2024 Review: Perspective on Index Returns

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It seemed at times as if the primary market index, SP 500, made a new all-time closing high almost daily. Not quite. But the SP 500 nearly set a market record for the most new record closing highs last year – 57. It climbed above 6,000 for the first time. Other 2024 record highlights were milestones such as the Nasdaq index topping 20,000 and the Dow Jones surpassing 45,000. The Dow also nearly broke a less auspicious record last year. It declined 10 days in a row, which had not occurred since 1974. Another not-so-good record set last year in stock land was the by the Russell 2000. It is known as the small cap index. It fell the most in a single day in its history on December 18. Beyond the stock market, gold and bitcoin broke all-time high prices. Bitcoin caught all the attention as it jumped over $100,000 for the first time.

A popular Wall Street barometer is known as the Santa Claus Rally. It is the period covering the last 5 trading days of a year and the first 2 of the new year. Going back to 1950 the market has performed well over the period -- up on average 1.3%. The Grinch spoiled it this year. The SP 500 had a rough December as it lost 2.5%. However, 2024 was a strong year for the stock market. And it followed the bull run of 2023. In fact, last year was only the 7th time since 1950 of back-to-back gains for the SP 500 greater than 20%. The performance graphs below represent an “asset allocation quilt”. The SP 500 is represented by “Large Cap”. Notice the last 2 years. Also, by zooming out with a wider view we can see the benefits of diversification. More on that below…

Now, for perspective’s sake, look at the previous 10 years…

Of the many investment lessons learned from the graphs above, one is the risk reduction benefit of diversification. Unlike the last two years, the same investment asset class is rarely the back-to-back best performer. Besides the SP 500 gaining greater than 20% in 2024 as it did in 2023, there is another noteworthy similarity in the stock index over the two years. In a word: narrow. As I wrote my mid-year market commentary for our “Half Time Review”, I was reminded of the same time 2023. With 2024 in the history books, reviewing the full year’s action looks a lot like full year 2023. The evidence of a narrow market exists in both years. The concept of a narrow market is the opposite of a broad market and speaks to the participation of stocks advancing and contributing to the overall market gain. At mid-year 2024, the concentration of the S&P 500 is at its highest level in over 30 years, with the top 10 stocks representing about 37% of the index. Of those 10 stocks, 7 are known as the “Magnificent Seven”. They are also referred to as mega-cap tech growth stocks. These stocks boosted the Nasdaq stock index, which more than doubled the gain of the Dow (see the charts below). Those “Mag 7” stocks accounted for more than half (53%) of the S&P 500's total return in 2024. If you subtract those seven stock returns from the S&P 500, the index's 2024 total return would shrink to 11.75%.

Looking ahead to 2025, two expectations come to mind: more volatility and less interest cuts. 2024’s stock market was an anomaly in that it did not have a correction. This is defined as a drop of 10% or more. Corrections normally occur once a year and sometimes more. Expect more volatility this year, which will likely include a correction. I expect “one or none” rate cuts by the Fed this year. The good news is that the economy is strong. The bad news is that often in the stock market good news is bad news. That circles back to increased volatility.

Happy and Healthy 2025!

John J. Gardner, CFP®, CPM®

Blackhawk Wealth Advisors

3860 Blackhawk Rd, Ste. 160
Danville, Ca. 94506

888.985.PLAN (7526)

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