“History doesn’t repeat itself, but it often rhymes”
-Mark Twain
2024 was another banner year for the stock market. In a year that started with a 7.6 magnitude earthquake hitting Japan and included continued armed conflict in Europe, a collapse of a major bridge in Baltimore, the conviction of Crypto King Sam Bankman-Fried, devastating hurricanes, Iranian missile strikes on Israel along with a small event called a presidential election the markets hit new highs over 55 times in 2024 in spite of all the disruptive events that took place.
As a result of the 23.3% gain in 2024 and the 24.23% return in 2023 the S&P 500 had the first 20% annual returns back-to-back since the late 1990’s [1]. Much of the gain in the S&P 500 can be attributed to a handful of stocks many of which were involved in the Artificial Intelligence segment of the market.
The outperformance in this sector has resulted in the ten largest stocks in the S&P 500, now representing almost 35% of the entire index capitalization. This amount of concentration in the index has not been seen since the late 1990’s. A corollary of this is that market valuations have now approached or exceeded those levels of the late 1990’s [2].
Admittedly the rage of the late 1990’s was the internet (which has proven to be a game changer in our business and personal lives) and today the thing that garners most of the buzz is Artificial Intelligence.
We at Cypress Bank & Trust are not predicting that we will have a market sell off like we had at the beginning of this century but since our investment approach is grounded in fundamentals and our team has over 100 years of combined experience managing clients’ assets, we are somewhat circumspect regarding current market levels. Rest assured that we remain vigilant in our approach and seek to not only generate quality returns for our clients but also manage the risks of our clients’ portfolios.
Equity
The S&P 500 closed 2024 up 23.3%, marking one of the best years in its history. During the year, the index reached an all-time high a remarkable 57 times, a feat that only happened four other years since 1929 [3]. The combination of interest rate cuts, artificial intelligence, and the incoming Trump administration were some of the main culprits behind this bull market. Market concentrations continued to increase to a high since at least 1996. Compared to the S&P 500’s 2024 return of 23%, the “Magnificent 7” stocks returned over 65% year to date while the Equal Weight S&P 500 Index returned 11%. The same was true for the fourth quarter of 2024, with the “Magnificent 7” returning nearly 20% versus the S&P 500 returning below 4% [4].
As we enter 2025, there are some questions that market participants are still waiting to be answered. Top of the mind is interest rates and inflation uncertainty, a new White House Administration starting on January 20th, and the ongoing geopolitical tensions in Ukraine & Russia, Israel & Iran, and that not so much talked about lately China & Taiwan. However, there are a lot of promising developments shaping up, especially in artificial intelligence and healthcare.
Fixed Income
The 4th quarter of 2024 in the fixed income markets was marked by declining interest rates in the short end of the yield curve and substantially increasing interest rates in the long end of the yield curve. The 10-year Treasury yield closed Q4 at 4.57%, increasing 83 basis points in the past three months [5]. This measure has a close relationship to mortgage rates, and thus the reason we have seen mortgage rates increasing in the second half of 2024 even though the Federal Reserve (“The Fed”) cut interest rates by a total of 1% in this period.
For 2025, the market is pricing in a range of interest rate cuts in the magnitude of 25 to 75 basis points. However, it remains to be seen how some of the economic data will unfold through the next few months. Inflation has been stubborn in reaching the Fed’s 2% target, unemployment remains at 4.2%, and GDP numbers have been higher than most would have expected.
Outlook
The 4th quarter of 2024 in the fixed income markets was marked by declining interest rates in the short end of the yield curve and substantially increasing interest rates in the long end of the yield curve. The 10-year Treasury yield closed Q4 at 4.57%, increasing 83 basis points in the past three months. This measure has a close relationship to mortgage rates, and thus the reason we have seen mortgage rates increasing in the second half of 2024 even though the Federal Reserve (“The Fed”) cut interest rates by a total of 1% in this period.
For 2025, the market is pricing in a range of interest rate cuts in the magnitude of 25 to 75 basis points. However, it remains to be seen how some of the economic data will unfold through the next few months. Inflation has been stubborn in reaching the Fed’s 2% target, unemployment remains at 4.2%, and GDP numbers have been higher than most would have expected.
1. Investing.com, S&P 500 Year-End Gains Top 20% for Second Year Running, 01/03/2025.
2. FactSet, Standard & Poor’s, J.P. Morgan Asset Management, data as of 11/30/2024.
3. Yahoo Finance, The S&P 500 Just Did Something for Only the 5th Time Ever, 12/08/2024.
4. FactSet, data as of 01/02/2025
5. CNBC, data as of 01/02/2025.
Disclosures
Trust and Portfolio Management services offered by Cypress Bank & Trust are not insured by the FDIC; are not deposits, are not guaranteed; and are subject to investment risks, including possible loss. This does not constitute an offer or solicitation.
This information should not be considered investment advice. Opinions expressed reflect the judgment of the authors and are current opinions as of the date appearing in this material only. While every effort has been made to verify the information contained herein, we make no representations as to its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance does not predict future results. Content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation. All investing involves risk, including the loss of some or all of your investment.
Any indices and other financial benchmarks shown are provided for illustrative purposes only, are unmanaged, reflect reinvestment of income and dividends and do not reflect the impact of advisory fees. Investors cannot invest directly in an index. Comparisons to indexes have limitations because indexes have volatility and other material characteristics that may differ from a particular fund.
Certain information contained herein constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events, results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Nothing contained herein may be relied upon as a guarantee, promise, assurance or a representation as to the future.
Information obtained from third party sources is believed to be reliable but has not been independently verified and its accuracy or completeness cannot be guaranteed. No representation is made with respect to the accuracy, completeness, or timeliness of this document.
Specific investments described herein do not represent all investment decisions made by Cypress Bank & Trust. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future.