Fourth Quarter 2024 Update

October 1, 2024

Key Points

• The US economy continues to perform very well, as its growth rate experienced an uptick in the third quarter of 2024 and has exceeded consensus expectations.
• The FOMC at its latest meeting lowered the target range of its primary policy rate, the federal funds rate, by 25 basis points, to 4.25%- 4.50%. The reduction was the second during the quarter, and the third since September when it first began its rate-cute program.
• The incoming Trump administration signals significant policy shifts. Broad-based tariffs and stricter immigration policies are poised to reshape the economic landscape, with economists divided on the potential impacts.

4th QUARTER 2024 MARKET COMMENTARY

Below, we’ve highlighted broad market returns for the current quarter and year-to-date time periods:

Source: Refinitiv

THE GLOBAL ECONOMY

The US economy continues to perform very well, as its growth rate experienced an uptick in the third quarter of 2024 and has exceeded consensus expectations. Fueling the gains have been growth in the labor force and labor productivity improvements. Against this backdrop, the Bureau of Economic Analysis released the third estimate of the third quarter 2024 real GDP, a seasonally adjusted annualized rise of 3.1%, slightly higher than the prior estimate of 2.8%, and also a modest increase from the previous quarter.

The employment situation improved in the quarter, as job growth made gains as the effects of hurricanes and labor strikes dissipated. The November employment report showed that employers added 227,000 jobs in the month, and that the unemployment rate came in at 4.2%. The Federal Open Market Committee (FOMC) lowered its federal funds rate target range by 50 basis points in the quarter to 4.25% to 4.50% as inflation data has stabilized at levels that are still above target, but which are expected to show improvement. The FOMC also indicated it expected additional reductions amounting to 50 basis points in 2025. The FOMC lowered its policy federal funds rate target by 100 basis points throughout the year, and economists anticipate another two reductions of 25 basis points each in 2025.

EQUITIES

Stock prices were decidedly mixed for the quarter, with gains concentrated only in certain economic sectors. Stock investors are attempting to assess the implications of the incoming Trump administration’s economic policies, as well as the outlook for interest rates now that the FOMC has eased back on the aggressiveness of its rate-cutting regime due to inflation that remains higher than target. Stock prices generally trended higher throughout the quarter, surging in the days following the November election results, but then falling sharply in December after the FOMC announced its more measures outlook for interest rate cuts in 2025. When the quarter ended, the S&P 500 Index had edged higher by 2.4%.  International stocks generated mainly negative results during the quarter, and overall trailed the performance of US equities. The MSCI EAFE Index, which measures performance of world markets outside the US, fell by 8.1%. Emerging markets stocks were also lower, with the MSCI Emerging Markets Index dropping by 8.0%.

FIXED INCOME

The FOMC at its latest meeting lowered the target range of its primary policy rate, the federal funds rate, by 25 basis points, to 4.25%- 4.50%. The reduction was the second during the quarter, and the third since September when it first began its rate-cute program. Inflation has proven to be stickier than analysts had expected, making the FOMC’s job more complex heading into 2025. In its Summary of Economic Projections (SEP) released in conjunction with its latest meeting, the FOMC raised its inflation outlook modestly for 2025 year-end from 2.1% to 2.5%. The SEP also indicated that committee members expect there to be an additional 50 basis point reduction in 2025, which was a significant reduction from the expectation of a 100-basis point reduction in its prior release.

Fixed income securities’ prices were on balance lower (and yields higher) during the quarter, as the bond market continues to digest the outcome of the presidential election and the FOMC’s reduction of its policy federal funds rate target, to a range of 4.25%-4.50%.

SUMMARY

The US economy closed 2024 on a strong note, with robust real GDP growth exceeding 3% annually in the latest quarter, stable unemployment near 4%, and inflation, while remaining stubbornly high, trending lower to the FOMC’s 2% target. This strength was bolstered by productivity gains and increased labor force participation, supported in part by prior immigration trends. Consumers, particularly wealthier households benefiting from rising stock and housing markets, supported growth through strong spending. Corporate investment flourished, aided by incentives such as the CHIPS Act, which spurred a surge in manufacturing activity.

Looking to 2025, the incoming Trump administration signals significant policy shifts. Broad-based tariffs and stricter immigration policies are poised to reshape the economic landscape, with economists divided on the potential impacts. While some argue tariffs may increase costs and inflation, the tariffs also aim to boost domestic production and address trade imbalances. In addition, experience with tariffs in Trump’s first administration show that inflation is not a necessary byproduct of tariffs. Immigration adjustments may tighten labor markets but reflect broader goals of prioritizing US employment and security. Further tax cuts and deregulation could spur business growth, particularly in sectors like energy, finance, and technology, fostering a competitive corporate environment.

Challenges remain, including potential inflationary pressures, higher interest rates, and global trade tensions. However, the administration’s commitment to policy implementation and willingness to adjust based on economic feedback could mitigate risks. Despite concerns, the strong foundation of the US economy, characterized by high consumer spending and resilient corporate profits, positions it to adapt to these changes effectively. With prudent management, the combination of fiscal stimulus and strategic regulatory adjustments may sustain economic growth while addressing long-term structural goals.

Information provided is for informational purposes only and should not be construed as investment advice. The views expressed are current only as of the publication date, are based on information that St. Clair Advisors believes to be accurate, and subject to change without notice. All investment decisions must be evaluated as to whether they are consistent with your investment objectives, risk tolerance and financial situation. St. Clair disclaims any liability for any direct or incidental loss incurred by applying any of the information in this publication. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

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