2025 is primed to be a year of big changes. Between a new presidential administration, interest rates in flux and record-breaking markets, there is a lot to keep an eye on throughout the year ahead.
But before we consider what’s to come, let’s take a look back at how 2024 stacked up:
2024 Recap: A Year of Market Highs
The U.S. stock market hit record highs this year, fueled mostly by Federal Reserve interest rate cuts and a boom in the artificial intelligence industry. U.S. equities enjoyed a particularly strong year; the S&P closed out the year with 23 percent gains.
Despite their strong 2024 performance overall, the markets deflated as the year came to a close. The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all posted losses in the final days of the year, with the Dow suffering its worst month in over two years.
One possible reason for the dip was the Fed’s Dec. 18 meeting, where Chair Jerome Powell predicted two rate cuts in 2025, and warned that inflation might continue to be a challenge in 2025.
As we head into the new year, remember that a new presidential administration often means big changes in the market. We could see more market turbulence as we move through the beginning of the year.
2024 Recap: Interest Rate Changes and Future Cuts
2024 brought the first interest rate cuts we’d seen since 2020. We started the year at 5.25 percent to 5.5 percent, and after a series of cuts, the current Federal funds rates are at 4.25 percent to 4.5 percent.
As we mentioned above, the Fed met in December for its most recent rate cut, as well as to discuss plans for the year ahead. There, Powell backtracked the Fed’s September prediction of four rate cuts in 2025, bringing it down to only two. The Fed cuts rates in tandem with falling inflation, but the inflation rate has been a bit slower to come down than predicted a few months ago.
Even so, Powell forecasted a strong U.S. economy for 2025, and said he expects inflation to hit its 2 percent target by 2027.
A Strong Economic Outlook
In spite of higher interest rates, a presidential election and a slowing job market, 2024 was still a strong year for the U.S. economy. The economy was up 2.7 percent in the third quarter of the year, buoyed mostly by consumer spending.
The labor market also finished on a high note, adding 227,000 jobs in November 2024. This was an impressive rebound from the October report, which only reported 36,000 jobs added. Unemployment also fell to an 8-month low at the end of December, which is another encouraging sign as we head into 2025.
What to Expect in 2025
For the most part, the U.S. markets and economy closed out 2024 on a high note, providing a solid foundation as we enter the new year. But interest rates and inflation, high consumer debt, global tensions and a new presidential administration could lead to some ups and downs in the coming months.
The Trump administration has pledged some policy changes that could lead to economic impacts. Tax cuts, tariffs and immigration policies could shake up the U.S. economy, but it’s difficult to determine what the effects will be. The truth is, a new president in office often leads to changes, uncertainty and potential volatility in the markets and economy.
As an investor, the best way to approach periods of uncertainty is to look at the long term, big picture. Trying to time the market usually leads to losses, so focus on diversifying your portfolio and staying the course as the economy settles.
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