2024 witnessed pivotal shifts in both equity and bond markets, reflecting volatility in U.S. rate expectations and equity sector divergences. U.S. equity markets experienced substantial gains, primarily driven by growth equities (e.g., technology/A.I. leaders, internet, and consumer discretionary). Bond markets faced challenges from a steepening Treasury yield curve; particularly as the U.S. election resulted in a Republican sweep of all branches of government. The latter reinforced expectations for a looser fiscal policy, a more business-friendly backdrop, and a pickup in inflation expectations due to trade tariff concerns.
U.S. equities performed robustly in 2024, with the S&P 500 gaining 25%, largely driven by the outsized influence of a few mega-cap technology firms. The Nasdaq Composite outperformed with a 30% increase, buoyed by strong earnings and continued innovation in A.I. and cloud computing. Heavy market concentration raised concerns among investors about the sustainability of these gains, as the top five companies accounted for nearly 30% of the index’s market capitalization. By comparison, the equal-weighted S&P 500 benchmark rose by 13%. Moreover, the Russell 2000, a benchmark for small-cap stocks, lagged the S&P 500 with a 14% gain, reflecting a bifurcated market where smaller companies faced elevated borrowing costs and uneven economic growth. On the international front, developed equity markets lagged the U.S. market (i.e., Japan +8.3%, UK +7.5% and EU +1.8%). Chinese equities outperformed the global equity benchmark i.e., 19.4% vs. 17.5% for the MSCI All Country Index.
The bond market faced a year of adjustment, as the Federal Reserve maintained a data-dependent easing stance and cut rates by 1% (from 5.5% to 4.5%). The 2-year Treasury yield, which began the year at 4.2%, fell slightly to 4.0%, while the 10-year yield climbed from 3.8% to 4.5%. As such, the Treasury yield curve steepened. This shift signaled growing optimism about long-term economic growth but also posed challenges for fixed-income investors. Investment-grade corporate bonds delivered a +0.9% total return (LQD ETF), recovering from the previous year’s losses, while high-yield bonds performed better, delivering an 8% total return (HYG ETF) as credit spreads tightened. The broader fixed-income US benchmark produced a total return of 1.3% (AGG ETF). Meanwhile, the U.S. dollar (USD) exhibited resilience, appreciating by 7% against a basket of major currencies as measured by the U.S. Dollar Index (DXY). On the metals front, gold performed well with a 27% total return, while broad commodities and crude oil were flat for the year. Lastly, digital assets performed strongly i.e., 122% for Bitcoin and 45% for Ethereum.
In conclusion, the performance of U.S. equities and bonds in 2024 highlighted the importance of diversification in a market dominated by a few sectors and market rotations due to shifting interest rates. While equities delivered strong returns, market concentration remains a risk for 2025, and the steepening yield curve presents both opportunities and challenges for fixed-income investors. Looking ahead, balancing growth-oriented investments with defensive strategies will be key to navigating potential volatility.
DISCLOSURES
The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or reliability. Please be advised that this content may contain errors, is subject to revision at all times, and should not be relied upon for any purpose. Under no circumstances shall Leo Wealth be liable to you or anyone else for damage stemming from the use or misuse of this information. Neither Leo Wealth nor the author offers legal or tax advice. Please consult the appropriate professional regarding your individual circumstance. Past performance is no guarantee of future results.
This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The Standard & Poor’s 500 (S&P 500) Index is a free-float weighted index that tracks the 500 most widely held stocks on the NYSE or NASDAQ and is representative of the stock market in general. It is a market value weighted index with each stock’s weight in the index proportionate to its market value.
The Nasdaq Composite Index is a market-capitalization weighted index of the more than 3,000 common equities listed on the Nasdaq stock exchange. The types of securities in the index include American depositary receipts, common stocks, real estate investment trusts (REITs) and tracking stocks. The index includes all Nasdaq listed stocks that are not derivatives, preferred shares, funds, exchange-traded funds (ETFs) or debentures.
The Russell 2000measures the performance of small capitalization U.S. stocks. The Russell 2000 is a market-value-weighted index of the 2,000 smallest stocks in the broad-market Russell 3000 Index.
The MSCI ACWI Indexis a free float‐adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. The MSCI ACWIconsists of 46 country indexes comprising 23 developed and 23 emerging market country indexes.
Exchange Traded Funds (ETF’s) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. REIT risks include changes in real estate values and property taxes, interest rates, cash flow of underlying real estate assets, supply and demand, and the management skill and creditworthiness of the issuer.
