Chilled Champagne and Hot Markets: A Toast to 2024

From AI-driven tech to financial sector surges, explore 2024’s market highlights and projections for 2025. What will keep the momentum alive?

Loves me, loves me not. Nobody likes warm Champagne! 🍾 I certainly don’t. We are obviously, all of us, a bit reflective these days… er, this day, being the last trading day of the year two thousand twenty-four. We have been through a lot over the past few years. We had a deadly pandemic which started off with an epic market selloff. Do you remember the circuit breakers in March of 2020? I do; those days have been imprinted on a special place in my cerebral cortex. Rates went to 0% as the Fed leapt into action. Jerome Powell would become a household name to all those who owned equities (and maybe a few others), and his rock band The Fed has not lost its popularity since. Life expectancy went down in 2020, but stocks went up. Stocks soared once again in 2021. The economy became infected with the worst case of inflation since the 1980s. The Fed was prepared with its old reliable vaccine for inflation, though it took a while to produce it. That vaccine, which included an unprecedented rate-hiking campaign, would send stocks into a funk for 2022. We had a mini banking crisis, because why not. We have had two global military conflicts, both still raging. The stock market discovered Artificial Intelligence, though it had been discovered by your kids and grandkids a year earlier, and by the academic community about a decade earlier yet.

Inflation eventually abated but not completely. The Fed decided to stop hiking. The market liked that. The Fed started cutting rates, the market was indifferent, and the bond market sold off, despite a larger-than-expected opening cut of 50 basis points. Mortgage rates moved in the wrong direction, up, further pressuring the under pressure real estate market. A new, old President was elected in a not-so-surprising landslide. That new, old President-elect came with a strong agenda which included inflationary tariffs and mass deportations and more expansionary stimulus, including tax breaks. The stock market decided that the net effects of any proposed policies would be positive. The bond market decided that those policies would be inflationary and deficit expanding, which caused a selloff in longer-maturity bonds and a rise in yields. Tesla skyrocketed, because… nothing, really. Bitcoin rose to a new high, but no one knows what it’s really worth… still. The Fed decided to stop cutting rates until… nobody knows when. This past year was supposed to be the year that the long journey, which started with COVID, was supposed to end, and everything was expected to go back to normal, whatever normal is. Do you feel like things are back to normal? What do you expect to happen next year? A new journey perhaps? Did the COVID journey even end?

This note is not intended as an annual review. That will come in the first few days of the new year, I promise. You are on the list. No, this is just a back of the cocktail napkin view I am going through for you so you can make small talk wherever you end up tonight to ring in 2025. Let’s start with what happened to equities across all the sectors. I am going to use my favorite new charts (found in the last two pages of my daily chartbook). Check this one out.

This chart is good for understanding where the sectors have been, what the journey was like, if you will. It is also good to help pick out potential trends and determine where they might go, going forward. The winner of the bumpiest ride goes to the Materials Sector. It didn't help that many global industrial leaders’ economies stalled in the past year. Health Care didn’t end up in a healthy place despite some promising early results from the boom in weight loss drugs. And Real Estate… well, let’s just say it never really had a chance due to restrictive rates after years of ultra-low borrowing costs and a complete lack of supply. Information Technology would probably be your best guess for the winner, though your guess would be wrong. In the summer, it looked like that sector would be the winner, but it was destined for a bumpy ride for the second half of the year. Super, super high expectations would be the blame for investor fickleness. Going to the very top, we see Communications Services coming out the winner. It was destined to be in the top spot with AI champs Alphabet and Meta helping the team attain victory. Consumer Discretionary was having a pretty unremarkable year until the elections but then closed out the year strong. This is attributed to Tesla which is a heavily weighted stock in the sector. Amazon and its strong AI surge helped the sector in the final quarter as well. Finally, I want to look at Financials, which of all the sectors enjoyed the most pleasurable journey to the podium. Greater than expected earnings performance carried the sector which got a shot of adrenaline from the red election wave that promised deregulation. Overall, by early spring, stocks were running in a pack, but a surge in Trump’s presidential prospects gave us a first glimpse into what the markets were looking for in a Trump 2.0 presidency. Then came elections with definitive results. Prevailing trends were accentuated as the market put in its final vote for what to expect in 2025 under Trump. All sectors, except for Financials which got a clear boost from the largely unexpected Republican wins in both the Senate and House. Here is the final result. Check it out and then follow me to the finish.

And here they are, your contestants for the 2024 Best Sectors Pageant. These are growth numbers, by sector, year to date (yesterday’s close). You can think of these as momentum, which technically speaking, is, in fact, simple momentum. So, will that momentum of the top four continue into at least the first quarter of the year? Based on the trends, which can be seen in the prior chart, they are certainly going in the right direction. What you should be thinking, based on this logic, is what could happen beyond what the market is already anticipating, that could knock this existing regime out of its current orbit? Can’t think of anything? Don’t worry, you are not alone. The market, as represented by these two charts has already factored in all the known and available information. If that known information doesn't change, chances are, those trends will continue into 2025. Hindsight is, indeed, 2020. Do me a favor and take another quick, hindsight look at the first chart again and tell me what you see. Don’t bother, I will tell you. It was not an easy journey to turn out these great results. Based on the market’s behavior in these final few weeks, it surely appears that we expect more of the same, if not with more intensity next year. That’s right, this year’s winners may be next year’s winners as well, but getting there will be a lot more challenging. Finally, results may vary. That simply means that not all stocks in a winning sector will win. This upcoming year, the bar will be higher yet for stocks to remain in the top spot, as earnings growth normalizes and new, competing entrants take to the stage.

My regular and faithful followers, thank you for taking this journey with me. With you, I raise a glass of Champagne to 2024 and beyond. If you stuck to your plan and remained focused, your Champagne is perfectly chilled, if not… well, maybe next year. 🥂🥳

YESTERDAY’S MARKETS

Stocks traded off once again yesterday because all the bulls of 2024 were either on the beach or thinking of the beach, leaving trading to fear-ridden randos who probably got in too late anyway. 💥The moves may be larger than normal due to low volume, but the direction of the trades has some market strategists wondering if this may be a hint of what to expect in 2025.

NEXT UP

• FHFA House Price Index (October) is expected to have gained 0.4% after climbing by 0.7% in September.
• Case-Shiller Home Prices (October) may have climbed by 4.10% annually, slightly lower than the last print of 4.57%.
• Markets are closed tomorrow for New Years Day, but we are back in action on Thursday. Don’t sleep in because early birds will be looking for worms.

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