2024 was yet another record year for the Stock Markets. While there was some broadening of the rally, towards the last quarter of the year, Large Cap Growth Stocks, more specifically the Magnificent Seven, still dominated the landscape. We didn’t see a Santa Clause Rally in December, but the S&P 500 still ended the year up 25%. International Stocks lagged US Large Cap Stocks as the MSCI EAFE only returned 3.82% for the year and Small and Mid-Cap Stocks, as measured by the Russell 2000 index, lagged US Large Cap Stocks by double digits. Bonds had a mixed year. The Bloomberg US AGG index, which is the general measure of the Bond Market, returned 1.24% in 2024.
We believe that stocks are currently overpriced, which may lead to some market corrections and buying opportunities going forward. Some areas of the market are more overpriced than others, e.g. US Stocks are relatively more expensive than their international counterparts, especially relative to European Stocks. With stocks over-priced, especially US Large Cap Tech Stocks, any surprises can lead to sell-offs, which is what we experienced last Monday, January 27, when news that a Chinese Startup had ramped up to an AI Large Language model at significantly lower costs, triggered massive selloff in Nvidia (NVDA) stock and wiped out over $600 Billion in market cap in one day, the most in stock market history. It also triggered selloffs in other big tech names such as Microsoft (MSFT) and Alphabet (GOOGL) and other picks and shovels companies that support the Semiconductor Industry. While the NASDAQ ended the day down 3%, the DOW was up on Monday.
It’s during times such as these where we’re reminded that it pays to own a diversified basket of investments. At The Trust Company of Kansas (TCK) we take a more disciplined approach with your money and build diversified portfolios that weather market volatility better. Despite Tarriff threats from the current US Administration, European stocks have been making a comeback to kick off 2025. Small Cap stocks have also started the year on good footing, despite the Fed temporarily pausing their rate lowering cycle. Both International stocks and Small Cap stocks are outperforming US Large Cap stocks in the New Year and Large Value stocks are outperforming their Large Growth Counterparts.
There is still a lot of uncertainty in the market over the current administration’s trade and immigration policies. This Saturday, February 1st, the White House announced that the Trump administration would move forward with its previously announced heavy Tariffs against goods imported from Mexico, Canada and China. All three countries have vowed to impose retaliatory tariffs on US exports. The tariffs could likely lead to increased inflationary pressure and decelerate economic activity in all four countries. While the outcome of this trade war remains very uncertain, it has the potential to negatively impact stocks, bonds and exchange rates and could spell a recession for the US economy down the road. Instead of cutting rates, the Fed may be forced to start raising rates again to combat the resulting increase in inflation. With so many uncertainties on the horizon, it’s difficult to determine what 2025 has in store for us. At the time of writing of this article, major news outlets reported that after a conversation with the Mexican President, Trump has paused Tariffs on Mexico for a month subject to some conditions being met by the Mexican Government. Subsequently, a similar temporary pause was announced regarding tariffs on Canada.
Nevertheless, we believe that your investments at TCK are well positioned to weather whatever challenges the markets, and the economy may pose. Our time-tested investment process keeps us focused on helping you achieve your long-term financial goals. We accomplish this through building investment portfolios that utilize optimum asset allocation, and by exercising thorough due diligence while selecting and monitoring investments. We also periodically rebalance back to target objectives, and diversify across different asset classes so we don’t end up with investment portfolios that are overweighted or underweighted in any segment of the market. At TCK our clients are our number one priority, and we work tirelessly to help you achieve your financial goals for now and generations to come.