Economic & Market Review: Q4 2024 [Webinar Summary]

Presenters:  Lowell Pratt, CFA, Andy Pratt, CFA, CAIA, and Adam Newman, CFA, CFP®, MT, RICP®

Here is the webinar recording from January 15th, 2025. You can browse the topics discussed and main takeaways using the sections and time stamps below:

Click the time-stamp in each section title, and you will jump right to that part of the video on a new screen!

• 00:32 - Introduction and Recent Administration Changes
• 03:58 - Q4 Market Performance Overview
• 05:08 - Market Performance Analysis
• 06:39 - Market Implications Discussion
• 10:04 - Political Changes and Market Impact
• 13:40 - The Growth Factor
• 15:26 - The Momentum Factor
• 17:41 - The Stock Selection Factor
• 21:18 - Unusual Small-Caps
• 22:25- Will Small-Caps Break Out?
• 24:56 - Value Stocks Analysis
• 25:56 - Bearish Return Predictions & Concluding Remarks

Introduction and Recent Administration Changes (00:32)

• President-Elect Trump is taking office with an emphasis on implementing Day 1 actions that will impact markets.
• There is particular attention being paid to potential changes in tariff policy under the new administration.
• The market is experiencing a period of uncertainty during this presidential transition period.
• Asset prices have already begun adjusting in response to the election results.

Q4 Market Performance Overview (03:58)

• The market momentum experienced a significant shift at the end of the year.

• The anticipated Santa Claus rally did not materialize as market participants had expected.
• United States equities managed to achieve modest positive gains despite the late-year momentum shift.
• Both global equities and domestic fixed income markets experienced a notable selloff during this period.

Market Performance Analysis (05:08)

• The market experienced back-to-back years of 20%+ gains, which required careful analysis of historical precedent.
• The team conducted an in-depth examination of the historical context surrounding consecutive years of strong market performance.
• There was extensive discussion regarding the implications of reaching multiple all-time highs during this period.
• The analysis needed to balance both bullish indicators and bearish concerns in the current market environment.

Market Implications Discussion (6:39)

• The Federal Reserve's 50 basis point rate cut in September had significant implications for market behavior.
• The movement of yields was observed across all segments of the market during this period.
• There was a notable disconnect between market expectations and the reality of how events unfolded.
• Inflation concerns remained a prominent factor in market considerations and decision-making.

Political Changes and Market Impact (10:04)

• The analysis thoroughly examined the effects of the administrative transition on market behavior and investor sentiment.
• Market volatility considerations became increasingly important during this period of political change.
• The team placed particular emphasis on examining fundamental economic factors rather than just political headlines.
• A historical perspective on market trends during similar political transitions provided valuable context for current market conditions.

The Growth Factor (13:40)

• The current pro-growth market phase began its trajectory in early 2023, setting the stage for continued momentum.
• Historical analysis shows that growth phases typically maintain their momentum for a period of 18-30 months.
• The market was at the average midpoint for a typical growth phase duration at the time of this analysis.
• The outperformance of growth stocks was not surprising given the prevailing market conditions and historical patterns.

The Momentum Factor (15:26)

• The momentum factor demonstrated even stronger performance than growth stocks throughout 2024.
• Momentum proved its effectiveness as a strategy in both bullish and bearish market conditions.
• There was a clear performance differential between stocks with positive momentum buy signals versus those with sell signals.
• The portfolio construction process actively incorporated momentum signals to optimize investment decisions.

The Stock Selection Factor (17:41)

• Among the top 20 performing stocks, only one member of the Magnificent 7 (Nvidia) made the list, challenging common market narratives.
• The energy and industrial sectors demonstrated strong performance, contributing significantly to market returns.
• The technology sector showed expanded breadth beyond the mega-cap stocks that typically dominate headlines.
• The model's buy and sell signals produced a significant 9.4% performance differential, indicating strong stock selection effectiveness.

Unusual Small-Caps (21:18)

• The market experienced periodic strong pro-small cap rallies throughout 2024, showing interesting but inconsistent patterns.
• Notable performance spikes were observed specifically during July and November of the year.
• Despite initial strong momentum in these rallies, the enthusiasm typically fizzled out after the initial surge.
• Small-cap performance showed particular sensitivity to inflation news and Federal Reserve policy announcements throughout the year.

Will Small-Caps Break Out? (22:25)

• Small-cap valuations were trading significantly cheaper compared to their large-cap counterparts during this period.
• Ongoing profitability concerns continued to affect small-cap performance and investor confidence.
• The market was actively waiting for confirmation of an earnings per share breakout in the small-cap sector.
• Market analysts expressed strong expectations for a robust small-cap recovery in 2025.

Value Stocks Analysis (24:56)

• The market began showing growing value momentum during November, indicating a potential shift in market dynamics.
• The team responded by reducing their maximum growth positioning in portfolios to adjust to these emerging trends.
• Clear signs of market broadening were emerging, suggesting a potential shift in leadership.
• Analysis indicated that a value phase could materialize as a dominant market theme in 2025.

Bearish Return Predictions & Concluding Remarks (25:56)

• Major financial institutions, including Goldman Sachs and Vanguard, were forecasting relatively low annualized returns of around 3% over the next decade, particularly in large-cap stocks.
• Market concentration and valuations had reached record levels, suggesting a challenging environment ahead for traditional portfolio strategies.
• Analysis indicated that higher return potential existed in mid-cap and small-cap market segments, offering opportunities for active investors to generate alpha.
• Alternative investment strategies were gaining increased importance as traditional return expectations faced significant headwinds.
• Portfolio diversification and broader market exposure were becoming critical factors for optimizing future returns in this challenging environment.

CNBC’s annual FA 100 ranking was published on 10/2/2024 for the year 2024.  The Burney Company did not pay CNBC any compensation for being considered for the list, however, Burney Company does pay a licensing fee to use the CNBC logo in marketing materials.  A link to the CNBC selection criteria can be found by going to https://cnb.cx/3Pg6FVh. The CNBC award was given to The Burney Company, the parent company which encompasses nine other Affiliated Portfolio Managers, and not Burney Wealth Management.