The Compound: The Biggest Investing Lessons of 2024
2024 is on track as one of the strongest years ever. Even with a strong year, it still provided a number of twists and turns that could have shaken out investors at any time. One of the biggest factors impacting the market this year occurred in the bond market.
That’s because interest rates started to come down this year, at least those set by the Federal Reserve. Meanwhile, bond yields continued to inch higher instead.
This mismatch suggests that the market is looking out for further inflation in 2025. And the latest inflation data shows that higher prices remain “sticky.” It’s still not clear if inflation can get back down to the Fed’s 2% target range, especially after cutting rates in 2024.
For now, markets have remained bullish even with long-dated interest rates ticking higher. But that may not last forever.
Investors also saw a continued push into large-cap U.S. stocks. The S&P 500 rallied 27%. Comparatively, the small-cap Russell 2000 index rose about 16%, and about 7% for global stocks. That continues off the market trend from 2023, but there’s no guarantee it will hold in 2025.
Given overall valuations in large-cap U.S. stocks, there’s a chance for a sizeable market pullback in 2025. Investors will want to keep an eye on this big trend and get out of large-cap stocks if they show signs of slowing down.
