Dear Clients and Friends,
Here's my 2024 Year-End Financial Markets Review. I'm rather late posting this, as I traveled to China for 6 weeks and returned in early March. Reach out to me at Unterbrink@usa.net with any questions and comments, please.
The financial markets in 2024 returned nice gains for most investors. Stocks logged their second double digit gain of +13% for the Dow Jones and +23% for the S&P 500 index. The technology-laden NASDAQ increased even more at +29%. You have to look back to the late 90’s euphoric years of 1997-1998 to find the last back-to-back gains like these. History shows that the average gain for the S&P 500 following consecutive +20% gains is +6.7%, so that would still be positive, but lower and perhaps expected given the stellar performance.
The talk of the new technology called Artificial Intelligence, or AI, was the chief driving catalyst behind the outsized gains across other sectors also. Microsoft and Meta Platforms (Facebook) are building data centers that will require massive power usage, so Electric Utility’s will benefit, along with natural gas pipelines, energy plays. Utilities gained +23% last year, Consumer Discretionary, (think Nike, Home Depot, McDonald’s) rose +24%, and Financial sector stocks (banks, American Express, MasterCard), up a nice +30%.
A few sectors of the stock market did not participate. Health Care stocks only could muster a 3% gain on average, and Materials stocks, (think Dupont, International Paper, US Steel) were about break-even!
Some don’t buy into this AI story-line, and suggest that it’s time to play defense in 2025, hedging your bets and taking some chips off the table so to speak. We’re in that camp somewhat, and have used cash and especially GOLD to offset – and add to – the stock market gains the past couple years. Also, we’ve added value-oriented stocks and ETF’s in place of growth names to – hopefully – lessen the impact of a downturn in stock prices.
The Bond market experienced a volatile year, as interest rates were on hold and not raised by the Federal Reserve (last hike was July, 2023). When they finally did cut rates last September, the bond market responded with HIGHER market rates, as if the bond investors didn’t believe the reason for the cut. The November and December rate cuts by the Fed totaling 0.75% also did little to change the course of interest rates that investors and consumers use. Interest rates went UP after the first and second rate cuts. Of public interest, the 30-year mortgage interest rate to borrow increase from 6.1% to 6.8% in the three months following the September 18th cut. That’s not helping folks buy a home, is it? Here in mid-March, borrowing rates are still “sticky”, with the 10-year Treasury Note at 4.3% and the 30-year mortgage rate at 6.6%. Analysts say that a rate below 6% will spur a big rise in home-buying. We’ll see, if and when that occurs. Investors and savers can still get a positive return in the bond market, as inflation is running at 3% year-over-year and bonds yield above that.
The third leg of our investment stool is Gold. The precious metal has performed nothing short of spectacular the past few years. Gold prices rose $560/ounce last year, for a 27% gain. In 2023 they were up $250. The real breakout in price was after the Hamas invasion of Israel near $1,860. The Russian invasion of Ukraine in early 2022 set up that rally somewhat also I feel, as wars tend to create a favorable environment for Gold. The U.S. Inflation was raging also; year-over-year inflation was running at +7.8% at the time of both events. Central Governments were big buyers of Gold – and still are today – as a store of value, while Gold jewelry demand was up 9% last year, according to the World Gold Council. Gold miners can only find about 1%-2% more Gold each year; it’s that hard to mine. Lastly, all the above ground Gold in the world measures about 25 cubic yards! Talk about the scarcity and alure of the yellow metal. As I write this, Gold’s trading at $3,001 an ounce, an increase of $375 this year.
Since it's so late in the 1st quarter that ends in two weeks, I will post again sometime in April with a review of the markets and my positioning for the next few months.
Profitably Yours,
~Barry