The year 2024 saw unexpected resilience in the economy and stock markets despite challenges such as high interest rates, rising unemployment, and geopolitical tensions. As we enter 2025, the outlook remains uncertain, but there is a need for pragmatic optimism, as LPL Financial Research Outlook 2025 outlines below. LPL Research’s report offers valuable insights and analysis to help you make informed decisions in the dynamic financial landscape. The most vital tool is equipping yourself with the knowledge necessary to navigate the key financial shifts ahead. *
Overview 2024
The year 2024 was extraordinary for the economy and the markets. High interest rates, rising unemployment, turmoil in the Middle East, and the ongoing Russia/Ukraine war, were some of the many factors that should have signaled economic contraction and a downturn in the stock market. Yet, the opposite occurred. Gross domestic product expanded by 3.1% in the third quarter and 2.9% year over year. Each of the major stock market indexes listed here posted solid year-end gains. Inflation came down. Corporate earnings grew, despite the unemployment rate inching higher.
While data showed price pressures slowed in 2024, consumers faced the stark reality of the overall high cost of living. According to the Consumer Price Index (CPI), prices for food rose 2.4% for the 12 months ended in November, while shelter prices rose 4.7%. Prices at the wholesale level rose 3.0% for the year, the largest increase since moving up 4.7% for the 12 months ended February 2023.
The economy grew in 2024, proving that it was able to withstand the Federal Reserve’s aggressive policy of interest rate hikes from the previous year. Consumer spending remained strong, despite rising unemployment, which provided a boost to the overall economy. In addition, increased nonresidential (business) spending, headed by cash-rich technology companies, and solid wage and income growth, all contributed to overall economic strength. However, economic conditions were at the top of consumer concerns throughout much of 2024, particularly in the context of the presidential election. Consumer sentiment drooped in December amid weaker assessments of the present situation, while short-term expectations for business and labor saw a sharp decline.
In March 2022, the Federal Reserve began to aggressively raise interest rates as part of a restrictive policy aimed at reining in escalating inflation. In 2023, there were signs that the Fed’s monetary policy was paying off. Price growth slowed without triggering a recession. In 2024, the CPI declined intermittently, moving from 3.1% in January to a low of 2.4% in September, before ticking higher to 2.7% in November, still above the Fed’s 2.0% target. The progress in moderating price pressures, coupled with economic resilience, allowed the Fed to lower interest rates by 100 basis points by the end of the year. Nevertheless, interest rate projections for 2025 were tempered as the Fed signaled only two rate cuts, depending on inflation and economic data.
The housing sector, which cooled in 2023 on the heels of higher interest rates, rebounded somewhat in 2024. Although the Fed reduced the federal funds rate, mortgage interest rates remained elevated. According to Bankrate, the 30-year fixed-rate mortgage was 7.03% as of December 30. That’s down from a high of 7.39% in May. With the Fed tempering its projections for interest rate cuts in 2025, the consensus is that mortgage rates will remain at or near their current levels. Purchase prices for both new and existing homes also increased year over year. Despite rising lending rates and higher home prices, both new and existing home sales rose over the course of the year.
The U.S. economy proved to be resilient in 2024. Gross domestic product expanded during each of the first three quarters of the year, culminating in a 3.1% advance in the third quarter. Consumer spending, the linchpin of the economy, also showed strength, climbing 3.7% in the third quarter. Consumer spending on both goods and services rose throughout the year.
The employment sector, expected by some to slow with rising interest rates, maintained strength throughout the year. While the number of new jobs trended lower during the second half of the year, job growth averaged 186,000 per month through November. The number of employed persons changed little from a year earlier. The total number of unemployed rose by 883,000 since November 2023, while the unemployment rate, at 4.2%, was 0.5 percentage point above the year-earlier rate.
One of the primary factors in the drop in overall inflation was a decline in energy prices. According to the CPI, energy prices fell 3.2% over the 12 months ended in November. Gasoline prices dropped 8.1% over the same period. Food prices, on the other hand, rose 2.4%, while prices for shelter increased 4.7%.
Total industrial production declined 0.9% for the year. Manufacturing, which accounts for about 78.0% of total production, decreased 1.0%. There was little optimism from purchasing managers about the state of the manufacturing sector, which saw falling output and higher prices. On the other hand, purchasing managers reported that the services sector expanded at the steepest rate in 33 months amid growing optimism about business conditions under the incoming Trump administration.
As 2024 drew to a close, there were some positives to consider upon entering the new year. By the end of 2024, Wall Street enjoyed the best two-year run since 1997-1998. If corporate earnings continue to grow, that would bode well for stocks in 2025. There are factors that will come into play next year, but how they impact the economy and markets is open to speculation. How much longer will the Russia/Ukraine war last, and how much more financial aid will be coming from the United States? The Hamas/Israel conflict could expand to include other countries, impacting other lives and economies.
Snapshot 2024
The Markets
Equities: Stocks began 2024 on a positive note and ended the year trending higher. Throughout the year, Wall Street bucked analysts’ predictions. Higher interest rates and rising unemployment didn’t deter investors from seeking equities. Despite rising global tensions, the economy proved resilient, corporate profits rose, and the once anticipated economic recession never materialized. New innovations and the growth of AI spurred technology stocks in 2024, with megacaps and artificial intelligence shares leading the charge. Foreign investment in U.S. securities reached a record high of over $30.0 trillion. Each of the benchmark indexes listed here closed 2024 much higher compared to 2023, with the NASDAQ, the S&P 500, and the Dow each hitting record highs. Stocks got an additional boost in September when the Federal Reserve began lowering its policy rate for the first time since 2020. The November election of former President Donald Trump also provided traders with guarded optimism that taxes will be lowered and less regulation will further spur corporate profits. In 2024, each of the 11 market sectors ended the year in the black. Information technology and communication services gained more than 40.0%, while shares in consumer discretionary and financials advanced more than 30.0%.
Bonds: While growth in the stock market was fairly consistent this year, the same can’t be said for the bond market. Throughout most of 2024, U.S. bond yields fluctuated appreciably. Bond prices declined over the first four months of the year as bond yields rose. Global tensions and a shift in Federal Reserve policy influenced the bond market. By the end of 2024, over $600.0 billion was invested in the global bond market as investors locked in some of the highest yields in decades ahead of uncertainties likely in 2025. Ten-year Treasury yields rose higher until May, when they began trending downward, reaching a low mark in September. However, the results of November’s election pushed yields higher as investors anticipated proposed tariffs and tax cuts to increase government spending. Heading into the new year, bond investors will continue to assess the Federal Reserve’s implication that it is strongly considering a slowdown in the reduction of interest rates. The two-year Treasury note hovered around 4.36% at the end of 2024, which saw yields range from 3.51% to 5.05% during the year.
Oil: Crude oil prices were heavily influenced by Chinese demand and tensions in the Middle East. West Texas Intermediate (WTI) crude oil prices began the year at about $80.00 per barrel, then rode a wave of volatility throughout 2024. After peaking at about $87.00 per barrel in early April, crude oil prices experienced a range of price swings, falling as low as $65.75 per barrel in September, to ultimately settle at around $71.00 per barrel by the end of December. Chinese demand underwhelmed for much of the year, despite several government-backed stimulus packages aimed at spurring the economy. Tensions in the Middle East escalated during the year, leading to fears of oil-supply disruptions. Heading into 2025, some forecasters expect the hands-off policies espoused by the new administration may lead to U.S. production growth.
Prices at the pump trended higher during the first half of the year, then slid lower through December, largely responding to changes in global economics, supply and demand, and other extraordinary factors attributable to the unrest in the Middle East. The average retail price for a gallon of regular gasoline was $3.089 at the beginning of the year. By the end of June, the price had risen to $3.438 per gallon, then steadily declined for the remainder of the year to an average price of $3.024 on December 23.
FOMC/interest rates: The target range for the federal funds rate began the year at 5.25%-5.50% following several interest rate increases by the Federal Open Market Committee (FOMC) in 2023. The Committee, in its battle to reduce inflation and maximize employment, did not adjust the federal funds rate during the first half of 2024, noting the uncertainty of the economy and ongoing risks of inflation. However, in September, the FOMC cut rates by 50.0 basis points and followed that reduction with two more 25.0-basis point reductions through December, lowering the federal funds rate by 100.0 basis points for the year. While price pressures have moderated since early 2022, the rate of inflation has remained stubbornly above the Fed’s 2.0% target, hovering between an annual rate of 2.4% (PCE price index) and 2.7% (CPI). The FOMC proffered a more cautious tone in predicting rate adjustments in 2025, projecting two 25.0-basis-point reductions.
US Dollar-DXY: The U.S. Dollar Index had a solid year against a basket of currencies, rising from an initial value of about 102.20 to a tad over 108.00 by the end of December, hitting its highest level since 2022. During the first half of the year, rising prices and higher interest rates attracted investors seeking higher returns, increasing the demand for the dollar. When the Fed reduced interest rates, the dollar slid lower. The results of the presidential election drove the dollar higher following three months of weakening. Almost every major currency lost value against the dollar this year. The anticipated deregulation of business and tax cuts are expected to enhance the dollar’s value even further in 2025.
Gold: Gold prices enjoyed noteworthy gains in 2024, moving from around $2,000 per ounce, to a peak of nearly $2,800 per ounce in November, before settling at around $2,600 per ounce by the end of the year. Gold reached a number record high prices throughout the year. Factors that helped gold prices advance in 2024 include several interest rate cuts, political instability in Eastern Europe, a conflict in the Middle East, and uncertainty in various foreign financial markets.
Eye on the Year Ahead
Looking forward to 2025, several questions arise. The federal funds rate was reduced by 100 basis points in 2024. What impact will lower interest rates have on the economy, labor, and consumer prices? If the incoming administration moves toward deregulation, how will that affect the concentration of economic strength and will it promote more widespread income disparities? Will the conflicts in the Middle East continue into 2025, and if so, what impact will they have on crude oil production? Will increased import tariffs drive consumer prices higher and/or strengthen domestic businesses? These are just a few of the many issues to consider entering the new year.
January Key Dates/Data Releases
1/2: S&P Global Manufacturing Index
1/6: S&P Services Index
1/7: JOLTS
1/10: Employment situation, international trade in goods and services
1/13: Treasury budget
1/14: Producer Price Index
1/15: Consumer Price Index
1/16: Retail sales, import and export prices
1/17: Housing starts, industrial production
1/24: Existing home sales
1/25: GDP
1/26: Personal income and outlays
1/27: New home sales
1/28: Durable goods orders
1/29: International trade in goods, FOMC meeting statement
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Data sources:
*Disclosure for the LPL Research Outlook 2025: Pragmatic Optimism:
Scarlet Oak Financial Services presents the LPL Research Outlook 2025: Pragmatic Optimism with the best intentions and the report is based on the latest available sources at the time of publication. However, it is crucial to note that the financial landscape is dynamic and subject to rapid changes. The content of this report is meant for educational purposes only and should not be construed as financial advice.
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It is important to understand that the information contained in this report (LPL Research Outlook 2025: Pragmatic Optimism) is not intended as personalized financial advice. Every individual’s financial situation is unique, and decisions should be tailored to specific circumstances. For personalized advice on financial investments, taxes, or any other financial matters, it is strongly recommended to consult with a qualified financial professional.
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Data sources for the Annual Market Review 2025:
Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation);
U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI, Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates).
News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice.
Forecasts are based on current conditions, subject to change, and may not come to pass. U.S. Treasury securities are guaranteed by the federal government as to the timely payment of principal and interest. The principal value of Treasury securities and other bonds fluctuates with market conditions. Bonds are subject to inflation, interest-rate, and credit risks. As interest rates rise, bond prices typically fall. A bond sold or redeemed prior to maturity may be subject to loss. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.
The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 largest, publicly traded companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indexes listed are unmanaged and are not available for direct investment.
Broadridge Investor Communication Solutions, Inc. prepared this material for use by Scarlet Oak Financial Services.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Scarlet Oak Financial Services provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
