In December 2024, markets faced a challenging month as all major equity indices experienced losses. The S&P 500 Index declined by 2.39%, faring better than broader market segments, while the S&P 500 Equal Weighted Index, S&P MidCap 400 Index, and S&P SmallCap 600 Index posted steeper losses of 6.28%, 7.12%, and 7.96%, respectively. Dividend-paying stocks, tracked by the S&P 500 High Dividend Total Return Index, also struggled, falling by 7.43%. Bonds provided relative stability, with the iShares Core U.S. Aggregate Bond ETF declining just 1.69%, highlighting their resilience during a volatile period. In contrast, the Bloomberg Magnificent 7 Price Return Index (MAG7) gained 6.33% in December, demonstrating the continued strength of mega-cap technology stocks, which managed to outperform even as broader equity markets faltered.
For the full year 2024, markets delivered remarkable performance, led by the S&P 500 Index, which achieved an impressive total return of 25.00%, driven by large-cap growth stocks. The S&P 500 Equal Weighted Index rose by 12.98%, while the S&P MidCap 400 Index and S&P SmallCap 600 Index posted gains of 13.89% and 8.65%, respectively, though they trailed the large-cap index significantly. Dividend-paying stocks, as measured by the S&P 500 High Dividend Total Return Index, recorded a strong 15.31% return, reflecting solid performance in income-oriented strategies. Bonds, represented by the iShares Core U.S. Aggregate Bond ETF, ended the year with a modest 1.31% gain, underperforming equities but remaining stable throughout. The real star of the year was the Bloomberg Magnificent 7 Price Return Index, which posted an astounding total return of 67.34%, outpacing the S&P 500 Index by a remarkable 42.34% margin. This reflects the dominance of the largest technology companies, benefiting from trends in artificial intelligence, cloud computing, and consumer technology, which drove much of the market’s gains.
Using the SPDR S&P 500 ETF Trust (SPY) as a proxy, we analyzed the impact that top stocks had on its remarkable total return of 24.89% in 2024. The Magnificent 7 (MAG7)—NVIDIA Corporation, Apple Inc, Amazon.com Inc, Meta Platforms Inc, Broadcom Inc, Microsoft Corporation, and Tesla Inc—played an outsized role, collectively contributing 13.17% to SPY’s return, accounting for an astonishing 52.91% of the year’s gains. NVIDIA was the standout performer, contributing 5.42%, followed by Apple at 2.01% and Amazon at 1.52%. The top 10 holdings of SPY added 16.29%, representing approximately 65% of its total return. Other notable contributors included Alphabet Inc, adding a combined 1.42% from its Class A and C shares, and JPMorgan Chase & Co, contributing 0.45%. This analysis underscores the concentrated nature of the market in 2024, with a small group of mega-cap technology companies driving the majority of gains, highlighting both the opportunities and risks associated with such concentrated performance.
From a historical perspective, bear markets (defined as a decline of 20% or more) have occurred, on average, every 3 years since 1926, based on U.S. equity market data. The most recent bear market ended in October 2022, meaning we are now just over 2 years removed from the last one. Based on this historical average, the market is approaching the typical window for the next bear market, which could occur within the next 1 to 2 years if averages hold true. However, while historical trends provide useful context, the timing of bear markets ultimately depends on a range of factors, including economic conditions, Federal Reserve policy, corporate earnings, and geopolitical risks. The current market’s heavy reliance on mega-cap companies, such as the MAG7, for performance amplifies potential volatility, especially if these key stocks falter. As 2024 delivered exceptional returns, history suggests that investors should prepare for the possibility of a more challenging or volatile market environment in the not-too-distant future while maintaining a disciplined, long-term perspective.