January 16, 2025

Fourth Quarter Highlights:

Financial Markets

  • Equity markets were volatile and ended the quarter with mixed returns. Despite a post-election surge in November, U.S. equities were pressured by hawkish Federal Reserve (Fed) comments and economic concerns weighed on various foreign markets.  Artificial intelligence (AI) related stocks were the performance leaders.
  • Bond yields rose and prices fell as central banks became more cautious on further rate cuts, due to sticky inflation, which hurt interest rate sensitive sectors.
  • The U.S. dollar moved higher as the interest rate differential and growth outlook between the U.S. and other countries widened.

Overview of the Economy

  • Earnings reports for the third quarter were better than expected with the majority of companies beating analysts’ forecasts, helped by solid sales growth and high margins. S. gross domestic product (GDP) growth of 3.1% outpaced other economies such as the Eurozone which had GDP growth of 0.4%.
  • The U.S. labor market is mixed. Both the number of layoffs and the number of job openings are trending lower.  It is taking longer for the unemployed to find a job.  However, the unemployment rate has been relatively steady at just over 4% and wage growth increased for the last three months at well over the rate of inflation.
  • Inflation ticked higher in the U.S., Europe, and Japan. The U.S. consumer price index (CPI) rose for three consecutive months.
  • Surveys still show weak manufacturing activity around the world while services activity remains in expansion.

Notable Events

  • The Fed cut the fed funds rate by a quarter of a percentage point twice but shifted its forecast to fewer cuts in 2025. Several other central banks also cut rates again.