As 2024 comes to an end, investors should be delighted. Following a spectacular 2023, when the S&P 500 returned 26%, not many predicted an even better performance heading into this year. Barring a disastrous finish this month, the S&P 500 stands to exceed last year’s return, rising 28% YTD through November. Even bond holders have to be pleased with the Barclays US Aggregate Bond Index up 3% so far this year.
It bodes well for equities to finish higher by the end of this month. During nine of the past ten election years, the S&P 500 has experienced a positive December.
However, 2025 could prove to be quite different than the last two years, as the following chart suggests.
The green line reflects the S&P 500 during a new, non-incumbent president’s first term (dating back to 1936). Initially, stocks tend to rally after the election, presumably because investors are excited and hopeful about what’s potentially in store for the future. But eventually reality sets in and the first year of the new president’s term typically becomes a volatile one. Following a fairly brief euphoric rally, equities tend to undergo a few months of consolidation before heading south in the July-September period. Of course, that’s not to say the S&P 500 will follow this path, but rather the green line simply plots an average historical timeline of the S&P 500 based on first-years for a new POTUS. And further, it’s interesting to see the stark contrast of the S&P 500 during the first-years of an incumbent POTUS (red line in the chart), with more or less steady gains through the summer and finishing the first year higher.
As we’ve commented on several times in past missives, the gains in the S&P 500 have been increasingly concentrated in just a select few Index members. The following chart depicts the degree to which the S&P 500 returns are concentrated within a handful of stocks.
In fact, the narrowness or compressed leadership of the S&P 500 has not been this extreme since the Great Depression of 1929. And as shown in the above chart, other time periods of very elevated concentration have not ended well (Nifty Fifty, Dot Com bubble, etc.).
It’s no surprise that the so-called “Magnificent 7” have been primarily responsible for the superior performance of the S&P 500 over the last two years. As the next chart illustrates, these seven stocks collectively have nearly tripled the S&P 500’s return, compared to the remaining 493 index members which as a group have significantly lagged behind.
One final sobering chart to highlight is reportedly Warren Buffett’s favorite valuation metric.
The “Buffett Indicator,” as shown above, is the ratio of the total market cap value of all US stocks divided by the size of the US GDP (economy). The chart dates back to 1872 and currently this ratio has never been higher in history. While valuation metrics are notorious for not being very precise or exact regarding when to sell or buy, they are much more useful and worth paying attention to when they’re at extremes, like now.
As always, if you have any questions, please contact us. The entire team at Measured Wealth wishes you Happy Holidays! And we thank you for entrusting us to deliver on your financial goals.
Edward Miller, CFA, CMT
Chief Investment Officer
Measured Wealth Private Client Group
Important Disclosures
Historical data is not a guarantee that any of the events described will occur or that any strategy will be successful. Past performance is not indicative of future results.
Returns citied above are from various sources including Bloomberg, Russell Associates, S&P Dow Jones, MSCI Inc., The St. Louis Federal Reserve and Y-Charts, Inc. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Investing involves risks, including possible loss of principal. Please consider the investment objectives, risks, charges, and expenses of any security carefully before investing.
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