Quarterly Commentary, Q4 2024

During the fourth quarter, the U.S. elected former President Donald Trump as the 47^th president, bringing with it the anticipation of a more pro-business administration. We also witnessed the fall of the Syrian dictator and an Israel-Hezbollah ceasefire.

The latest GDP reading was 2.8%, while inflation came down to 2.4%. The Fed has cut interest rates three times and, in December, indicated just two more rate reductions in 2025, down from expectations of five due to the slower reduction of inflation and economic resilience. Although the Fed cut interest rates by 25 basis points on December 18, bond yields moved higher across the curve during the month.

In the fourth quarter, the markets delivered mixed results. The S&P 500 was up 2.41%, while the Russell 2000 was modestly positive. Internationally, EAFE (Europe, Australasia & the Far East) and emerging markets were both down in the -8% range. We believe there is tremendous value in international holdings as they have the lowest valuation compared to the U.S. in two decades. Real Estate Investment Trusts (REITs) were also down by -5.03%. Due to the 10-year Treasury yield increasing by 77 basis points, the Bloomberg US Agg Bond index sold off by -3.06%.

Productivity was up 2.2% most recently, the fifth consecutive quarter above 2.0%. This is good news because before this latest run, productivity was in the 1.6% range annually from 2007 to 2021, perplexing economists. The long-term historical average is 2.1%. Productivity is hugely important as it can offset other cost increases, including wage gains, without causing inflation. The last surge in productivity for the U.S. was from PCs and the internet, between 2001 to 2007, when it averaged 2.8% annually. If our COVID-19 efficiencies continue and AI starts delivering on its promises, this could be the beginning of another positive wave for U.S. productivity.

We could be witnessing the perfect economy: an easing Fed, moderate growth, expanding profits, and increasing confidence. Small businesses, which drive much of the U.S. economy, just recorded the highest increase in confidence levels since 1980. Business owners are looking forward to the new administration as they focus on less regulation and more business-friendly policies. Tariffs are the big question and could be an economic drag. However, overall, the new administration is considered positive for industries and the economy.

As always, if you have any questions or would like to discuss your investments, please reach out. Your Resource Consulting Group advisor is here to help.

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