Looking back at 2024, there’s a sense of surprise and cautious optimism. The market didn’t just deliver positive returns; it managed to defy many factors that usually lead to turbulence. In a year marked by political uncertainty, geopolitical tensions, and persistent inflation, financial markets displayed unexpected resilience. This unpredictability seemed to be embraced by investors. For these reasons, the mantra of "taking time to celebrate victories" has never felt more fitting than it does for 2024.

The year began with positive momentum following a strong 2023, when both stocks and bonds rebounded sharply after a dismal 2022. Considering the economic and political backdrop, it would have been easy to assume that this momentum would falter. The challenge for investors was balancing the emotions of fear and greed, particularly as the S&P 500 reached 61 new all-time highs in 2024. This emotional push-pull has always been a major market dynamic and has a way of unsettling even the most experienced investors.

Despite initial optimism, many analysts remained cautious, recalling that we hadn’t seen two consecutive years of 20%+ returns since the late 1990s. Expectations for 2024 were tempered by numerous headwinds, such as elevated borrowing costs and deteriorating consumer sentiment. However, the S&P 500 Index finished the year up 23%, surpassing forecasts. The lesson here is a familiar one: the path of market performance is far more unpredictable than we’d like to believe.

The market’s strong performance wasn’t purely accidental. A key driver was the expansion of corporate earnings and profit margins. Companies across many sectors adapted to factors like increasing costs and a shifting regulatory environment. They improved efficiencies and continued innovating. Resilient consumer spending along with corporate efficiency measures helped to sustain this growth. 

Even though corporate earnings grew, the S&P 500 Index's weighted average stock prices outpaced the earnings growth. This led to a rise in the price-to-earnings (P/E) ratio, which can be a signal that stocks may be overvalued. It is important to note that a high P/E ratio has not historically been a reliable indicator for short-term market timing, but it often suggests a higher likelihood of lower long-term returns. Additionally, a growing concentration of market performance among a narrow group of large companies raised concerns about the sustainability of the positive momentum. These factors—elevated valuations and concentrated performance—may lead to increased volatility in the future. However, these same factors were present at the beginning of the year, which ultimately produced above-average market returns.

Bonds, traditionally seen as a safe haven, also faced misaligned expectations. The Bloomberg US Aggregate Bond Index posted a modest 1.25% return, below the performance of 2023. The Federal Reserve monitored interest rate levels throughout the year, as it sought to balance the effects of persistent inflation and a maturing labor market cycle. By late 2024, the Fed reduced short-term interest rates, a move expected to boost bond prices. Instead longer-term interest rates rose, causing bond prices to fall. This divergence in expectations was driven by stronger-than-expected GDP growth, relatively low unemployment, and stickier inflation–implying that the Fed would not need to be as aggressive with future interest rate cuts as previously anticipated.

Geopolitical tensions and political uncertainty—particularly in the U.S.—added another layer of unpredictability. Despite fears that the election cycle could destabilize markets, the market remained relatively steady, showing that economic fundamentals—like corporate earnings and productivity—ultimately matter more than short-term political events. The ability to filter out noise and focus on long-term prospects proved to be key to achieving successful investment results.

Predicting the future, specifically related to financial markets, is a notoriously difficult exercise. Investors often gravitate toward narratives that fit the present moment, but surprises are frequent - sometimes defying logic. As we look ahead to 2025, it’s important to be cautious in assuming that the strong returns of 2024 will become the new normal. Likewise, assuming that a downturn is inevitable can lead to overly conservative decisions that might miss growth opportunities. 

At True Link Financial Advisors, our investment philosophy is grounded in a long-term perspective. While we remain flexible in the short term, we focus on building diversified portfolios that are resilient over time. We cannot predict the future, but we strive to manage strategies through the inevitable unpredictability with discipline - understanding that short-term results are often driven by events that are beyond our control. 2025 will surely bring its own challenges, but for now, we celebrate our victories with a healthy optimism for the future.

In the words of Morgan Housel, author of Psychology of Money, “Optimism is a belief that the odds of a good outcome are in your favor over time, even when there will be setbacks along the way.” 

If you have any questions about our investment approach, please don’t hesitate to reach out and ask; that is what we’re here for. As always, we thank you for your continued trust and support.

 

Investing involves risks, including possible loss of principal. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass.

Investment Advisory Services are provided through True Link Financial Advisors, LLC, (the “Adviser”) an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) and wholly-owned subsidiary of True Link Financial, Inc. (“True Link Financial” and, together with the Adviser, “True Link”) Registration with the SEC does not imply a certain level of skill or training nor does it constitute an endorsement of the advisory firm by the SEC. The performance of investments will vary day to day in response to many factors. Asset allocation strategies are subject to the volatility of the financial markets, including without limitation that of the underlying investment options’ asset class. An investment is subject to a high degree of risk, including the risk of loss of an investor’s entire investment, and diversification does not ensure a profit or guarantee against a loss. Nothing contained herein is considered an offer to sell or a solicitation of any offer to buy any securities.