Domestic Equities
U.S. equity markets experienced broad gains in the fourth quarter, marked by significant shifts in market leadership. Early in the quarter, the so-called “Trump Trade” drove small caps, financials, and other cyclical sectors to the forefront as investors anticipated policy benefits from a Trump victory. However, after the election and as the quarter progressed, this trend lost momentum. By year-end, megacap technology and growth stocks reclaimed leadership, driving a stronger surge in performance. Overall gains were tempered in mid-December following a hawkish Federal Reserve decision, which introduced some caution into the market.
The Federal Reserve’s final meeting of the year delivered an expected 25-basis-point rate cut, bringing the total to 1% for 2024. While the recent cut itself aligned with expectations, the Fed’s revised economic outlook raised eyebrows. Faster-than-expected economic growth and persistently high inflation above the 2% target led the central bank to signal only two additional cuts in 2025, far fewer than the market had hoped. Adding to the tension, one Fed committee member dissented, opposing any rate cuts, highlighting ongoing concerns about inflationary pressures and rate policy moving forward.
The US economy remained strong, growing at an annualized rate of 3.1% in the previous quarter. The labor market proved its resilience as well, weathering disruptions from strikes and hurricanes. December’s addition of 227,000 jobs highlighted a strong finish to a volatile quarter, following October’s subdued growth of 36,000 and September’s more robust 255,000. Despite the ups and downs, the overall trend points to a labor market that remains steady, providing a solid foundation for the economy. The latest inflation read from core PCE showed a 2.8% YoY change, which is only a slight decrease from the start of the year. The manufacturing side of the economy remained in contraction with a read of 48.4, although it did show some improvement in the last quarter. The service side of the economy was better than expected as it moved back from its dip below 50 in June to 52.1 last month.
Still, looking back on the fourth quarter and the year, US equity markets were higher. In 2025, the S&P 500 was up over 20% with the tech heavy Nasdaq up even more. For Q4, S&P 500 finished up 2.4%, the tech-heavy Nasdaq Composite was up 6.4%, and the Dow Jones Industrial average only gained 0.9%. Consumer Discretionary (+12.1%) led by a wide margin followed by Communications (+7.3%) and Financials (+7.1%). Materials (-12.3%) and Health Care (-10.3%) were the biggest losers.
Foreign Equities
The MSCI ACWI ex-USA index fell 7.5% for the fourth quarter of 2024.
Eurozone
Eurozone equity markets fell sharply in the fourth quarter due to growth expectations revised lower and the potential negative effects of trade policy. The European Central Bank (ECB) slashed rates twice in the fourth quarter and brought the key rate down to 3% from 4.5% in 2024. That’s a much bigger move than what we saw from the Fed in the U.S., but the ECB had its reasons. With growth projections of just 0.7% for 2024 and 1.1% for 2025, the region is facing some serious economic headwinds. Business confidence kept slipping as the quarter went on, and inflation climbed for the second straight month, putting the ECB in an uncomfortable spot. Germany, the Eurozone’s biggest economy, has barely grown since the pandemic, and things got even messier in December when France’s government collapsed. To top it all off, weaker demand from China, a key trading partner, and stubbornly high energy prices have added even more pressure to an already shaky outlook. Markets anticipate further cuts, with the central bank aiming to support the economy through looser monetary policy amidst ongoing concerns about regional slowdowns. The MSCI EMU Index fell 8.9% for the quarter.
UK
Similar to the Eurozone, UK equities delivered poor performance for the quarter due to economic slowing and headwinds from potential tariffs. The Bank of England (BoE) recently left its key interest rate unchanged in December, just a day after the Federal Reserve implemented their hawkish cut. This was the second time in the last three meetings that the BoE held off on cuts as they move more slowly than their peers. The U.K. was confronted with a difficult mix of rising wages mixed with a sluggish economy. In addition, like other foreign countries, they face the uncertainties that come with the incoming Trump administration. The MSCI UK Index fell 6.8%.
Japan
During the year, the Bank of Japan (BoJ) became the last major central bank to exit negative interest rate territory. Recently, they held their benchmark interest rate steady at 0.25%, opting to take more time to assess price levels and economic activity. This decision surprised some market participants who expected further rate hikes.
However, recent data from Japan supports the potential for future rate increases. Inflation was recorded at 2.3%, marking the 30th consecutive month above the BoJ’s 2% threshold. Optimism surrounding the end of deflation, coupled with a weaker yen and ongoing corporate reforms, contributed to a stellar year for Japanese equities, in which the MSCI Japan gained double digits for the year yet fell 3.6% during the last quarter.
Emerging Markets
Emerging markets faced a volatile quarter, beginning with a sharp rally in equity prices that ultimately faded in the latter half. The victory of Donald Trump posed significant challenges for the region with the rise of the US dollar. Brazil was the weakest performer in the group, as its currency plummeted due to concerns over the country’s fiscal outlook. South Korea also posted losses, driven by political instability. Meanwhile, China, the largest constituent of the index, declined less than the overall index, though uncertainty remains around the potential for further fiscal stimulus to support its economy. The MSCI Emerging Markets Index ended the quarter down 7.4%.
Fixed Income
The fourth quarter of 2024 presented challenges for bond investors, as rising yields and inflation concerns led to losses in several fixed-income categories, capping a lackluster year overall. While early in the year investment-grade bonds seemed poised for solid returns, Q4 saw the Bloomberg Global Aggregate Index return -5.1% for the quarter and close the year at -2.1%, insufficient to outpace the 2.75% YoY inflation rate through November. High yield, which is less interest rate sensitive, led the strongest performance in the asset class, exceeding returns of over 8%. Conversely, longer duration government bonds underperformed as rising yields weighed down on returns. European government bonds outpaced U.S. Treasuries due to weaker economic conditions in Europe.
US Treasuries
Treasury yields climbed steadily in Q4, rising from 12-month lows of 3.5% to highs of 4.5% by year-end. Treasuries achieved a modest 0.6% annual return, with high starting yields cushioning the impact of rising rates. However, longer-duration Treasuries struggled as markets adjusted to a slower pace of Federal Reserve rate cuts.
Corporate Credit
Investment-grade corporate bonds underperformed in 2024, largely impacted by rising government bond yields and reduced market expectations for rate cuts. The S&P 500® Investment Grade Corporate Bond Index delivered a Q4 return of -2.8% and finished the year with a total annual return of 2.05%, highlighting modest gains despite a challenging backdrop. Longer-duration credit faced headwinds from persistent inflationary pressures and rising rates, while shorter-duration credit benefited somewhat from tightening spreads, offering better resilience in a volatile environment.
Global Bonds
Global government bonds posted a -3.1% return in 2024 as rising yields and cautious central bank policies weighed on performance. UK Gilts were the worst-performing government bonds due to their sensitivity to rate increases, while Japanese bonds also underperformed following the Bank of Japan’s decisions to end negative rates and yield curve control. European bonds fared better, with Italian bonds delivering 5.3% returns as peripheral spreads tightened. French bonds struggled, with spreads widening by 30 basis points relative to Germany amid political instability.
Alternatives
After a prolonged period of struggle for private equity, deal flow, and exit activity, valuation multiples are showing signs of stabilization raising hopes that the asset class may have overcome its worst technical issues. Secondaries’ deal flow continues to dominate activity as managers pursue liquidity in an environment marked by low exit volumes. In contrast, private credit continues to march ahead evidenced by active fundraising, recovering deal flow following recent softer quarters, and steady returns.
Hedge funds have broadly delivered solid performance, capitalizing on renewed global market volatility and increased dispersion in individual equity performance. Strategies such as equity long/short, distressed, and equity market neutral have been the primary beneficiaries of this environment.
Commodity performance varied widely, but the asset class struggled overall. Industrial metals, particularly copper, posted a dismal quarter while gold experienced a slight decline driven by a strengthening U.S. dollar. Oil prices saw a partial recovery after steep losses in the third quarter. Real estate investments also underperformed during the quarter, pressured by rising interest rates.
Cryptocurrencies surged in the fourth quarter, fueled by optimism over President-elect Donald Trump’s expected support for the asset class and risk on sentiment. The incoming administration has signaled plans to establish a more favorable regulatory environment for crypto and has even hinted at the possibility of creating a strategic Bitcoin reserve. This news helped propel Bitcoin past what investors see as a key price of $100,000.
Q4 2024 Market Commentary
Domestic Equities
U.S. equity markets experienced broad gains in the fourth quarter, marked by significant shifts in market leadership. Early in the quarter, the so-called “Trump Trade” drove small caps, financials, and other cyclical sectors to the forefront as investors anticipated policy benefits from a Trump victory. However, after the election and as the quarter progressed, this trend lost momentum. By year-end, megacap technology and growth stocks reclaimed leadership, driving a stronger surge in performance. Overall gains were tempered in mid-December following a hawkish Federal Reserve decision, which introduced some caution into the market.
The Federal Reserve’s final meeting of the year delivered an expected 25-basis-point rate cut, bringing the total to 1% for 2024. While the recent cut itself aligned with expectations, the Fed’s revised economic outlook raised eyebrows. Faster-than-expected economic growth and persistently high inflation above the 2% target led the central bank to signal only two additional cuts in 2025, far fewer than the market had hoped. Adding to the tension, one Fed committee member dissented, opposing any rate cuts, highlighting ongoing concerns about inflationary pressures and rate policy moving forward.
The US economy remained strong, growing at an annualized rate of 3.1% in the previous quarter. The labor market proved its resilience as well, weathering disruptions from strikes and hurricanes. December’s addition of 227,000 jobs highlighted a strong finish to a volatile quarter, following October’s subdued growth of 36,000 and September’s more robust 255,000. Despite the ups and downs, the overall trend points to a labor market that remains steady, providing a solid foundation for the economy. The latest inflation read from core PCE showed a 2.8% YoY change, which is only a slight decrease from the start of the year. The manufacturing side of the economy remained in contraction with a read of 48.4, although it did show some improvement in the last quarter. The service side of the economy was better than expected as it moved back from its dip below 50 in June to 52.1 last month.
Still, looking back on the fourth quarter and the year, US equity markets were higher. In 2025, the S&P 500 was up over 20% with the tech heavy Nasdaq up even more. For Q4, S&P 500 finished up 2.4%, the tech-heavy Nasdaq Composite was up 6.4%, and the Dow Jones Industrial average only gained 0.9%. Consumer Discretionary (+12.1%) led by a wide margin followed by Communications (+7.3%) and Financials (+7.1%). Materials (-12.3%) and Health Care (-10.3%) were the biggest losers.
Foreign Equities
The MSCI ACWI ex-USA index fell 7.5% for the fourth quarter of 2024.
Eurozone
Eurozone equity markets fell sharply in the fourth quarter due to growth expectations revised lower and the potential negative effects of trade policy. The European Central Bank (ECB) slashed rates twice in the fourth quarter and brought the key rate down to 3% from 4.5% in 2024. That’s a much bigger move than what we saw from the Fed in the U.S., but the ECB had its reasons. With growth projections of just 0.7% for 2024 and 1.1% for 2025, the region is facing some serious economic headwinds. Business confidence kept slipping as the quarter went on, and inflation climbed for the second straight month, putting the ECB in an uncomfortable spot. Germany, the Eurozone’s biggest economy, has barely grown since the pandemic, and things got even messier in December when France’s government collapsed. To top it all off, weaker demand from China, a key trading partner, and stubbornly high energy prices have added even more pressure to an already shaky outlook. Markets anticipate further cuts, with the central bank aiming to support the economy through looser monetary policy amidst ongoing concerns about regional slowdowns. The MSCI EMU Index fell 8.9% for the quarter.
UK
Similar to the Eurozone, UK equities delivered poor performance for the quarter due to economic slowing and headwinds from potential tariffs. The Bank of England (BoE) recently left its key interest rate unchanged in December, just a day after the Federal Reserve implemented their hawkish cut. This was the second time in the last three meetings that the BoE held off on cuts as they move more slowly than their peers. The U.K. was confronted with a difficult mix of rising wages mixed with a sluggish economy. In addition, like other foreign countries, they face the uncertainties that come with the incoming Trump administration. The MSCI UK Index fell 6.8%.
Japan
During the year, the Bank of Japan (BoJ) became the last major central bank to exit negative interest rate territory. Recently, they held their benchmark interest rate steady at 0.25%, opting to take more time to assess price levels and economic activity. This decision surprised some market participants who expected further rate hikes.
However, recent data from Japan supports the potential for future rate increases. Inflation was recorded at 2.3%, marking the 30th consecutive month above the BoJ’s 2% threshold. Optimism surrounding the end of deflation, coupled with a weaker yen and ongoing corporate reforms, contributed to a stellar year for Japanese equities, in which the MSCI Japan gained double digits for the year yet fell 3.6% during the last quarter.
Emerging Markets
Emerging markets faced a volatile quarter, beginning with a sharp rally in equity prices that ultimately faded in the latter half. The victory of Donald Trump posed significant challenges for the region with the rise of the US dollar. Brazil was the weakest performer in the group, as its currency plummeted due to concerns over the country’s fiscal outlook. South Korea also posted losses, driven by political instability. Meanwhile, China, the largest constituent of the index, declined less than the overall index, though uncertainty remains around the potential for further fiscal stimulus to support its economy. The MSCI Emerging Markets Index ended the quarter down 7.4%.
Fixed Income
The fourth quarter of 2024 presented challenges for bond investors, as rising yields and inflation concerns led to losses in several fixed-income categories, capping a lackluster year overall. While early in the year investment-grade bonds seemed poised for solid returns, Q4 saw the Bloomberg Global Aggregate Index return -5.1% for the quarter and close the year at -2.1%, insufficient to outpace the 2.75% YoY inflation rate through November. High yield, which is less interest rate sensitive, led the strongest performance in the asset class, exceeding returns of over 8%. Conversely, longer duration government bonds underperformed as rising yields weighed down on returns. European government bonds outpaced U.S. Treasuries due to weaker economic conditions in Europe.
US Treasuries
Treasury yields climbed steadily in Q4, rising from 12-month lows of 3.5% to highs of 4.5% by year-end. Treasuries achieved a modest 0.6% annual return, with high starting yields cushioning the impact of rising rates. However, longer-duration Treasuries struggled as markets adjusted to a slower pace of Federal Reserve rate cuts.
Corporate Credit
Investment-grade corporate bonds underperformed in 2024, largely impacted by rising government bond yields and reduced market expectations for rate cuts. The S&P 500® Investment Grade Corporate Bond Index delivered a Q4 return of -2.8% and finished the year with a total annual return of 2.05%, highlighting modest gains despite a challenging backdrop. Longer-duration credit faced headwinds from persistent inflationary pressures and rising rates, while shorter-duration credit benefited somewhat from tightening spreads, offering better resilience in a volatile environment.
Global Bonds
Global government bonds posted a -3.1% return in 2024 as rising yields and cautious central bank policies weighed on performance. UK Gilts were the worst-performing government bonds due to their sensitivity to rate increases, while Japanese bonds also underperformed following the Bank of Japan’s decisions to end negative rates and yield curve control. European bonds fared better, with Italian bonds delivering 5.3% returns as peripheral spreads tightened. French bonds struggled, with spreads widening by 30 basis points relative to Germany amid political instability.
Alternatives
After a prolonged period of struggle for private equity, deal flow, and exit activity, valuation multiples are showing signs of stabilization raising hopes that the asset class may have overcome its worst technical issues. Secondaries’ deal flow continues to dominate activity as managers pursue liquidity in an environment marked by low exit volumes. In contrast, private credit continues to march ahead evidenced by active fundraising, recovering deal flow following recent softer quarters, and steady returns.
Hedge funds have broadly delivered solid performance, capitalizing on renewed global market volatility and increased dispersion in individual equity performance. Strategies such as equity long/short, distressed, and equity market neutral have been the primary beneficiaries of this environment.
Commodity performance varied widely, but the asset class struggled overall. Industrial metals, particularly copper, posted a dismal quarter while gold experienced a slight decline driven by a strengthening U.S. dollar. Oil prices saw a partial recovery after steep losses in the third quarter. Real estate investments also underperformed during the quarter, pressured by rising interest rates.
Cryptocurrencies surged in the fourth quarter, fueled by optimism over President-elect Donald Trump’s expected support for the asset class and risk on sentiment. The incoming administration has signaled plans to establish a more favorable regulatory environment for crypto and has even hinted at the possibility of creating a strategic Bitcoin reserve. This news helped propel Bitcoin past what investors see as a key price of $100,000.