Market Commentary - December 2024

Monthly Update

Happy 2025 and it will certainly be another eventful year in so many ways as life is seemingly never uneventful. Markets capped off 2024 with a choppier December but a great performance for the full year. The S&P 500 finished down 2.5% in the month but higher by about 23% for the year[1]. Market breadth was a problem for stocks in December as joining the lower S&P 500 was the Russell 2000 which was down by 8.4% while the NASDAQ was up .5%, driven by continued gains in the big cap tech stocks that have done so much of the heavy lifting for the overall indices over the past few years[2]. To quantify, the top 10 stocks in the S&P 500 now make up about 35% of the index and that compares with 27% at the March 2000 market peak[3]. Thus, the S&P 500 is not as diversified as one would believe and is instead concentrated in the biggest stocks.

The markets overseas were also mixed in December, but overall, it was another good year for international stocks. For example, driven by the AI tech trade and Taiwan Semiconductor, the Taiwanese stock market was up by 28.5% in 2024[4]. The Hang Seng rallied by 18% and the Japanese Nikkei was higher by 19% and finally got back to its previous peak in 1989, a shocking 35 years ago[5]. Even the German DAX, in the face of no economic growth in the country, was up by 19% because of the gains in some of their global multinationals[6].

A key reason why stocks in December took a breather is because of the sharp rise in bond yields and not just in the US. The 10 yr. Treasury yield rose by 40 basis points to 4.57% and is at 4.63% as of this writing[7]. That’s the highest level since May. This occurred even as the Federal Reserve began cutting rates in September, reducing them by a total of 100 basis points[8]. Also of note, as I write this, the Japanese 5 yr. JGB yield is at the highest level since 2009, and the 10 yr. yield is at a 14 year high. In Europe, the UK 10 yr. gilt yield is at a level last seen in October 2023. German and French yields are off their recent highs but higher vs a year ago in the face of ECB rate cuts too[9]. Thus, the rise in interest rates in longer term maturities is a global phenomenon and could be an important factor for equity market valuations in 2025. In contrast, due to worries about economic growth, Chinese bonds have been the best global performers.

The other noteworthy move in December was that of the US dollar. After rallying in October following a rise in long-term rates despite the Fed cutting overnight rates, the euro/yen-heavy Dollar Index gained further momentum in November, driven by the election and expectations of additional tariffs. It continued its ascent in December, rising another 2.6% to reach its highest level since November 2022[10]. The dollar has also risen against emerging market currencies too. In theory, higher tariffs by the country putting them on is typically currency positive on the belief that it would reduce one’s trade deficit and that helps to explain this move. It will be interesting though how the Trump administration manages this as they also want to improve the prospects for US manufacturing that could use a weaker dollar.

As I’ve been writing about throughout 2024, the US economy remains mixed and uneven. While headline GDP has been a solid 2.5% on average, it’s important to look under the hood to see what is driving it[11]. The main contributors to growth have been upper income consumer spending where this cohort has also benefited from higher stock and home prices, anything related to AI spend particularly from the hyperscalers and any beneficiary of government spending and tax incentives. This last category would include infrastructure and the building of semiconductor chip plants and facilities that will be building EV batteries, both incentivized by the Chips Act and the Inflation Reduction Act. Also, the government is the largest spender on healthcare.

On the flip side, growth has faced challenges from lower-income consumers, the global manufacturing recession, muted global trade, stagnant capital spending (excluding AI), and the sluggish pace of housing transactions, which negatively impacts the ancillary activities associated with home purchases.

The same can be said overseas where China’s economic growth has slowed as they manage the profound downturn in their housing market while India’s economic growth has been on the order of 7-8%[12]. In Europe, the manufacturing downturn has really hurt the German economy as they are also managing higher energy costs. France is only seeing modest growth, but Spain’s economy has been a standout, helped by tourism. This all said, we still believe that there are attractive investment opportunities in international stock markets relative to the US as the latter has gotten so big relative to the global economy and global market capitalization.

As we look to the new year, we always spend time in trying to keep out of investing trouble and go over the potential risks and opportunities in markets and the economy. I’d argue that the rise in market-driven interest rates is the main risk because valuations in stocks leave little room for error. I also believe that the acclimation process to this higher rate environment still has time to go. For example, according to Torsten Slok, the chief economist at Apollo, after just $100b of investment grade debt that matured in 2024, that figure jumps to about $900b in 2025 and about $1 trillion in 2026[13]. Assume that most of the debt coming due has an interest rate priced before 2022. For the US government, about $4 trillion of notes come due, also mostly priced before 2022, that needs to be refinanced.

Another risk we are focused on is what the tariffs will look like from the incoming administration. We think that a targeted tariff strategy will be tolerated by the economy and markets while a scattershot approach will not be. Positively, we expect the expiring 2017 Trump tax cuts will get extended, but we watch to see the extent at which they are paid for. The other positive should be the deregulatory focus, which should be a positive for many industries and businesses. The other risk we’re watching but can also be an opportunity for other stocks, is if the AI trade cools down and that the tech market leaders take a breather.

Conclusion

It was an amazing year again for stocks in 2024 after a similar rally in 2023 after the tough 2022, but it also has brought equity valuations to levels nearing previous highs. Much of the rally in 2024 in fact was P/E multiple expansion and thus we want to see some earnings catch up in 2025. On the fixed income side, we still prefer shorter duration bonds to limit the interest rate risk and luckily, we are getting paid to do so with interest rates most likely staying higher for longer.

Whatever comes our way though, whatever this new administration brings us, it remains vital that investors have adequate short-term liquidity over the next 2-3 years. Knowing that period is covered can help separate the balance of one’s portfolio from the ups and downs of the market. Time horizon is always crucial and is always the best friend of any investor. We are not just in the asset management business but also in the risk management business and always believe that by watching our back and focusing on the risks, the upside should take care of itself.”

Disclaimer

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The market and economic data is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The information in this report has been prepared from data believed to be reliable, but no representation is being made as to its accuracy and completeness.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Stoxx Europe 600 index also called the STOXX 600 is an indicator of the performance of the European stock market. It measures the performance of large mid and small-cap companies across 17 countries in Europe. The number of constituents is fixed at 600.

The Hang Seng Index is a freefloat-adjusted market-capitalization-weighted stock-market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. These 82 constituent companies represent about 58% of the capitalization of the Hong Kong Stock Exchange.

Nothing in this material should be construed as investment advice offered by Bleakley Financial Group, LLC or Peter Boockvar. This market update is for informational purposes only and is not meant to constitute a recommendation of any particular investment, security, portfolio of securities, transaction or investment strategy. No chart, graph, or other figure provided should be used to determine which securities to buy, sell or hold. No representation is made concerning the appropriateness of any particular investment, security, portfolio of securities, transaction or investment strategy. You should speak with your own financial professional before making any investment decisions.

Past performance is not indicative of future results. Neither Bleakley Financial Group, LLC nor Peter Boockvar guarantees any specific outcome or profit. These disclosures cannot and do not list every conceivable factor that may affect the results of any investment or investment strategy. Risks will arise, and an investor must be willing and able to accept those risks, including the loss of principal.

Certain statements contained herein are statements of future expectations and other forward looking statements that are based on opinions and assumptions that involve known and unknown risks and uncertainties that would cause actual results, performance or events to differ materially from those expressed or implied in such statements.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets. The fast price swings in commodities and currencies will result in significant volatility in an investor’s holdings.

The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.

Precious metal investing involves greater fluctuation and potential for losses.

The information presented is for educational and informational purposes only and is not intended as a recommendation or specific advice. Cryptocurrency and cryptocurrency-related products can be volatile, are highly speculative and involve significant risks including: liquidity, pricing, regulatory, cybersecurity risk, and loss of principal. A cryptocurrency fund may trade at a significant premium to Net Asset Value (NAV). Cryptocurrencies are not legal tender and are not government backed. Cryptocurrencies are non-traditional investments, resulting in a different tax treatment than currency. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. The use and exchange of cryptocurrency may also be restricted or halted permanently as regulatory developments continue, and regulations are subject to change at any time. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers, malware, or bankruptcy. ​

Peter Boockvar is solely an investment advisor representative and Chief Investment Officer of Bleakley Financial Group and not affiliated with LPL Financial.

Advisors associated with Bleakley Financial Group may be: (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, (2) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC and investment advisor representatives of Bleakley Financial Group; or (3) solely investment advisor representatives of Bleakley Financial Group, and not affiliated with LPL Financial. Investment advice offered through Bleakley Financial Group, a registered investment advisor and separate entity from LPL Financial.

Approval #678718

1] Bloomberg

[2] Bloomberg

[3] Bloomberg

[4] Bloomberg

[5] Bloomberg

[6] Bloomberg

[7] Bloomberg

[8] Bloomberg

[9] Bloomberg

[10] Bloomberg

[11] Bloomberg

[12] Bloomberg

[13] Torsten Slok