{"id":216779,"date":"2024-12-26T10:00:00","date_gmt":"2024-12-26T15:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=216779"},"modified":"2025-03-21T14:47:11","modified_gmt":"2025-03-21T18:47:11","slug":"above-the-noise-reflections-on-a-year-of-market-growth","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/above-the-noise-reflections-on-a-year-of-market-growth\/","title":{"rendered":"Above the Noise: Reflections on a year of market growth"},"content":{"rendered":"\n

Key takeaways<\/h2>\n\n\n\n

Season to reflect<\/h3>\n\n\n\n

As we say goodbye to 2024, here\u2019s a trip down memory lane to revisit themes that shaped markets over the past 12 months.<\/p>\n\n\n\n

Themes to remember<\/h3>\n\n\n\n

A resilient US economy, contained inflation, and an easing Federal Reserve created a positive backdrop for markets.<\/p>\n\n\n\n

Year of growth<\/h3>\n\n\n\n

The S&P 500\u00ae Index returned 27.56% year-to-date, marking a sizable annual advance in the broad stock market.1<\/a><\/sup><\/p>\n\n\n\n

\u2018Tis the season for reflecting. Before we hail the new year, lads and lasses, follow me in merry measure while I tell of investor treasure. Or at least the story of a sizeable annual advance in the broad market.1<\/a><\/sup><\/p>\n\n\n\n

This month\u2019s article is inspired by those old clip show episodes of our favorite TV sitcoms. You know, the ones developed for the weeks when the writers didn\u2019t have anything new to put out. Following the lead of the sitcom writers who came before me, I present the final Above the Noise of 2024, featuring excerpts from the previous 12 months. But like all good clip shows, there\u2019s a theme that connects these snapshots in time: A resilient US economy, contained inflation, and an easing Federal Reserve creating a positive backdrop for markets. <\/p>\n\n\n\n

December 2023: Last Christmas I gave you my heart<\/strong><\/h2>\n\n\n\n

It appears, at least for now, that the trip down the chimney will be a soft one. Historically, that has meant goodies for you, me, and other investors.<\/p>\n\n\n\n

January 2024: O come, all ye faithful<\/strong><\/h2>\n\n\n\n

Former Treasury Secretary Lawrence Summers called soft landings \u201cthe triumph of hope over experience.\u201d2<\/a><\/sup> I think Summers\u2019 skepticism is reasonable but shouldn\u2019t necessarily inform the base case. A recession (the hard landing) doesn\u2019t appear to be coming, given the lack of cyclical excess in the economy3<\/a><\/sup> and limited leverage on corporate balance sheets.4<\/a><\/sup><\/p>\n\n\n\n

February 2024: Toys in every store<\/strong><\/h2>\n\n\n\n

Americans are being reasonably steady in paying their credit card bills on time. It\u2019s likely the result of consumer fundamentals remaining reasonably strong. For example, the ratio of household debt service payments to disposable income remains well below the long-term average.5<\/a><\/sup><\/p>\n\n\n\n

March 2024: Just like the ones I used to know<\/strong><\/h2>\n\n\n\n

Fiscal concerns don\u2019t appear to be driving US rates. Historically, there has not been a clear relationship between the yield that investors require to maintain longer-term security and the fiscal status of the US. In fact, the additional real yield required to own longer-term bonds has been remarkably stable over time, suggesting that there is no fiscal credibility problem.6<\/a><\/sup><\/p>\n\n\n\n

April 2024: The fire is slowly dying<\/strong><\/h2>\n\n\n\n

For all the talk about \u201csticky\u201d service cost inflation, the transportation services sector is driving half of it.7<\/a><\/sup> It is highly unlikely that this is something that the Federal Reserve will feel the need to suppress.<\/p>\n\n\n\n

May 2024: From now on, our troubles will be out of sight<\/strong><\/h2>\n\n\n\n

We are a society that is prone to hyperbole. No sooner than I had grown accustomed to the panic over \u201chyperinflation\u201d was I told of the forming \u201ceconomic hurricanes.\u201d Now it\u2019s stagflation? Hyperinflation and economic hurricanes at the same time? Make it stop! I\u2019d argue, with respect to Saturday Night Live\u2019s Linda Richman, that the stagflation is proving to be neither \u201cstag\u201d nor \u201cflation.\u201d Discuss.<\/p>\n\n\n\n

June 2024: The merry bells keep ringing<\/strong><\/h2>\n\n\n\n

The stock market, on average, has historically performed well in the early stages of an easing cycle.8<\/a><\/sup> That is, if the economy is already in a recession before the easing cycle commences or if no recession occurs. Our preferred recession indicators, including corporate bond spreads9<\/a><\/sup> and bank lending standards,10<\/a><\/sup> aren\u2019t flashing recession warning signals.<\/p>\n\n\n\n

July 2024: Everyone\u2019s dancing merrily<\/strong><\/h2>\n\n\n\n

I\u2019m consistently perplexed by the idea that one party or the other is better for markets. For those keeping score at home, the S&P 500 Index was up 70.2% from the day Donald Trump was elected until the day Joe Biden was elected. Since then, the US equity index is up 76.4%.11<\/a><\/sup> Can we stop this already? I promise to keep fighting this losing battle.<\/p>\n\n\n\n

August 2024: Let\u2019s stop all the fight<\/strong><\/h2>\n\n\n\n

I\u2019m concerned, but not necessarily with regard to the broad markets. Ask yourself this. Has the Russian invasion of Ukraine or the growing conflict in the Middle East meaningfully impacted the direction of the US economy or the expectations for US monetary policy? If your answer is no, as I would suggest they should be, then the conflicts will likely continue to play out in the background with regard to the market. It also doesn\u2019t hurt that the US is currently producing more oil than any nation at any time, rendering the nation less susceptible to overseas shocks.12<\/a><\/sup><\/p>\n\n\n\n

September 2024: It doesn\u2019t show signs of stopping<\/strong><\/h2>\n\n\n\n

Markets have generally performed well following mass sell-offs, as was experienced in early August. The average time to recovery following 5%\u201310% drawdowns in the S&P 500 Index is three months.13<\/a><\/sup><\/p>\n\n\n\n

October 2024: Let it snow<\/strong><\/h2>\n\n\n\n

Good news is good news, and bad news is bad news again. Let me explain. Good economic news, when inflation was elevated, had been viewed as bad news for the stock market as it signaled that policy tightening would continue indefinitely. Now, with inflation contained, the markets have turned their focus away from inflation to growth and have generally rewarded good economic activity.<\/p>\n\n\n\n

November 2024: The mood is right, the spirits up<\/strong><\/h2>\n\n\n\n

Valuations are not timing tools. The S&P 500 Index is trading at a premium to its long-term average, but the higher valuations tend to be concentrated in the top names.14<\/a><\/sup> The equal-weight S&P 500 Equal Weight Index is trading at a price-to-earnings ratio of 20.2x, compared to its since inception average of 19.4x.15<\/a><\/sup> I\u2019d hardly call that a bubble.<\/p>\n\n\n\n

Thank you for a great 2024. Here\u2019s to you. I raise a glass to everyone.<\/p>\n\n\n\n

See you in 2025.<\/p>\n\n\n\n

—<\/p>\n\n\n\n

Originally Posted December 20, 2024<\/p>\n\n\n\n

Above the Noise: Reflections on a year of market growth<\/a> by Invesco US<\/p>\n\n\n\n

Footnotes<\/strong><\/p>\n\n\n\n