By: Matt Garrott
What Happened in 2024
The S&P 500 gained 25% including dividends in 2024, its second 25%+ calendar year in a row. The S&P 500 is up 72% from the bottom of the bear market in 2022. Returns haven’t been without setbacks, though. We’ve seen a regional bank crisis, war, and plenty of other headlines to build a wall of worry for the market to climb. The market almost hit correction territory with a drawdown of 9.9% in October of 2023 and the index was 8.5% off its highs in August of last year. Many concerns continue into 2025 – valuations look rich, there are ongoing conflicts, as well as political uncertainty at home and abroad.
Like every year, 2024 was expected to be a stock picker’s market. Jon Ferro of Bloomberg made an interesting note one morning: the phrase “stock picker’s market” is generally paired with the future tense rather than the past tense. It’s usually “Next year is going to be a stock picker’s market” not “Last year was a stock picker’s market”. How did 2024 go? The S&P 500 outpaced 89% of active large cap blend managers during the calendar year.
In the fixed income world, interest rate movements ended the year as disjointed as the Australian Breakdance Team. Since September, the Federal Reserve cut rates by 1%, but the 10-year Treasury yield rose 1%. How? The US economy isn’t weakening as much as everyone expected and consumers keep spending. Employment has also held up and inflation remains above the Fed’s target.
In Fairway news, we hired Bess Brown to our client service and operations team. Dan Shomper earned a promotion to Senior Associate Wealth Manager. We are hiring both entry level associate wealth manager and more experienced wealth manager positions. Several members of the Fairway team have been quoted in national media (see our In the News page) and Mark got interviewed on a podcast! If you have a conversation with someone who is concerned about their investments, worried about recession, or is anxious about another personal financial event, please connect them with us. A joint email goes a long way.
Buzzwords: Eclipse, Elections, Elon, Artificial Intelligence, Bitcoin, War, SpaceX
Outlook for 2025
Don’t get used to 25% returns. If we have a normal year (8-10% equity returns), it will probably feel underwhelming and it will be tempting to chase what does really well in 2025. Bear in mind that a “normal” year, on average, has a pullback of 14% from market highs. A 10% drawdown is often considered a correction and that’s where we start seeing the permabears appear on TV. The last three calendar years saw the S&P 500 return -18%, +26%, and +25%. These are pretty extreme returns, but their annualized return is 9%, right in the middle of the range for “normal”.
Most Wall Street “experts” predict another good year for the stock market. Among 20 prognostications for the year from the major Wall Street firms, 18 predict positive returns, ranging from about 5% to 18%. The average 2025 year-end price target for the S&P 500 was 6,539, or about 10% higher than the starting price. Amazingly, that’s very close to the average annual return of the index over time! So how did those same experts fare in their 2024 predictions? The average 2024 year-end price target for the S&P 500 was 4,861. The most bullish analyst predicted a 5,400 closing price. The actual year-end price was 5,942. No firm came within 10% of being right.
Our advice…avoid making investment decisions based on anyone’s unreliable predictions about the near-term markets and economy. Annual predictions often focus on what will change in the coming year, but it can be more valuable to recognize what isn’t changing. Rebalancing and tax loss harvesting will continue to serve investors well. Be mindful of taxes, especially when anyone suggests you put your money in motion. Chasing yield or returns will increase the odds of an unforced investment error. Investors should say no (or have us say it) more often than they say yes to pitches. Just like every other year, Wall Street expects 2025 to be a stock picker’s market. Just like every other year, we suggest ignoring the sales pitch and keep with what works over the long-term. Control costs, manage taxes, and most importantly, stick to and execute on your individualized financial plan. We continue to emphasize passive investing, but active wealth management. Too many investors get these concepts reversed to the detriment of their wealth and peace of mind.
If you request that we move money via wire transfer, expect a phone call from us to confirm. Scams are getting more sophisticated. The best way to protect our clients is to obtain a verbal confirmation.
The news is unrelenting and consistently negative. As usual, we will be reaching out to you throughout the year, but if you feel the urge to pick up the phone and talk about anything, we are here. Retirement goals are being hit. People are getting married. Babies are being born. We want to hear about it. It’s easier than ever to fall into social media doomscrolling or the news cycle and forget that there are reasons to celebrate and there are people to share those triumphs with.
We are thankful and humbled by the support and kindness we’ve received from our clients this year. We promise to deliver on our core values: Integrity, Service, Reliability, Insight, Excellence, and Results.
