The Markets – December 18, 2024

How high can U.S. stocks fly?

The U.S. stock market has delivered exceptional performance over the past few years and remains on track to deliver solid returns in 2024.

“It isn’t a secret that U.S. stocks have outperformed the rest of the world. Over the past decade, the S&P 500 returned 13 [percent] a year on average,* compared with less than 5 [percent] for the MSCI EAFE [Europe, Australia, and Far East] index of developed countries. Investors can thank the health of the U.S. economy and the remarkable growth of the tech sector. The downside: U.S. stocks now trade more than 21 times earnings, compared with less than 14 for international ones…” reported Ian Salisbury of Barron’s.

In recent weeks, though, the stock market appears to have lost some steam. While Magnificent Seven technology stocks have pushed higher, many other stocks have moved lower. On Thursday, Geoffrey Morgan of Bloomberg reported, “The S&P 500 Index closed out its ninth consecutive day where the number of constituents falling outnumbers those rising. That’s [the] longest such streak since Bloomberg started collecting the data in 2004. The development signals that the foundation of the stock-market rally is weakening, with strength in technology high-flyers offsetting softness everywhere else.”

As the end of the year approaches, major U.S. stock indices are near record highs. U.S. Equity Strategist Mike Wilson, who is optimistic about the outlook for the U.S. stock market, told the hosts of Bloomberg Open Interest that investors should be prepared for some uncertainty and volatility and, possibly, a stock market correction.

A correction occurs when the stock market drops by more than 10 percent, and by less than 20 percent, from its recent peak. While corrections are uncomfortable for investors, they tend to wring out irrational exuberance and ring in more reasonable share price valuations, reported James Chen of Investopedia.

Last week, the Nasdaq Composite Index, which is heavily weighted in technology stocks, passed 20,000 for the first time. The Nasdaq finished the week higher, while the Standard & Poor’s 500 Index and Dow Jones Industrial Average moved lower. Concerns that sticky inflation might lead the Federal Reserve to pause its rate-lowering cycle pushed the yield on the benchmark 10-year U.S. Treasury lower last week, reported Sinéad Carew and Harry Robertson of Reuters.

* The 10-year return for the Standard & Poor’s 500 Index in this quote is different from the return in our table because the author used the Index’s return with dividends reinvested. The return in our table does not include reinvested dividends.

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance; MarketWatch; djindexes.com; U.S. Treasury; London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

WHAT’S IN A WORD? Dictionaries and publications have begun to share their “Word of the Year.” For 2024, Merriam-Webster Dictionary chose “polarization,” which is defined as “division into two sharply distinct opposites; especially, a state in which the opinions, beliefs, or interests of a group or society no longer range along a continuum but become concentrated at opposing extremes.” Here are some other notable words of the year:

• Manifest was at the top of the list for the Cambridge Dictionary. “When famous performers, star athletes, and influential entrepreneurs claim they have achieved something because they manifested it, they are using this verb in a more recent sense: to use specific practices to focus your mind on something you want, to try to make it become a reality.”
• Brain rot took the prize as Oxford University Press’s word of the year. Brain rot is the “supposed deterioration of a person’s mental or intellectual state, especially viewed as a result of overconsumption of material (now particularly online content) considered to be trivial or unchallenging.
• Demure was plucked from the crowd by Dictionary.com. For many years, demure was a compliment given to young women for being modest and reserved. In 2024, a content creator used it “humorously in a way that appeared to challenge and poke fun at widespread societal expectations of how women are supposed to look and behave,” reported Leslie Katz for Forbes.

• Allision was one of Merriam Webster’s runner-up words of the year. An allision occurs when a ship runs into a stationary object. The difference between “collision” and “allision” became more widely known after a cargo ship hit Baltimore’s Francis Scott Key Bridge causing it to collapse.

In general, media stories, headlines, social media trends, and online search results help determine publications’ short lists for Word of the Year. Runner-up words for 2024 included totality, democracy, pander, brat, ecotarian, romantasy, dynamic pricing, slop, extreme weather, and resilience.

What is your choice for word of the year?

Weekly Focus – Think About It

“Language is the blood of the soul into which thoughts run and out of which they grow.”

 —Oliver Wendell Holmes, Supreme Court Justice

Best regards,

Daniel J. Murphy, CFP®
Murphy Wealth Management Group
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Fishkill, NY 12524

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