After more than two decades in the investment industry, I am still in awe at what markets are able to produce. Over the last two years, the S&P 500 is up 57.8% and has added over $19 trillion in value. That is a staggering amount of wealth creation in a short period of time. When I started in this business, Microsoft was the largest company in the S&P 500 with a market value of $264 billion. Today, nine S&P 500 companies have crossed the $1 trillion mark, with three currently worth more than $3 trillion. A commonly heard refrain among the members of our investment team at Bragg is, ”Wow, I never thought I would see that!” The markets are constantly evolving, and there is always more to learn. Surely that is why I enjoy working in this field.
As the calendar turns, it’s a great time to reflect on 2024. Some lessons are new and others are timeless truths worth repeating.
Lesson #1: Bull Markets Don’t Die on Optimism
As investors, we’re taught to be contrarians. Warren Buffett’s famous advice—”Be fearful when others are greedy and greedy when others are fearful”—captures that spirit. But 2024 challenged half of that wisdom.
We began 2024 riding the momentum of a 26% return in the S&P 500 in 2023. The Federal Reserve appeared on track to pull off a rare “soft landing,” raising interest rates just enough to tame inflation without derailing the economy. The AAII Investor Sentiment Survey was at its highest level in over two years. Optimism was clearly riding high. It was easy to think stocks couldn’t possibly repeat when it seemed like few people were worried, and yet it paid to stay greedy as the market surged another 25%—only the sixth time in a century that stocks posted back-to-back 20%+ annual returns.
The only time the S&P 500 saw more than two consecutive years of 20%+ returns was from 1995 to 1998. While today’s enthusiasm for A.I. tools echoes the internet boom, only time will reveal which opportunities have real substance and which turn out to be froth.
Fortunately, profit growth is supporting the market rally. S&P 500 earnings are on track to have risen over 9% in 2024 and are projected to grow as much as another 15% in 2025 per FactSet, both of which are above the 10-year average growth rate of 8%.
Lesson #2: A Rising Tide Doesn’t Lift All Boats Equally
By all accounts, it was a strong year for stocks. All of the major stock indexes we track outperformed their 10-year averages. That said, returns were anything but evenly distributed. The S&P 500, the most closely watched index, handily outperformed nearly everything else, producing nearly five times the returns of international stocks and more than doubling those of small-cap stocks.
Even within the S&P 500, growth stocks nearly tripled the returns of value stocks. Going a step further, the technology-driven “Magnificent Seven”—the seven largest companies in the index—outpaced the other 493 stocks by an even wider amount. Despite starting the year accounting for 30% of the S&P 500’s value, these seven stocks generated over half of the index’s total return in 2024.
It was a banner year for the market overall, but a challenging one for diversification. These seven giants now make up over a third of the S&P 500’s total value and also pose an increasing risk to the broader market.
While it’s tempting to chase the winners, we remain committed to diversification—spreading risk and positioning ourselves for when new leaders inevitably emerge, which is what always happens.
Lesson #3: Predictions Are More Interesting Than Useful
People regularly send us articles that make bold market predictions. While there is usually something to learn in these reports, the estimates themselves are rarely worth acting on.
Last December, Wall Street experts predicted the S&P 500 would end 2024 anywhere between 4,200 (JPMorgan) and 5,400 (Yardeni Research). The index actually closed at 5,881—9% over the closest guess and more than 40% above the most bearish outlook. And 2024 wasn’t an anomaly. A recent Bloomberg article showed that S&P 500 returns in six out of the past eight years fell outside the range of expert estimates. Not a great track record for investors to follow.
Predicting economic shifts and corporate earnings is challenging enough, and it’s even harder to guess exactly how investors will react. Just for fun, I’ll give my prognostication: We have about a 75% chance markets will be up again in 2025, because that’s roughly how often they rise historically. Hopefully, no one changes their investment strategy based on my guess—or anyone else’s.
Lesson #4: Winning the Inflation Battle Doesn’t Solve Everything
The Federal Reserve tries to manage inflation, or rising prices, by adjusting interest rates. A little inflation is healthy, but too much or too little can halt economic growth.
When COVID shutdowns hit supply chains in 2020, the Fed initially labeled inflation “transitory,” meaning surging prices would return to normal once supplies, labor, and transport got back on track. But then, businesses—especially in service industries—were forced to raise wages to attract workers, leading to higher and higher prices. Quickly, a supposedly short-term blip turned into more of an inflation spiral.
The good news is that inflation is down from a 9% peak in 2022 to 2.7% in November 2024. The bad news for American households is that prices haven’t come down, aside from energy costs. A 2.7% current inflation rate doesn’t erase the 20% to 27% increase in prices we have experienced since the start of COVID. The Fed may have defeated inflation but its lingering effects are likely here to stay.
Lesson #5: Don’t Let Politics Drive Your Portfolio
U.S. presidential elections always stir up strong emotions, and 2024 was no exception. Voters clearly signaled a desire for change, yet predicting the economic impacts of potential policy changes isn’t easy. Rising tariffs and mass deportations might drive prices and wages higher, while tax and regulation cuts could boost earnings. One thing appears certain: change is coming, and it may add to short-term volatility. Even so, the long-term outlook hasn’t really shifted.
We haven’t made significant changes to portfolios based on the election results because the forces driving long-term investment returns remain the same. Regardless of who’s in the White House, consumers will keep spending, and businesses will keep striving to increase profits—two areas where Americans are about the best in the world.
Looking Ahead to 2025
The turn of the calendar is a good time for reflection and also for new resolutions. The most popular goal, getting healthier, highlights a truth that carries over to investing—knowing what to do is simple (more vegetables and exercise), but actually following through on those things is hard. Today, I made myself a large salad for lunch (win!) and then just ate a brownie that had been left in the office kitchen (fail!). I’ll justify it by saying I was stressed by my writing deadline. It tasted great, but I knew I should have skipped it.
Investing works much the same way. The core principles are simple—invest steadily, spread risk, and stay invested. Again, it’s something easy to understand but hard to do. It would have been easy to convince ourselves that stocks would continue falling after a rough 2022 or that stocks had risen too much in 2023. Sticking to the plan is the strategy that has continually paid off over the long term.
Coming off consecutive 25%+ annual returns in the market and a year in which the S&P 500 made 57 new all-time highs, we’re sticking with the proven approach in 2025. Yes, we will make some tweaks to the portfolio, but overall, it will look much the same in twelve months. That may sound passive, but choosing to “stay the course” is an active decision that we do not take lightly.
Without making any predictions, we look forward to what the new year will bring because we know how we will respond: by relying on proven strategies and avoiding the urge to chase headlines or returns. Here’s hoping 2025 brings more growth to your portfolio—and plenty of health and happiness to you and yours!
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
2025 Tax Rates & Inflation Adjustments
December 23, 2024The Next 60 Years: 4th Quarter 2024 Commentary
December 31, 2024After more than two decades in the investment industry, I am still in awe at what markets are able to produce. Over the last two years, the S&P 500 is up 57.8% and has added over $19 trillion in value. That is a staggering amount of wealth creation in a short period of time. When I started in this business, Microsoft was the largest company in the S&P 500 with a market value of $264 billion. Today, nine S&P 500 companies have crossed the $1 trillion mark, with three currently worth more than $3 trillion. A commonly heard refrain among the members of our investment team at Bragg is, ”Wow, I never thought I would see that!” The markets are constantly evolving, and there is always more to learn. Surely that is why I enjoy working in this field.
As the calendar turns, it’s a great time to reflect on 2024. Some lessons are new and others are timeless truths worth repeating.
Lesson #1: Bull Markets Don’t Die on Optimism
As investors, we’re taught to be contrarians. Warren Buffett’s famous advice—”Be fearful when others are greedy and greedy when others are fearful”—captures that spirit. But 2024 challenged half of that wisdom.
We began 2024 riding the momentum of a 26% return in the S&P 500 in 2023. The Federal Reserve appeared on track to pull off a rare “soft landing,” raising interest rates just enough to tame inflation without derailing the economy. The AAII Investor Sentiment Survey was at its highest level in over two years. Optimism was clearly riding high. It was easy to think stocks couldn’t possibly repeat when it seemed like few people were worried, and yet it paid to stay greedy as the market surged another 25%—only the sixth time in a century that stocks posted back-to-back 20%+ annual returns.
The only time the S&P 500 saw more than two consecutive years of 20%+ returns was from 1995 to 1998. While today’s enthusiasm for A.I. tools echoes the internet boom, only time will reveal which opportunities have real substance and which turn out to be froth.
Fortunately, profit growth is supporting the market rally. S&P 500 earnings are on track to have risen over 9% in 2024 and are projected to grow as much as another 15% in 2025 per FactSet, both of which are above the 10-year average growth rate of 8%.
Lesson #2: A Rising Tide Doesn’t Lift All Boats Equally
By all accounts, it was a strong year for stocks. All of the major stock indexes we track outperformed their 10-year averages. That said, returns were anything but evenly distributed. The S&P 500, the most closely watched index, handily outperformed nearly everything else, producing nearly five times the returns of international stocks and more than doubling those of small-cap stocks.
Even within the S&P 500, growth stocks nearly tripled the returns of value stocks. Going a step further, the technology-driven “Magnificent Seven”—the seven largest companies in the index—outpaced the other 493 stocks by an even wider amount. Despite starting the year accounting for 30% of the S&P 500’s value, these seven stocks generated over half of the index’s total return in 2024.
It was a banner year for the market overall, but a challenging one for diversification. These seven giants now make up over a third of the S&P 500’s total value and also pose an increasing risk to the broader market.
While it’s tempting to chase the winners, we remain committed to diversification—spreading risk and positioning ourselves for when new leaders inevitably emerge, which is what always happens.
Lesson #3: Predictions Are More Interesting Than Useful
People regularly send us articles that make bold market predictions. While there is usually something to learn in these reports, the estimates themselves are rarely worth acting on.
Last December, Wall Street experts predicted the S&P 500 would end 2024 anywhere between 4,200 (JPMorgan) and 5,400 (Yardeni Research). The index actually closed at 5,881—9% over the closest guess and more than 40% above the most bearish outlook. And 2024 wasn’t an anomaly. A recent Bloomberg article showed that S&P 500 returns in six out of the past eight years fell outside the range of expert estimates. Not a great track record for investors to follow.
Predicting economic shifts and corporate earnings is challenging enough, and it’s even harder to guess exactly how investors will react. Just for fun, I’ll give my prognostication: We have about a 75% chance markets will be up again in 2025, because that’s roughly how often they rise historically. Hopefully, no one changes their investment strategy based on my guess—or anyone else’s.
Lesson #4: Winning the Inflation Battle Doesn’t Solve Everything
The Federal Reserve tries to manage inflation, or rising prices, by adjusting interest rates. A little inflation is healthy, but too much or too little can halt economic growth.
When COVID shutdowns hit supply chains in 2020, the Fed initially labeled inflation “transitory,” meaning surging prices would return to normal once supplies, labor, and transport got back on track. But then, businesses—especially in service industries—were forced to raise wages to attract workers, leading to higher and higher prices. Quickly, a supposedly short-term blip turned into more of an inflation spiral.
The good news is that inflation is down from a 9% peak in 2022 to 2.7% in November 2024. The bad news for American households is that prices haven’t come down, aside from energy costs. A 2.7% current inflation rate doesn’t erase the 20% to 27% increase in prices we have experienced since the start of COVID. The Fed may have defeated inflation but its lingering effects are likely here to stay.
Lesson #5: Don’t Let Politics Drive Your Portfolio
U.S. presidential elections always stir up strong emotions, and 2024 was no exception. Voters clearly signaled a desire for change, yet predicting the economic impacts of potential policy changes isn’t easy. Rising tariffs and mass deportations might drive prices and wages higher, while tax and regulation cuts could boost earnings. One thing appears certain: change is coming, and it may add to short-term volatility. Even so, the long-term outlook hasn’t really shifted.
We haven’t made significant changes to portfolios based on the election results because the forces driving long-term investment returns remain the same. Regardless of who’s in the White House, consumers will keep spending, and businesses will keep striving to increase profits—two areas where Americans are about the best in the world.
Looking Ahead to 2025
The turn of the calendar is a good time for reflection and also for new resolutions. The most popular goal, getting healthier, highlights a truth that carries over to investing—knowing what to do is simple (more vegetables and exercise), but actually following through on those things is hard. Today, I made myself a large salad for lunch (win!) and then just ate a brownie that had been left in the office kitchen (fail!). I’ll justify it by saying I was stressed by my writing deadline. It tasted great, but I knew I should have skipped it.
Investing works much the same way. The core principles are simple—invest steadily, spread risk, and stay invested. Again, it’s something easy to understand but hard to do. It would have been easy to convince ourselves that stocks would continue falling after a rough 2022 or that stocks had risen too much in 2023. Sticking to the plan is the strategy that has continually paid off over the long term.
Coming off consecutive 25%+ annual returns in the market and a year in which the S&P 500 made 57 new all-time highs, we’re sticking with the proven approach in 2025. Yes, we will make some tweaks to the portfolio, but overall, it will look much the same in twelve months. That may sound passive, but choosing to “stay the course” is an active decision that we do not take lightly.
Without making any predictions, we look forward to what the new year will bring because we know how we will respond: by relying on proven strategies and avoiding the urge to chase headlines or returns. Here’s hoping 2025 brings more growth to your portfolio—and plenty of health and happiness to you and yours!
This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.
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