In most instances, from Christmas through year end, investors are treated to a “Santa Claus rally”, where stock prices rise. But 2024 had an atypical end, with stocks falling flat.
The closing drop last year marks only the 12th time the benchmark S&P 500 index fell by more than 1% over that span since 1952.
So, does a “Santa Slump” mean poor returns going forward? Not quite, according to Bespoke Investment Group.
The research outfit found that, in the twelve months following a year-end decline of more than 1%, stocks tended to do better.
In fact, Bespoke found that large company stocks’ median performance after those eleven down years has seen a roughly 12% gain.
For 2024 as a whole, it was another banner performance for U.S. stocks.
In 2024, the S&P 500 index of large-company stocks rose nearly 25% and hit 57 new all-time highs along the way – the most since 1928. This stellar performance follows a 26% return for US stocks in 2023.
Once again, we have the technology sector, and the excitement around Artificial Intelligence (AI) to thank for these more-than-satisfactory gains. The seven largest tech companies, often referred to as the “Magnificent 7”, rallied 48% in 2024.
Stock gains were slightly less concentrated last year. The “Mag 7” contributed 55% of the return of large-company stocks, compared to 63% in 2023.
Outside of the US, stock returns were positive, but much less impressive. The MSCI EAFE (Europe, Australasia, and the Far East) index of foreign stocks rose by a pedestrian 3.5%.
One reason why foreign stock returns trailed far behind US stocks is that the US dollar strengthened by about 7% compared to other major foreign currencies.
Dollar strength acts as a drag on foreign stock returns, when those returns are measured in US dollars.
Another reason is that the Mag 7 is unique to the US.
While successful technology firms do exist outside US borders, no other country or region has an equivalent group of dominant, AI-focused companies like Amazon, Apple, Alphabet, Meta, Microsoft, Nvidia, and Tesla.
Bond returns also lagged far behind those of US stocks. Through September, intermediate bonds registered pretty good performance, returning about 5%.
But as the odds of a Republican victory at the polls went up in the fall, so too did interest rates (the concern being resurgent inflation), which had a negative effect on bond prices.
By the end of 2024, intermediate-term bonds, measured by the benchmark Bloomberg US Aggregate Bond index, returned 1.3%.
Short-term bond funds, where prices are much less influenced by changes in interest rates, did better, posting returns ranging from 4 – 5%.
Here’s a snapshot of quarterly US stock and bond performance in 2024: