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The Quick Facts
- U.S. equity markets experienced a back-to-back 20+% year in 2024, characterized by 57 all-time closing highs, with the S&P 500 finishing up 25.0%.
- Large Cap Growth outperformed Large Cap Value by a staggering 7.7% in December and 19.0% in 2024, driven by Magnificent 7 strength and AI-related optimism.
- The Russell 2000 Small Cap Index was down 8.3% in December and up just 11.5% for the year, significantly lagging its large-cap peers.
- Both Emerging Markets (EM) and Europe, Australasia, and the Far East (EAFE) significantly underperformed the S&P 500 in 2024 by -17.5% and -20.6%, respectively.
- The Federal Reserve (Fed) concluded 2024 with a third interest-rate cut and a strong signal that the focus was back on inflation over employment.
- Markets reacted violently to the Fed’s new projected path communicated on December 18. U.S. Treasury markets tumbled, while the U.S. dollar rallied to the strongest level in more than two years.
U.S. equity markets experienced back-to-back 20+% years in 2023 and 2024. This past year saw 57 all-time closing highs, with the S&P 500 finishing up 25.0%, closing out the best two-year run since 1998 despite a 2.4% pullback in December. The post-election rally lost steam with the S&P 500 peaking on December 6 at 6,090. Large Cap Growth outperformed Large Cap Value by 7.7% in December and 19.0% in 2024, driven by Magnificent 7 strength and AI-related optimism. Although smaller caps benefited from the broadening of the rally, amplified by the election results, inflation jitters and fewer-than-expected Fed rate cuts in 2025 led to their recent underperformance. The Russell 2000 Small Cap Index was down 8.3% in December and up just 11.5% for the year, lagging behind its large-cap peers.
While Fed Chair Jay Powell delivered a widely expected 25 basis point rate cut at the December 18 meeting, the central bank signaled increasing wariness around inflation, including a paring of how low members expect to take interest rates in 2025. “We need to see progress on inflation,” Powell said, reemphasizing that the central bank will be more cautious as it considers further adjustments to the policy rate.
December Asset Class Performance

Ten out of the eleven Global Industry Classification Standard (GICS) sectors posted losses in December, with Materials down double digits (-10.8%) and Consumer Discretionary the only sector in the green (+1.1%). All sectors posted gains in 2024, with Communication Services (+34.7%), Financials (+30.5%), and Consumer Discretionary (+26.5%) in the lead. Materials (+0.1%), Health Care (+2.5%) and Real Estate (+5.1%) were the laggards over the last 12 months.
Growth outperformed Value, with the Russell 1000 Growth up 0.9% in December (+33.4% YTD) vs. -6.9% for the Russell 1000 Value (+14.3% YTD). Over the last three years, the total return of the Large Cap Value Index has lagged the total return of the Large Cap Growth Index by 17.1%. The Russell 2000 Index – the world’s most closely followed gauge of smaller companies – was hit hard in December (-8.3%), bringing the YTD return to just +11.5%. The ESG segment of the market, as measured by the MSCI USA ESG Select Index, was down 2.9% in December, 50 basis points behind the S&P 500. Over the last three years, the ESG index was up 20.1% and lagged the S&P 500 by 9.1% on a total return basis.
Non-U.S. equities did not benefit from the continued enthusiasm about AI, U.S. exceptionalism, and the fourth quarter “Trump rally,” with EAFE and EM down 8.0% and 8.1%, respectively, for 4Q. For calendar year 2024, both EM and EAFE significantly underperformed the S&P 500, with -17.5% and -20.5% underperformance, respectively. Over the last three years, the trends remain the same, with EM and EAFA underperforming by -34.9% and -22.3%, respectively.
The Fed concluded 2024 with another 25 basis point rate cut after an initial move lower of 50 basis points in September and 25 basis points in November. The Fed also signaled that inflation concerns were back as the priority over employment. Markets reacted violently to the Fed’s new dot plots and macro forecasts. U.S. Treasury markets tumbled, while the US dollar rallied to the strongest level in over two years. The 10-year U.S. Treasury closed 2024 at 4.57% vs. 4.17% at the end of November, 3.88% at the end of December 2023, and from a peak of 4.99% in October 2023. Shorter-term 2-year U.S. Treasury closed 2024 at 4.24% vs. 4.25% at the end of 2023. The 2-year and 10-year Treasury yield curve dis-inverted in September and steepened in 4Q, with the 10-year yield now 33 basis points higher than the 2-year yield. The U.S. Aggregate bond index was down 1.6% in December, bringing the 2024 return to 1.3%. The Municipal Bond Index was also down 1.5% in December, bringing the 2024 return to 1.1%. U.S. Corporate Investment Grade and U.S. High Yield closed 2024 up 2.1% and 8.2%, respectively.
The CBOE Volatility Index (VIX), Wall Street’s fear gauge, skyrocketed to 29 on December 18, reflecting a spike in market uncertainty and anxiety over the direction of interest rates. The VIX closed the year at 17.4, slightly below its post-Great Financial Crisis average of 18.5. Bond market volatility, as measured by the BofA MOVE Index, was more benign in December, with the index closing the year at 99 vs. 95 at the end of November and 115 a year ago. The above implies that bond market participants were better positioned than equity market participants for the Fed’s change of tone and new dot plots.
The gold bull run finally came to an end with a -0.4% pullback in 4Q, closing at $2,625 per ounce and up +27.2% for 2024, ahead of U.S. Large cap equities. Oil futures, as measured by the WTI Crude Oil $/bbl., were up 5.5% in December to $72/bbl. The U.S. Dollar Index, which indicates the general international value of the U.S. Dollar, strengthened by another 2.6% in December, bringing the 2024 calendar return to 7.1%.
Bitcoin and Ethereum were both down -3.2% and -10.1% in December but were nevertheless some of the best-performing “assets” in 2024 with +120.5% and 46.6% returns, respectively. As reported by Bloomberg, the iShares Bitcoin Trust (IBIT) smashed industry records in its launch year of 2024. In just 11 months, it grew to a behemoth with more than $50 billion in assets. Bitcoin’s price reached past $100,000 for the first time in December, bringing both institutional investors and formerly skeptical individuals into the fold with BlackRock’s backing. We continue to believe that the most appropriate way to think about a cryptocurrency in a portfolio is as a call option (a security with a high risk/reward) on the underlying blockchain technology.
Chart of the Month – U.S. Breakeven Inflation, Market Measures
As of the third quarter of 2024, the total household debt in the U.S. stands at approximately $18 trillion, which can be broken down into four major components. Mortgage debt makes up about 70% of the total household debt, amounting to $12.6 trillion. Auto loans represent about 9% of the total, with balances at $1.6 trillion. Credit card debt accounts for around 6.5% of the total, with balances totaling $1.2 trillion. Finally, student loans make up roughly 9% of the total, with balances at $1.6 trillion. These figures highlight the significant role that mortgage debt plays in the overall household debt landscape, followed by auto loans, student loans, and credit card debt.
Delinquency rates on consumer loans and credit cards can serve as indicators of economic health and potential recessions. When delinquency rates on consumer loans and credit cards increase, it often signals that consumers are struggling to meet their debt obligations. This can be due to factors like job losses, reduced income, or higher living costs, which are common during economic downturns. Higher delinquency rates can reflect broader economic stress. For instance, if many consumers are unable to pay their debts, it can lead to reduced consumer spending, which is a significant driver of economic growth.
Historically, spikes in delinquency rates have often preceded or coincided with recessions. For example, during the 2008 Great Financial Crisis (GFC), delinquency rates on various types of consumer debt rose sharply.
Consumer delinquencies are on the rise again, especially for lower-income cohorts. At 2.6%, the consumer loan delinquency rate is slightly higher than the historical average but not alarmingly so. The credit card delinquency rate of 3.2% is also above the long-term average but remains within a manageable range.

Quote of the Month
“I can get no remedy against this consumption of the purse: borrowing only lingers it out, but the disease is incurable.” – William Shakespeare
Major Asset Class Dashboard

Curated by Julien Frazzo, Deputy Chief Investment Officer and Michael G. Dow, CAIA, CFA®, Chief Investment Officer
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