2024 In Review - January 21 Morning Muse
2024 in the public markets? Another solid year, with the S&P 500 up 25%, its second year in a row with gains of more than 20%. The Fed lowered interest rates but the 10-year US Treasury yield moved in the opposite direction. Value stocks lagged growth stocks in the US but fared better in non-US markets.
The back-to-back 20% plus performance of the S&P 500 was the first time this has happened since 1998-1999. Returns were positive around the world though emerging markets lagged developed markets, with the All Country World Index up 17.5% in 2024. The NASDAQ was up almost 30% for 2024.
In the fall, the US Federal Reserve cut interest rates three times for a full point reduction, to the 4.25%-4.5% range, the first cuts since March 2020. US bond prices rose for the year but US Treasury prices were mixed. Official inflation is in the 3% range though most households are still experiencing significant strain from the cost of food. The price of groceries is significantly higher than it was five years ago, having an outsized impact on many households, as this is the second largest monthly expense for most.
Republicans control the White House and both houses of Congress. We suggest neither giddiness or despair, depending on your perspective. We subscribe to George Friedman’s observations that a) the American system is designed to move and change slowly, and b) events more often make the president than the other way around.
2025 outlook? Statistically, the public markets should finish in positive territory. The government will continue to run up debt. Treasury bills, notes, and bonds will continue to be weak as a result. Wars will continue. Trump is a master at positioning and theatre. Border security and NAFTA renegotiation will be relatively simple after Trump’s comments regarding Canada and Mexico. And his comments regarding the Panama Canal and Greenland have put both China and Russia on notice that they may want to mind their manners.
But you can find those types of comments any number of places.
My message today is to avoid both greed and fear. Continue to invest consistently and systematically for long-term wealth building. Don’t allow the fear of (your personal choice of fears) get in your way of a long-term game plan. We firmly believe though, that this isn’t the time to put 50% of your total assets into cyrpto, Nvidia, gold, or any other single position. The men of Issachar were men known for understanding the times. And Solomon offered the counsel to divide what you have seven or eight ways, as we don’t know what may happen. Prudence, awareness, insight, and understanding, are dominant themes for the remainder of the decade.
Speculation and bubbles. Since the start of the century, investors have had the opportunity to participate in – and lose money due to – two spectacular bubbles. The tech-media-telecom (TMT) bubble of the late 90’s, and the housing bubble of 07-09.
The Magnificent Seven represented 33% of the S&P 500’s total valuation at the end of October. This is double what it was five years earlier. Prior to the M7, the highest share for the top seven stocks in the last 28 years was ~22% in early 2000, at the height of the TMT. Per Cembalest, as of the end of November 2024, US stocks represented 70% of the MSCI World Index, the highest percentage since 1970.
If you want to study speculation, read up on the South Sea Company, the Mississippi Fur Trading Company, or the Tulip Bulb Mania in Holland.
Bubble? Seems to me that a bubble is more a state of mind than a quantitative calculation. And can be characterized or resulting from, the following:
a) Highly irrational exuberance, to borrow a phrase from Alan Greenspan,
b) Outright adoration of the subject companies or assets, believing they can’t miss,
c) Massive fear of being left behind (FOMO),
d) A resulting conviction that for the stocks or assets in question, there’s “no price too high’.
Bubbles and crashes are times when extreme events cause people to lose their objectivity and view the world through highly skewed psychology, either too positive or too negative. So. Just say no to both fear and greed, choose to forgo FOMO, build cash, and continue to look for opportunity.
Personally, I believe commercial real estate and farmland may offer some outstanding opportunities over the next few years. Perhaps I’ll write more about those ideas in the future.
Stay the course, don’t worry about the gyrations in markets, politics, talking heads, or the other headlines which compete for your attention.
And until we see you again, wishing you only the best.