Year-End Market Review: Resilience, Rate Cuts, and What to Expect in 2025

2024 is officially coming to a close, and the market action towards the end of the year summed up the full year nicely. We officially saw our final rate cut of the year, capping off a 1% rate cut since September. While rates have come down some, heading into this year the expectations were actually for seven .25% cuts (1.75% reduction). But even though we’ve had less cuts than expected, markets have moved materially higher over the year as the reason for less rate decreases is actually a more resilient economy than expected.

Here are a few data points to consider:

The Fed funds rate has dropped from 5.5% to 4.5%, a 1% decrease as opposed to the expected 1.75% decrease heading into the year.

The US economy has been extremely resilient, posting 20%+ returns this year as opposed to international stocks at +2%.

GDP continues to grow, as the US closes in on 30 trillion dollars of annualized output.

Unemployment continues to remain historically low.

After wages lagged inflation during 2021 and 2022, wages have been outpacing inflation for some time now.

Considering the economic conditions, this week, the Fed took the opportunity to manage market expectations for 2025, headlining that they only believe there will be two rate cuts next year. This created some significant market volatility, with the Dow Jones index dropping over 1000 points on Wednesday. By the end of the week, markets clawed back some of those losses as we got some softer-than-expected inflation data.

We expect 2025 will, like most other years, have some volatility. There are a lot of cross-currents as President-elect Trump takes office, and the market is currently trying to net things out. Regardless, the economy is not in terrible shape currently, and the Fed holding rates higher gives them some ability to influence the economy if it’s needed.

Remember, if there wasn’t anything to worry about, markets would already be higher than they currently are. It is said that markets “climb a wall of worry” and it’s important not to let emotions drive investment decisions. Investors who have simply stayed well diversified and invested over time have been handsomely rewarded for their patience and consistency.

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Advisory services offered through National Wealth Management Group, LLC, a Registered Investment Adviser. This information is intended for educational purposes and is not intended as a recommendation to buy or sell securities. Investing involves risk. Before investing, you should consult with a financial advisor to determine how a specific investment strategy fits your personal goals and objectives.