The fourth quarter of 2024 proved to be a volatile one, yet U.S. equities ended the period in positive territory. A five-month S&P rally faded in October only to surge again in November after the election of Donald Trump, the so-called Trump Bump. Yet, by December, U.S. markets stalled again, as investors turned their attention to legislative challenges under the new administration and a change in the Federal Reserve’s outlook for 2025. This change in the Fed’s tone was the result of the U.S. economy’s recent strength and stubborn inflation data, which has caused the Fed to re-examine the need for the widely expected additional rate cuts.
In the quarter, U.S equities had modest returns while most other asset classes had a disappointing showing. Some familiar trends from earlier in the year re-emerged, with U.S. small cap stocks giving back most of their post-election gains, value stocks losing steam, and REITS reacting negatively to the Fed’s stalled rate cut momentum. International equities did not fare much better due to currency headwinds (a stronger U.S. dollar) and the uncertainty around potential tariffs under the Trump administration.
Fixed income had been providing modest gains going into the fourth quarter, however, the Fed’s rather abrupt change in their path to lowering rates caused fixed income returns to falter as the quarter came to an end. The Fed will be watching unemployment numbers, inflation data, and the new administration’s policies in terms of U.S. debt and deficit before resuming lowering rates.
Index
4Q 2024
2024
S&P 500 Total Return
2.41%
25.02%
Russell 2000 Total Return
0.33%
11.54%
MSCI EAFE Net Total Return
-8.11%
3.82%
MSCI Emerging Markets Net Total Return
-8.01%
7.50%
Dow Jones US Real Estate Index Total Return
-7.78%
4.86%
Bloomberg US Aggregate
-3.06%
1.25%
Source: YCHARTS
Reflecting back on 2024, it was a year marked by significant developments driven by technological advancements, macroeconomic changes, and geopolitical events. The following are some of the important drivers for the economy and the markets throughout the year:
1) The Rise of Artificial Intelligence (AI) – We have witnessed transformative advancements in generative and predictive AI, machine learning, and automation. Companies investing in AI infrastructure, cloud computing, and semiconductor technology will continue to have a profound impact on our economy and the markets both now and in the future.
2) Presidential Election Cycle – The anticipation of the presidential election in November gave rise to robust debates throughout the year over such key issues as immigration, climate change, international affairs, energy transition, public health, and a host of others. The potential direction of policies around these issues affected investor sentiment throughout the year. The possible confirmation of Robert Kennedy Jr. for Director of Health and Human Services, changes in the leadership at the Federal Trade Commission, and Silicon Valley’s newfound alignment with the Trump administration are a few examples of how dramatically the political and economic landscape may change.
3) The Fed’s Rate-Cutting Cycle – The Fed shifted from its previous tightening stance to begin a rate-cutting cycle in response to cooling inflation and slowing economic growth. This pivot provided a boost to equity markets, particularly interest rate-sensitive sectors like financials, real estate, and technology. Lower borrowing costs also improved corporate earnings outlooks, supporting broader market gains. But a more hawkish Fed emerged late in the year, causing investors to recalibrate expectations for the number of rate cuts in 2025 and injecting a significant amount of volatility back into markets, particularly in December.
4) Market Trends – This year was a record-breaking one on Wall Street, with the S&P 500 achieving 57 all-time highs, a number rarely achieved by the benchmark index in a year. All major asset classes delivered positive annual returns despite a challenging fourth quarter in many areas of the market. The concentrated stock market rally, which was driven by the outperformance of the Magnificent Seven, led to an unusual outcome reminiscent of the dot-com boom. For the second consecutive year, fewer than 30% of S&P 500 companies beat the index in 2024. This is significantly below the average of 49% since 2000 and highlights the dominance of the largest companies of the S&P 500 in 2024.
Tax Policy Outlook
With a new administration in place, there are many potential policy changes on the horizon that could affect your financial circumstances going forward. While slim majorities in Congress may limit the number and scope of policy changes, 2025 could be eventful, particularly around taxes. With many provisions from the Tax Cuts and Jobs Act (TCJA) set to expire on December 31, 2025, individuals and businesses alike are wondering how this will impact them.
Here are a few of the main points being debated related to income taxes:
Extending or Changing TCJA Provisions: Debates are already taking place around how to modify or extend the existing provisions of this legislation.
SALT Deduction: The TCJA capped the deduction for state and local taxes at $10,000. This cap is very unpopular in high-tax states like New York and California, and some lawmakers are pushing to raise or remove the cap.
Corporate Taxes: The new administration would like to see the corporate tax rates even lower to encourage business growth.
Child Tax Credit: There is consideration to expanding the child tax credit to provide more support for families.
Overtime and Social Security Income: Campaign promises may result in the exemption of overtime pay from income tax and elimination of income taxes on Social Security benefits.
Green Energy Subsidies: Roll backs may be initiated on subsidies for green energy projects that were included in the 2022 Inflation Reduction Act.
Length of Tax Breaks: Some lawmakers are considering shorter tax breaks, such as five years instead of the usual ten, to fit more provisions into the bill without exceeding budget limits.
The Sunset of Estate Tax Provisions
Another significant piece of the TCJA is scheduled to expire at the end of the year, which affects estate taxes. The federal estate tax system levies a tax on the transfer of property at death for those whose estates exceed a certain threshold, known as the estate tax exemption. At death, an amount up to the exemption amount passes to heirs estate tax free. However, if assets are higher than the exemption, an estate tax is assessed against any excess.
When Congress enacted the Tax Cuts and Jobs Act (TCJA) in 2017, the applicable exclusion amount increased to historically high levels. Currently, the exemption is $13.99 million per individual and $27.98 million for married couples. While most estates fall below these thresholds, for those who do exceed it, the estate tax can be as high as 40%!
When the TCJA was enacted in 2017, it included a sunset clause to end the higher exemption amounts after eight years. Unless Congress takes action to extend or modify the law by the end of this year, the threshold will automatically revert to pre-TCJA levels on January 1, 2026. If that happens, the exemptions will drop to $7 million per person and $14 million for a married couple, and many more households will be subject to estate taxes without proper planning.
Under the new administration, there is a higher likelihood these provisions will be extended, modified, or replaced. We will continue to monitor any legislative developments as they unfold, and we welcome the opportunity to explore your options with you in anticipation of what might change.
Preparing for 2025
As we enter the new year, the U.S. economy appears stable, and investors generally optimistic. Our domestic economy has certainly exceeded expectations, growing at above trend in three of the last four years despite the normalization of interest rates and adjustments in a post-Covid world. The new administration will most certainly bring challenges and opportunities for the economy and the markets with the many new faces in government and policies under consideration.
While we celebrate its success, the recent concentration of returns in the S&P has pushed valuations to historical highs, with the price to earnings ratio (P/E) currently at 21.47x versus its 30-year average of 16.86x. Expectations for further tax cuts, increased energy production, and deregulation could provide new catalysts for growth, but at these levels, these companies are going to have to show robust earnings growth to maintain market momentum.
At Wealth Dimensions, we know the economy and markets are cyclical and have experienced periods of prosperity and decline, with a long-term tendency towards prosperity. We also know the precise timing of these cycles cannot be predicted with any consistency or accuracy. While economic and market statistics are ever changing, we feel history is the best guide we have to educate us on the volatility that is inherent in investing. The issues of today always seem more looming than those in the rear-view mirror. Yet, regardless of the issues we will face, our fundamental principles of investing still apply. Diversification, the relationship between risk and reward, and the power of time are central tenets of successful investing that are rooted in the very heart of free markets and capitalism.
We remain confident that through our investment management and ongoing financial planning processes, we will help you manage the dynamic components of your financial lives, recalibrating investment allocations, utilizing current tax and estate planning strategies, and other unique aspects of your plan. In concert with you, our goal is to put you in a position to live your life to its fullest.
We wish you a healthy, prosperous New Year!
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.
Quarterly Commentary: Fourth Quarter 2024
The fourth quarter of 2024 proved to be a volatile one, yet U.S. equities ended the period in positive territory. A five-month S&P rally faded in October only to surge again in November after the election of Donald Trump, the so-called Trump Bump. Yet, by December, U.S. markets stalled again, as investors turned their attention to legislative challenges under the new administration and a change in the Federal Reserve’s outlook for 2025. This change in the Fed’s tone was the result of the U.S. economy’s recent strength and stubborn inflation data, which has caused the Fed to re-examine the need for the widely expected additional rate cuts.
In the quarter, U.S equities had modest returns while most other asset classes had a disappointing showing. Some familiar trends from earlier in the year re-emerged, with U.S. small cap stocks giving back most of their post-election gains, value stocks losing steam, and REITS reacting negatively to the Fed’s stalled rate cut momentum. International equities did not fare much better due to currency headwinds (a stronger U.S. dollar) and the uncertainty around potential tariffs under the Trump administration.
Fixed income had been providing modest gains going into the fourth quarter, however, the Fed’s rather abrupt change in their path to lowering rates caused fixed income returns to falter as the quarter came to an end. The Fed will be watching unemployment numbers, inflation data, and the new administration’s policies in terms of U.S. debt and deficit before resuming lowering rates.
Source: YCHARTS
Reflecting back on 2024, it was a year marked by significant developments driven by technological advancements, macroeconomic changes, and geopolitical events. The following are some of the important drivers for the economy and the markets throughout the year:
1) The Rise of Artificial Intelligence (AI) – We have witnessed transformative advancements in generative and predictive AI, machine learning, and automation. Companies investing in AI infrastructure, cloud computing, and semiconductor technology will continue to have a profound impact on our economy and the markets both now and in the future.
2) Presidential Election Cycle – The anticipation of the presidential election in November gave rise to robust debates throughout the year over such key issues as immigration, climate change, international affairs, energy transition, public health, and a host of others. The potential direction of policies around these issues affected investor sentiment throughout the year. The possible confirmation of Robert Kennedy Jr. for Director of Health and Human Services, changes in the leadership at the Federal Trade Commission, and Silicon Valley’s newfound alignment with the Trump administration are a few examples of how dramatically the political and economic landscape may change.
3) The Fed’s Rate-Cutting Cycle – The Fed shifted from its previous tightening stance to begin a rate-cutting cycle in response to cooling inflation and slowing economic growth. This pivot provided a boost to equity markets, particularly interest rate-sensitive sectors like financials, real estate, and technology. Lower borrowing costs also improved corporate earnings outlooks, supporting broader market gains. But a more hawkish Fed emerged late in the year, causing investors to recalibrate expectations for the number of rate cuts in 2025 and injecting a significant amount of volatility back into markets, particularly in December.
4) Market Trends – This year was a record-breaking one on Wall Street, with the S&P 500 achieving 57 all-time highs, a number rarely achieved by the benchmark index in a year. All major asset classes delivered positive annual returns despite a challenging fourth quarter in many areas of the market. The concentrated stock market rally, which was driven by the outperformance of the Magnificent Seven, led to an unusual outcome reminiscent of the dot-com boom. For the second consecutive year, fewer than 30% of S&P 500 companies beat the index in 2024. This is significantly below the average of 49% since 2000 and highlights the dominance of the largest companies of the S&P 500 in 2024.
Tax Policy Outlook
With a new administration in place, there are many potential policy changes on the horizon that could affect your financial circumstances going forward. While slim majorities in Congress may limit the number and scope of policy changes, 2025 could be eventful, particularly around taxes. With many provisions from the Tax Cuts and Jobs Act (TCJA) set to expire on December 31, 2025, individuals and businesses alike are wondering how this will impact them.
Here are a few of the main points being debated related to income taxes:
The Sunset of Estate Tax Provisions
Another significant piece of the TCJA is scheduled to expire at the end of the year, which affects estate taxes. The federal estate tax system levies a tax on the transfer of property at death for those whose estates exceed a certain threshold, known as the estate tax exemption. At death, an amount up to the exemption amount passes to heirs estate tax free. However, if assets are higher than the exemption, an estate tax is assessed against any excess.
When Congress enacted the Tax Cuts and Jobs Act (TCJA) in 2017, the applicable exclusion amount increased to historically high levels. Currently, the exemption is $13.99 million per individual and $27.98 million for married couples. While most estates fall below these thresholds, for those who do exceed it, the estate tax can be as high as 40%!
When the TCJA was enacted in 2017, it included a sunset clause to end the higher exemption amounts after eight years. Unless Congress takes action to extend or modify the law by the end of this year, the threshold will automatically revert to pre-TCJA levels on January 1, 2026. If that happens, the exemptions will drop to $7 million per person and $14 million for a married couple, and many more households will be subject to estate taxes without proper planning.
Under the new administration, there is a higher likelihood these provisions will be extended, modified, or replaced. We will continue to monitor any legislative developments as they unfold, and we welcome the opportunity to explore your options with you in anticipation of what might change.
Preparing for 2025
As we enter the new year, the U.S. economy appears stable, and investors generally optimistic. Our domestic economy has certainly exceeded expectations, growing at above trend in three of the last four years despite the normalization of interest rates and adjustments in a post-Covid world. The new administration will most certainly bring challenges and opportunities for the economy and the markets with the many new faces in government and policies under consideration.
While we celebrate its success, the recent concentration of returns in the S&P has pushed valuations to historical highs, with the price to earnings ratio (P/E) currently at 21.47x versus its 30-year average of 16.86x. Expectations for further tax cuts, increased energy production, and deregulation could provide new catalysts for growth, but at these levels, these companies are going to have to show robust earnings growth to maintain market momentum.
At Wealth Dimensions, we know the economy and markets are cyclical and have experienced periods of prosperity and decline, with a long-term tendency towards prosperity. We also know the precise timing of these cycles cannot be predicted with any consistency or accuracy. While economic and market statistics are ever changing, we feel history is the best guide we have to educate us on the volatility that is inherent in investing. The issues of today always seem more looming than those in the rear-view mirror. Yet, regardless of the issues we will face, our fundamental principles of investing still apply. Diversification, the relationship between risk and reward, and the power of time are central tenets of successful investing that are rooted in the very heart of free markets and capitalism.
We remain confident that through our investment management and ongoing financial planning processes, we will help you manage the dynamic components of your financial lives, recalibrating investment allocations, utilizing current tax and estate planning strategies, and other unique aspects of your plan. In concert with you, our goal is to put you in a position to live your life to its fullest.
We wish you a healthy, prosperous New Year!
Thank you for your continued confidence in our services.
– The Wealth Dimensions Team
Indices themselves are not investible products.
The S&P 500® Index, or Standard & Poor’s 500 Index, is a market-capitalization-weighted index of 500 large publicly traded companies in
the U.S.
The Russell 2000® Index is a small-cap stock market index that makes up the smallest 2,000 stocks in the Russell 3000 Index.
The MSCI EAFE Index is an equity index which captures large and mid-cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid-cap representation across 24 Emerging Markets (EM) countries.
The Bloomberg Aggregate Bond Index or “the Agg” is a broad-based fixed-income index which broadly tracks the performance of the U.S. investment-grade government and corporate bonds.
For informational purposes only. Not intended as investment advice or a recommendation of any particular security or strategy. Information prepared from third-party sources is believed to be reliable though its accuracy is not guaranteed. Opinions expressed in this commentary reflect subjective judgments of the author based on conditions at the time of writing and are subject to change without notice. For more information about Wealth Dimensions, including our Form ADV Part 2A Brochure, please visit https://adviserinfo.sec.gov or contact us at 513-554-6000. Please be advised that this material is not intended as legal or tax advice. Accordingly, any tax information provided in this material is not intended and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.