistently high at 4.6% year-over-year. Transportation services rose 7.3%, primarily driven by auto insurance increases. Food inflation maintained relatively mild but consistent increases throughout the year.
Inflation Analysis for 2025:
Looking forward, several factors may challenge inflation reduction. The incoming administration's proposed policies could create additional price pressures through higher tariffs, with potential rates rising to 17.7% in 2025 from 2.4% previously. Tax reduction proposals and stricter immigration policies could further impact prices through expansionary effects and wage dynamics.
All graphs and charts are for illustrative purposes only.
Contributors to Real GDP Growth:
The economy showed remarkable resilience in 2024, with third-quarter GDP growing at 3.1%, exceeding the 2000-2023 average of 2.3%. Business investment remained healthy despite higher borrowing costs. Consumer spending was the primary growth engine, contributing 2.5 percentage points to GDP growth and representing about 70% of economic activity.
Employment & Payroll:
The labor market normalized from post-pandemic highs while maintaining strength. Job openings and quit rates declined from 2022 peaks but stayed above historical averages. Payroll gains moderated but showed resilience through strikes and weather events, with volatility in September and October due to BLS adjustments.
Unemployment Rate:
The unemployment rate stabilized at 4.1% by year-end after rising in early 2024. While higher than the April 2023 low of 3.4%, it remains lower than 88% of readings from the past five decades. Economic growth continues supporting decent job gains.
Overall in 2024:
The economy maintained firm expansion, driven by solid consumer spending, healthy labor markets, and improving earnings. Government spending provided support, though residential sector faced headwinds from high mortgage rates.
All graphs and charts are for illustrative purposes only.
Rate Cuts Begin:
The Federal Reserve initiated a policy shift in 2024 with three rate cuts: 50 basis points in September, followed by 25-basis-point cuts in November and December, bringing the target range to 4.25-4.5%.
December Projections:
December's projections turned more hawkish for 2025, with the Fed reducing expected cuts from four to two, citing solid economic activity and inflation uncertainty.
Market Expectations:
Markets showed an even more hawkish outlook than Fed projections by year-end, pricing in nearly 100% probability of a January pause and 75% for March.
All graphs and charts are for illustrative purposes only.
Global Equities:
U.S. Market Leadership
U.S. equities dominated global markets in 2024, with large caps gaining about 25%. International developed markets lagged, returning 3.82%.
First Half vs. Second Half Performance
Small caps showed particular strength in the second half despite large caps' dominance. December saw a broad market pullback due to inflation concerns.
Magnificent 7 Impact
The S&P 500's 23.31% return was driven by Magnificent 7 stocks' 46.31% surge, versus 13.38% for remaining stocks. This difference reflected in earnings growth: 36% for Magnificent 7 versus 3% for the broader market.
Valuations
U.S. large-cap valuations reached elevated levels at 22 times earnings. The top 10 largest stocks traded at over 30 times earnings, about 150% of their long-term average.
Fixed Income:
Performance Overview
Fixed income markets faced challenges despite Fed easing. Most sectors returned 1-1.5%, with high yield and cash positions as bright spots. International bonds declined 4%.
Rate Impact
Bonds didn't follow historical patterns during rate cuts. Rates fell before the first cut but increased as economic strength led to hawkish expectations.
Credit Markets
Credit markets succeeded through yield income and spread tightening, with high-yield bonds benefiting from both income returns and spread compression.
All graphs and charts are for illustrative purposes only.
2025 & Beyond Outlook Summary:
2025 outlook suggests moderated inflation reduction with ongoing challenges reaching 2% target. Economic growth should maintain momentum. Equity markets project continued U.S. leadership with broader sector participation. Current valuations may temper overall market returns, though consensus projects moderate growth without recession.
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