2024 was nothing short of extraordinary. The S&P 500 capped off the year with back-to-back 20%+ annual gains, a rare feat in market history. Domestic equities dominated international markets, and growth once again outperformed value in a commanding fashion.
Will 2025 mirror last year? Unlikely. Since 1929, there has only been one streak of more than two consecutive years of 20%+ returns (1995–1999). Still, history offers reason for optimism: following two consecutive 20%+ years, the market has been positive 67% of the time the year after.
U.S. Equities vs. International Equities
2024 joined the ranks of 1995 and 1997 as one of only three years since 1970 where U.S. equities significantly outperformed international equities. However, history reminds us that leadership between domestic and international equities is cyclical:
- Over the past 55 years, domestic equities have outperformed international equities 53% of the time.
- Yet, the average margin of outperformance is just 1.4%, underscoring the value of diversification.
The takeaway: Diversification isn’t dead—it is just recency bias that makes us think so.
Growth vs. Value: A Tale of Two Eras
Since 2007, growth has dominated value in 14 of the past 18 years—an incredible 80% winrate. And 2024 was no exception:
- It was only the second time in historythat growth outperformed value by 20%+ in back-to-back years.
But it hasn’t always been this way. From 1991 to 2006, value led growthin 9 out of 16 years, a reminder of the market’s long-term cycles.
The takeaway: Leadership changes. Staying flexible and balanced is key to capturing opportunities.
Return Distribution: The Odds Are in Your Favor
Investing often feels like an emotional rollercoaster, tempting investors to make decisions at the worst possible times. But the data tells a different story:
- Over the past 96 years, the market has delivered 20%+ annual returns36% of the time.
- Conversely, large losses are rare. The market has declined 20%+ in a year only six timessince 1929.
What does this mean?
You’re sixtimes more likelyto experience a year where the market is up 20%+ than one where it’s down 20%.
The takeaway: Patience pays off. Focus on the long term to avoid emotional missteps.
10-Year Treasury Yields: A Historic Anomaly
Typically, following a Fed rate cut:
- In a recessionary environment: Yields fall as growth expectations are revised downward.
- In a non-recessionary environment: Yields stabilize or rise marginally.
This year, however, yields rose immediately after the Fed’s first rate cutand have now reached historically unprecedented levelsfollowing a cut.
This rise in long-term rates has effectively tightened financial conditions, offsetting the Fed’s loosening of monetary policy.
The takeaway: Until this dynamic resolves, it will remain a headwind for global risk assets.