Investors Should Celebrate Their Big 2024 Gains

Despite the sharp run-up in the stock market in the final month of 2023, the start of 2024 continues to be cautiously optimistic. Major indices continue to hover near all-time highs, especially as investors continue to rotate into the large-cap tech stocks that dominate the market averages. All of this, meanwhile, is good news for investors who have seen their portfolios grow significantly in 2024.

The S&P 500 is up by about 26% through November 29, 2024, with several health care stocks and a buy now, pay later financial technology company among the top performers. This strong performance can be attributed, in part, to the Federal Reserve's monetary policy, which has encouraged investors to allocate capital to equities and other risk assets.

The Federal Reserve's commitment to lowering interest rates and maintaining an accommodative monetary policy has contributed to a positive market sentiment and robust investment gains across various sectors. The Federal Reserve's actions have also contributed to the rally in Bitcoin, which has gained nearly 40% since the U.S. election. Investors have been optimistic that a Trump White House and cryptocurrency-friendly Congress will promote policies that benefit the asset class, further boosting market sentiment.

Moreover, the Federal Reserve's commitment to a "soft landing" for the economy has reassured investors that the central bank is managing inflationary pressures effectively. This has contributed to a positive market sentiment and has encouraged investors to allocate capital to equities and other risk assets.

In addition to the Federal Reserve's policies, global economic indicators have contributed to investors' 2024 gains by signaling a stable and improving economic outlook. The global economy has shown signs of recovery and growth in 2024, with the global GDP growth rate projected to be around 3.3% in 2024, up from 2.7% in 2023. This growth has been driven by increased consumer spending, business investment, and exports. For instance, the U.S. economy grew by 2.1% in the fourth quarter of 2023, beating expectations and indicating a strong start to the year.

The unemployment rate has been declining, indicating a strong labor market. In the U.S., the unemployment rate fell to 3.4% in February 2024, the lowest level since 1969. A strong labor market boosts consumer confidence and spending, which in turn drives economic growth and corporate earnings. This positive economic outlook has contributed to the gains in the stock market.

While inflation has been a concern, it has been gradually declining. The consumer price index (CPI) inflation rate in the U.S. fell to 2.5% in February 2024, down from 6% in June 2022. This decline in inflation has allowed central banks to ease monetary policy, which has been supportive of equity markets.

Geopolitical tensions, such as the conflict in the Red Sea, have significantly impacted global supply chains and contributed to inflation. The conflict has led to disruptions in shipping routes, causing freight rates to soar. Despite the impact on shipping costs, the overall effect on U.S. consumer spending is muted, as imported goods make up only 10% of U.S. consumer spending. However, these supply chain disruptions have contributed to inflation by increasing the cost of goods and services.

In summary, investors should celebrate their big 2024 gains, as they have benefited from a combination of favorable market sentiment, positive economic indicators, and accommodative monetary policy. Despite geopolitical tensions and supply chain disruptions, the overall economic outlook remains positive, and investors can expect continued growth in their portfolios.