2024: A Year of Growth, Caution, and Uncertainty
Reflections on a dynamic year of record market highs, rising uncertainty, and the challenges shaping the road ahead in 2025.
Hey all, it’s been a long time since I’ve written, but I wanted to write something for the end of the year. These are just some things I have noticed and some thoughts that I have on what’s coming in 2025. I’ve been pretty busy with some recent projects will I be sharing soon!
Market Update for 2024: A Year of Growth, Caution, and Uncertainty
The U.S. economy has generated impressive headlines over the past two years, with many analysts pointing to healthy job growth, booming equity markets, and a resilient consumer sector. Yet, despite these positive signals, many Americans report that they do not feel the benefits of what some have called “the best economy in decades.” As 2024 winds down, the Trump White House will face fresh challenges, especially around inflation. Concerns persist that new policies—such as stepped-up deportations—could tighten the labor market and push wages upward, leading to even more price pressures. Meanwhile, stocks have enjoyed the best two-year rally in recent memory, prompting many experts to warn of a possible pullback in 2025. Below is a closer look at the latest economic data, corporate earnings guidance, job market trends, and global factors that could shape the coming year.
Negative EPS Guidance Climbs as the S&P 500 Prepares for Q4 Earnings
Recent data from FactSet suggest that more S&P 500 companies are issuing negative EPS guidance for the fourth quarter of 2024 than is typical. According to John Butters, 106 S&P 500 companies have provided earnings-per-share guidance for Q4. Of these, 71 offered negative EPS guidance, while 35 were positive. The proportion of companies signaling weaker earnings—67%—stands above both the five-year average of 57% and the 10-year average of 62% (FactSet, 2025).
Why is this happening now, when overall U.S. economic data seem upbeat? One possible explanation is the uneven impact of higher interest rates and inflation on certain sectors. FactSet points to Information Technology, Industrials, and Consumer Discretionary as having the largest number of companies warning about weaker earnings. These three sectors also saw the biggest increases in negative guidance compared to their five-year averages (FactSet, 2025).
Companies issue guidance when they want to give investors a preview of quarterly performance, often before they formally release results. Guidance is considered “negative” if the company’s projection is below the mean EPS estimate that analysts had forecast the day before the company’s announcement. Although negative guidance can rattle investors, it is worth noting that many businesses have moved beyond their worst fears in previous quarters, especially if the broader economy remains on solid footing.
Jobs Data: Mixed Signals on Hiring and Layoffs
The labor market, which often serves as a barometer of economic health, continues to show both strength and subtle signs of cooling. According to the Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), job openings in the U.S. increased to 7.7 million in October, up from 7.4 million in September (WSJ, 2024). This rise breaks a longer trend of declining job openings that had persisted for most of the past two years.
Despite more job vacancies, October hiring fell slightly to 5.3 million, compared with 5.6 million the previous month. Layoffs also edged down to 1.6 million from September’s 1.8 million. Meanwhile, the unemployment rate remains near 4.1%, a figure that has barely changed since mid-year. From a top-level perspective, the labor market still looks healthy.
However, the JOLTS data hint that the labor market is “cooling” compared to its post-pandemic peak. Even with October’s uptick, the number of openings remains below its highs of 2022. Economists say November’s jobs report (due soon on Tuesday, January 7, 2025 at 10am Eastern) will provide crucial insight into whether wage growth is moderating or if the labor market is poised to reaccelerate.
Manufacturing Slump Eases, but Challenges Persist
One sector feeling the pinch is U.S. manufacturing, which contracted again in the final month of 2024, according to a monthly survey by the Institute for Supply Management (WSJ, 2024). The purchasing managers’ index came in at 49.3, indicating a slight contraction—any figure below 50 signals a pullback. Still, this level beat both November’s reading of 48.4 and the consensus estimate of 48.0.
Although this marked nine straight months of contraction, there were encouraging signs. New orders and production indexes entered expansion territory, suggesting demand might be picking up. On the flip side, employment and backlogs of orders remained weak. As Timothy Fiore, chairman of the ISM Manufacturing Business Survey Committee, put it, the data overall indicate that “activity contracted again in December, but at a slower rate” (WSJ, 2024). The question is whether the budding improvement in orders and output can carry over into 2025, especially if interest rates stay higher than some businesses would prefer.
Central Banks Diverge: The Fed, the ECB, and Global Growth
While the Federal Reserve continues a measured pace of rate cuts in 2024, central banks abroad face different constraints. The European Central Bank (ECB) and the Bank of England (BOE) often follow the Fed’s lead, but they also grapple with fragile local conditions. The eurozone and the U.K. have lagged the U.S. in returning to their pre-pandemic growth paths, and China’s aggressive trade policies have further undermined demand for European exports (WSJ, 2024).
Even though the ECB’s benchmark rate is lower in absolute terms than the Fed’s, policymakers in Europe estimate that the “neutral rate” (where monetary policy is neither stimulative nor restrictive) is also lower—between 1.75% and 2.5%—due to the region’s slower growth prospects (WSJ, 2024). As inflation stabilizes, investors predict that the ECB could cut rates more aggressively in 2025 to prop up growth. Yet, given the risk of higher energy costs, political disagreements among EU members, and ongoing global uncertainty, the ECB may be hesitant to break ranks with the Fed unless Europe slides closer to recession.
Equity Markets: Two Incredible Years, But What’s Next?
The stock market’s performance in 2023 and 2024 has been nothing short of remarkable. The S&P 500 soared by more than 20% in 2024 alone, marking its best consecutive annual gains since the late 1990s (WSJ, 2024). Analysts credit the rally to a stable economy, moderating inflation, and the red-hot growth of large technology companies.
Indeed, the so-called “Magnificent Seven” mega-cap tech stocks—Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla—have powered the index’s gains. In some quarters, these companies accounted for well over half the S&P 500’s total return, including dividends (S&P Dow Jones Indices, 2024). Many of these businesses capitalize on cloud computing, artificial intelligence, and digital advertising, which have remained robust despite rising interest rates.
However, lofty valuations worry some investors. By late December, the S&P 500 traded at nearly 22 times its projected earnings over the next 12 months, above its 10-year average of around 18.5 (FactSet, 2025). Some argue that high-growth tech firms deserve premium valuations due to their rapid revenue expansion. Others caution that these valuations raise the bar for future earnings. If profit growth in 2025 disappoints, stocks could see a pullback.
Wall Street analysts expect S&P 500 earnings to grow by about 15% in 2025, compared to 9.5% in 2024 (FactSet, 2025). Such forecasts suggest corporate America still has room for growth, but they also set high expectations. If companies lower their guidance or if higher rates pinch profits, stock prices could stumble.
Consumer Sentiment: Why Aren’t People Feeling the Boom?
Despite solid job numbers and market gains, many consumers say they are not feeling the benefits of a strong economy. Some economists blame stubborn inflation, which, while lower than its 2022 peak, remains above the Federal Reserve’s long-term goal of 2%. Rising living costs—especially for housing, groceries, and healthcare—can temper optimism.
At the same time, wage gains have been uneven. While overall pay has increased, some households report that their earnings are barely keeping up with expenses. The result is a gap between data showing a historically tight labor market and polls showing lukewarm consumer confidence. As the Fed continues to adjust rates, observers will watch closely to see if real wage growth accelerates or if living costs continue to erode sentiment.
The Trump White House and Inflation Concerns
Looking ahead, President Donald Trump’s administration faces a unique tug-of-war: The economy appears sturdy, but inflation could resurface if labor costs spike. One scenario that economists and investors are watching is the impact of potential mass deportations of undocumented workers. Removing a large pool of labor from industries such as agriculture, hospitality, or construction may constrain the available workforce. If businesses then compete for fewer workers, wages could surge and trigger upward price pressures.
At the same time, the administration’s proposed tariffs could further complicate the situation. Tariffs aimed at foreign goods tend to raise costs for domestic consumers and businesses. If these costs show up in the prices of everyday products, the inflation picture could worsen. So while the Trump White House has championed tax cuts and deregulation that some believe helped fuel growth, the interplay of tariffs and tighter immigration policies may add to inflation headaches in 2025.
Juggling Uncertainty: Stocks vs. Bonds
Historical data suggest that when economic-policy uncertainty is high, investors often favor safer assets like bonds and cash equivalents. Conversely, when uncertainty dips, riskier assets such as stocks tend to outperform (Horstmeyer, 2024). Right now, uncertainty appears elevated, partly due to questions about the administration’s policy details on trade, spending, and immigration.
If uncertainty remains elevated, some portfolio managers say that short-term Treasurys or other lower-risk bonds might be a safer bet, at least until there is more clarity from Washington. On the other hand, if investors see inflation diminishing and Washington backing away from major disruptions, stocks could continue their run, particularly in cyclical areas like small-cap companies or consumer-focused businesses that benefit from strong growth.
Manufacturing, Technology, and the Global Outlook
Another wildcard for 2025 is the manufacturing sector’s ability to rebound. With signs that new orders may be stabilizing, a broader rebound could lift domestic industries ranging from autos to industrial machinery. That said, trade tensions remain a risk. If tariffs escalate or if China’s manufacturing sector undercuts U.S. exporters, the recovery in U.S. factories may stall.
Technology firms could also face challenges. While AI-driven growth seems unstoppable, big tech companies have started to see pushback on regulatory and competitive fronts. Alphabet and Amazon, for example, recently slipped when heavy spending intersected with slower sales growth. This shows that even the largest tech names can lose momentum if earnings or forecasts disappoint.
Small-Cap Stocks: Catching Up or Falling Behind?
Some investors argue that smaller companies, which have lagged mega-cap tech stocks, might offer value in 2025. The Russell 2000 index remains below its peak in late 2021, even as the S&P 500 has soared (WSJ, 2024). A stronger economy and renewed consumer spending could help these smaller firms catch up. Moreover, small-caps typically have more floating-rate debt, meaning their borrowing costs might come down faster if the Fed lowers rates.
Still, any pullback in consumer confidence or spike in borrowing rates could hit small-caps harder than more established companies. For now, the verdict is mixed. Many portfolio managers keep an eye on valuations, hoping that the gap between small-cap and large-cap stocks eventually narrows.
Conclusion: Bracing for 2025
Heading into the new year, the big question is whether we can sustain strong growth without sparking a fresh wave of inflation. The Federal Reserve has already cut rates, but it has also signaled that it will not drop them too far unless the data demand it. Europe’s central banks face their own struggles, and a global slowdown—or a surge in energy prices—could quickly change the calculus on interest rates.
For now, the economy remains historically strong by many measures: unemployment is low, job openings are high, and corporate earnings still have room to grow. Yet consumers’ perceptions are mixed, and heightened policy uncertainty could keep markets on edge. If the Trump administration’s plans around immigration or tariffs push inflation higher, the Fed might have to reverse course and tighten policy, surprising markets that expect further easing. In that scenario, the stock market’s two-year run could be tested.
Ultimately, 2024 has shown us both the power of a robust U.S. economy and the ease with which investor sentiment can shift. The next year is likely to bring more volatility, and investors would be wise to stay attuned to the interplay between economic data and political decisions. Whether you are bullish on mega-cap tech, looking for bargains in small-caps, or seeking the safe harbor of bonds, it is crucial to watch how policy shapes inflation and growth. In this environment, knowledge and adaptability will be key to navigating whatever surprises 2025 may hold.
Sources
• FactSet (2025). More S&P 500 Companies Issuing Negative EPS Guidance for Q4 Than Average.
• Horstmeyer, D. (2024). Economic-Policy Uncertainty and Mutual Fund Performance.
• Institute for Supply Management (ISM) data, reported in the Wall Street Journal (2024).
• JOLTS data from the U.S. Labor Department, reported in the Wall Street Journal (2024).
• S&P Dow Jones Indices (2024).
• Wall Street Journal (2024). Various articles on the economy, jobs, and the Federal Reserve.