Monthly Observations - January 2025

By Chris Zaccarelli

Monthly Observations

The S&P 500 fell -2.4% in December, which reduced its strong year-to-date gains to +23.3%. The MSCI All Country World index also fell during the month, losing -2.6%, reducing its year-to-date return to 15.5%. The Bloomberg BarCap U.S. Aggregate Bond index also fell -1.6% during December, which reduced its year-to-date gain to only 1.3%.

Both the stock and bond markets fell during December. The Federal Reserve cut interest rates for the third time in a row, but signaled that they would only cut rates twice more next year, instead of four times as investors had been expecting. Higher interest rates and a stronger dollar are both headwinds for markets going into 2025.

Monthly Highlights

The Federal Reserve cut rates, but signaled fewer cuts ahead

The stock market fell sharply on the Fed's news

A government shutdown was narrowly averted

News in Review

Below are some stories that caught our eye this past month. To learn more, follow the links to the full article.

Fed Cuts Rates, but Signals Fewer Reductions Ahead

The Federal Reserve cut interest rates by 0.25% at their December meeting, but indicated that they only expected to make two 0.25% cuts in 2025 rather than the four that investors had been expecting. This caused a sharp selloff in the stock market immediately after the announcement, as investors recalibrated their expectations for future interest rates.

Stocks Fall Most in Months After Fed Cuts Rates

In one of those rare occasions when good news (a Fed rate cut) is treated as bad news (because they also signal fewer future rate cuts), the stock market fell sharply. The S&P 500 fell 3% following the Fed's announcement and Treasury yields rose sharply, indicating that bond investors were also recalibrating their expectations.

Congress Narrowly Averts a Government Shutdown

The US government was heading towards a shutdown after a bipartisan spending bill fell apart at the last minute when Elon Musk and President-Elect Trump came out against it. A slimmed-down version of the bill passed both houses of Congress at the last minute, temporarily funding the government through March, averting a shutdown.

Christmas Tree Shortage in Australia Leaves Fake Ones in High Demand

Australians are experiencing a Christmas tree shortage because the real ones have to be imported from the US and Europe, which is expensive, so people are buying artificial ones in higher numbers. Some creative Australians are improvising by using native plants, including eucalyptus and fern trees, in place of the traditional pine tree.

DISCLOSURES

Securities offered through LPL Financial, Member FINRA/SIPC. Blackbridge Financial is another business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial. The opinions expressed in this material do not necessarily reflect the views of LPL Financial.

This newsletter was written and produced by the Independent Advisor Alliance, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

S&P 500 INDEX: The Standard & Poor's 500 Index is an unmanaged, capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

NASDAQ 100 INDEX: The Nasdaq 100 Index is an unmanaged, capitalization-weighted index of the largest 100 non-financial stocks traded on the Nasdaq market. Unlike the S&P 500 it does not represent all major industries and may be more volatile than more broadly constructed indices.

MSCI ACWI INDEX: The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 24 emerging markets (EM) countries. With 2,495 constituents, the index covers approximately 85% of the global investable equity opportunity set.

Bloomberg U.S. Aggregate Bond Index: The Bloomberg U.S. Aggregate Bond Index is a broad-based index of the U.S. investment-grade, fixed-rate bond market, including both government-related and corporate securities and mortgage-backed and asset-backed securities.

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