Markets Perform Nicely For A Second Year In A Row
Markets Perform Nicely For A Second Year In A Row
Looking back at last year’s predictions for 2024, the two historic predictors did happen.
- The S&P 500, which had a positive return in the first half of the year, had a positive return in the second half.
- Historically, in years of a Presidential election, the market has risen (especially, when there is an incumbent running for office through that election year). Note that in the year 2000, when the dot-com bubble burst and in 2008 when the housing crisis happened, the sitting President was at the end of their 8-year term limit.
Historic trends do not always point to the future and as we always reiterate, past performance is not indicative of future earnings, but it was nice to see the historical trends work in our favor.
In summary, we have had two years in a row of a very nice bull market. The interest rates have been stable. Inflation ended at 2.7% for the year, which is not far off the Fed’s target of 2%.
By the Numbers
Below are valuation changes for 2024 compared to 2023 changes.
Selected key asset groups:
2024 2023
S&P 500 Stock Index +23% +24%
Tech Stock Fund +29% +51%
Health Care Stock fund +1% +1%
Utilities Stock Fund +19% -10% (excludes income)
Corp. Bond fund (Fixed) +6% +10% (includes income)
Gold +26% +13%
Having a 23% gain on the S&P500 brings us to the part of the dispatch where we try to lower future expectations of our clients. Over the previous 100 years, the stock market has averaged growth of about 10% per year, with some years far above that, and others far below. As you can see from the figures above, we have well exceeded this average for both 2023 and 2024 for the S&P and tech stocks.
After A Second Bullish Year, Fighting The Tendency To Trade More Aggressively
During bull markets we often get questions from clients asking if they should sell some of their fixed income and make their portfolios even heavier in stocks. They see the big growth on the stock side and see that the fixed income investments have stayed… fixed (not growing like stocks). The benefit of fixed income is that it provides consistent income, regardless of how the market is swinging.
Then we hear the news repeating the phrase, “record highs today,” and for some investors the fear of missing out starts to kick in. Keep in mind, without doing any changes to the portfolio, it already has become heavier with stock, because of the stock growth. This by itself can cause the portfolio to be too aggressive relative to the original goals and risk tolerances we established on our initial plan draft. A more prudent action to consider is to rebalance by taking a piece of that growth and moving it into fixed income. Most people know the phrase, buy low and sell high. But when the market is going high, people want to buy in. Conversely, when the market drops, people want to pull out of their stocks and run to safety. You have us to help steady those inclinations.
Dougherty’s Core Group – Update
For those of our clients who have individual stocks in the portfolios we manage, deciding which stocks to recommend is not a haphazard or casual process for us. We select a core group of about 25 companies using detailed analysis, a review of research reports, and then a ranking prospective. Within our core group we breakdown the companies into subgroups, ranging from Aggressive to Income. This allows us to have options to weather different market conditions.
We are constantly evaluating and re-evaluating our core group. One of the companies that we are cutting from our core group is Johnson and Johnson. Johnson and Johnson has been making changes and spun off Kenvue, the consumer brands part of the company, such as Listerine, Band-Aids, Tylenol, and Aveeno lotion. Pharmaceutical companies are especially vulnerable to lawsuits and after twenty years, their drug patents expire. As 2024 progressed, we have not seen the growth potential that was once with the company. After evaluating a number of factors, we are phasing out Johnson and Johnson from our core group of stocks.
2025 Predictions
We start the year 2025 recovering from hurricanes in the southeast, having snow storms in the north and suffering wild fires in the west. There is a lot of talk about changes in the federal government, cryptocurrency regulation and AI/ChatGPT. There are now self-driving taxis. There are robots at some restaurants delivering food to tables. Some may think this dispatch was written by AI, but we humans remain at the helm at this office. Admittedly, the thought of having a robot to clean the windows and water the plants has crossed our minds.
There is also talk that January might end as a down month for the market. A theory is that people will want to trim some of the growth in their portfolio that they weren’t able to do at the end of last year because of already realized gains from the trimming done earlier in 2024.
As for the year, historically, a year without political elections tends to be a positive market, which means 2025 could be a third year in a row for the bull market. That being said, we don’t know when the market will have a correction or pull back. We continue to stick to our mantra: stick with quality, quality, quality.
As always, we love to hear our readers’ reactions.
The Dougherty Investment Advisors Team
Past performance does not guarantee future results.
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