Quarterly Market Insights | January 2025

U.S. Markets

Stocks posted solid gains in Q4 as investors navigated the presidential election, overseas unrest, and Fed rate cuts.

The Standard & Poor’s 500 Index rose 2.07 percent, while the Nasdaq Composite surged 6.17 percent. By contrast, the Dow Jones Industrial Average edged up only 0.51 percent.1

A genuine leader is not a searcher for consensus, but a molder of consensus. Martin Luther King, Jr., minister, activist, and political philosopher

Back and Forth in October

Stocks slipped in October as pre-election jitters hung over trading while solid but not spectacular Q3 corporate reports failed to buoy spirits.2

Middle East tensions unsettled investors early in the month. But as the month progressed, investors took a wait-and-see approach. That bumpy beginning gave way to an upbeat jobs report from the Department of Labor, which boosted stocks. The Fed previously told investors that it’s focused on the jobs market as well as inflation, which elevated the importance of the monthly jobs report.3

Fed, Inflation Grab Headlines in November

Despite a jittery start to November, stocks rallied following Election Day results and gained momentum following the Federal Reserve's second consecutive interest rate cut. The S&P 500 crossed the 6,000 mark for the first time, while the Dow breached 44,000.4,5

The markets took a breather as investors anxiously awaited fresh inflation data. News that retail and wholesale prices ticked up slightly in October sent markets down, even though both numbers were in line with economists’ expectations. Stocks remained under pressure after unexpected comments from Fed Chair Powell, who said the Fed wasn’t “in a hurry” to cut rates.6

Back-to-Back Gains for S&P 500

Markets were a mixed bag in the final month as the Dow Industrials and S&P 500 fell, while the Nasdaq posted a modest gain. The Dow was down 12 of the first 13 trading days of the month, including 10 consecutive sessions that marked its longest losing streak since 1974.7

The Fed’s quarter-point cut on December 18 was widely expected. Less expected was Fed Chair Jerome Powell’s signaling of fewer rate reductions next year. Markets fell in response and came under pressure again as a government spending bill appeared to stall in Congress. But a lower-than-expected inflation update boosted the market and helped erase some earlier losses.8,9

Despite the sluggish finish, the S&P 500 ended the year up 23 percent—its second consecutive gain of more than 20 percent.10

Sector Scorecard

Only 4 of the 11 S&P 500 sectors ended the quarter in the green, but those four sectors were powerful enough to lift the Standard & Poor’s 500 stock index.

Consumer Discretionary (+11.97 percent) was the best-performing sector. The other three positive sectors were Communication Services (+7.09 percent), Financials (+6.64 percent) and Technology (+2.99 percent). Materials (−12.70 percent) and Healthcare (−10.68 percent) were among the worst performers, while Real Estate (−8.95 percent), Utilities (−6.30 percent), and Consumer Staples (−5.29 percent) also finished in the red. Industrials (−2.72 percent) and Energy (−2.44 percent) fell the least.11

What Investors May Be Talking About in January

Expect attention to shift to Inauguration Day. Wall Street will be watching to see what policies the White House exacts through executive order and what policies will follow a legislative process.

Updated and stricter tariffs may be implemented quickly by the next administration. Some economists have speculated that the new programs may be inflationary, but others are less concerned, reminding investors that many tariffs have remained in place for the past four years.12

However, overseas trading partners appear to be bracing for fresh tariffs. In mid-December, the European Central Bank—anticipating possible U.S. trade tariffs on goods from Europe—cut interest rates for the third time in as many months. And China has toughened its talk around economic stimulus, promising a more proactive fiscal policy and looser monetary policy in anticipation of trade tensions with the incoming U.S. administration.13,14

World Markets

The MSCI EAFE Index fell 8.38 percent in Q4, starkly contrasting U.S. averages that benefited from post-election and holiday rallies.15

European markets were mixed during the quarter. France fell 3.34 percent, Spain 2.38 percent, and the United Kingdom 1.25 percent. Meanwhile, Germany picked up 3.02 percent and Italy 1.23 percent.16

Most emerging markets were under pressure, which accounted for much of the drop in the MSCI EAFE. Brazil dropped 8.75 percent, Mexico 5.65 percent, and India 7.31 percent.17

Pacific Rim markets were mixed thanks to Japan, which picked up 5.21 percent during the quarter. Elsewhere, China’s Hang Seng Index dropped 5.08 percent, and Korea’s KOSPI index fell 7.47 percent.18

Indicators

Gross Domestic Product (GDP)

The economy grew at an annualized rate of 3.1 percent in the third quarter of 2024, revised upward from the prior estimate of 2.8 percent and ahead of economists’ expectations. That followed 3.0 percent annualized growth in Q2 and 1.6 percent in Q1.19

Employment

Employers added 227,000 jobs in November, a rebound from 36,000 jobs added in October (revised up from the initial estimate of 12,000 jobs). The November gain was in line with economists’ expectations and confirmed what investors were hoping—that October was an anomaly due to the outsized impact of two hurricanes and a workers' strike at a large aircraft manufacturer.20

Unemployment increased slightly in November to 4.2 percent, while wage growth increased 4.0 percent over the prior 12 months.

Retail Sales

Consumer spending increased 0.7 percent, beating economists’ expectations of 0.5 percent. Year over year, retail sales rose 3.8 percent.21

Industrial Production

Industrial output rose by 0.2 percent in November—less than the 0.5 percent rebound economists expected but better than October. A strong showing in automobile output was countered by continued weakness in aerospace.22

Housing

Housing starts fell 1.8 percent—the lowest level in four months. November’s drop was driven by a steep decline in multifamily starts, which offset a gain in single-family starts.23

Sales of existing homes rose 4.8 percent in November, thanks in part to lower mortgage rates and additional inventory pulling homebuyers off the sidelines. It was a continuation from October when sales of existing homes rose 3.4 percent. The median existing-home sales price was $406,100, a 4.7 percent increase from a year prior.24

New home sales rose 5.9 percent in November. The median new home sales price in November was $402,600, down 6.3 percent from a year prior—the lowest level since February 2022. There were 490,000 unsold new homes on the market in November, representing 8.9 months of inventory.25

Consumer Price Index (CPI)

In line with expectations, core consumer prices ticked up 0.3 percent in November. Core CPI, which excludes volatile food and energy prices, was up 3.3 percent year over year—also in line with expectations.26

Durable Goods Orders

Orders of manufactured goods designed to last three years or longer fell 1.1 percent in November, mostly due to weakness in commercial aircraft orders.27

The Fed

As expected, the Federal Reserve lowered interest rates by a half percentage point in Q4. The Fed Funds Rate target range ended the year at 4.25–4.50 percent.

Fed Chair Jerome Powell took the opportunity at both Q4 FOMC meetings to signal less certainty on the pace and timing of rate adjustments in 2025. Following the December meeting, the Fed Chair said, “From here, it’s a new phase, and we’re going to be cautious about further cuts.”28,29

The FOMC’s next meeting is scheduled for January 28–29.

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