10 charts that tell the story of markets and the economy in 2024

In the midst of a banner year for stocks, another history-setting event took place: the 2024 presidential election.

Donald Trump defeated Vice President Kamala Harris in what became one of the most unique races in recent memory after current commander in chief Joe Biden dropped out of the race with just about three months to go before Election Day.

An assassination attempt on Trump and his criminal indictment, along with other headlines, made for quite the ride heading into Nov. 5 — and certain sectors of the stock market reacted in tandem with the developments.

Immediately following Trump’s win, small caps surged, with the Russell 2000 (^RUT) outperforming the leading market indexes the day after the election. Small caps have since erased their gains but are still up about 11% since the start of the year.

For context, that’s less than half of the S&P 500 gains over that same time period.

Companies within the small-cap index, which include regional banks and smaller domestic players, are expected to benefit from anticipated policies out of the Trump administration like lower taxes and deregulation.

Tariffs, which Trump has consistently teased, have also pushed the dollar higher, a benefit for small-cap companies, which tend to be more levered to the domestic economy compared to more internationally oriented large-cap stocks.

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But tariffs are also expected to lead to stickier inflation and keep interest rates higher over the long term. That possibility has boosted long-term Treasury yields, with the 10-year note trading at around 4.6%, a seven-month high.

Meanwhile, sectors like energy and financials also jumped in the aftermath of Trump’s victory due to expectations of more M&A, a steeper yield curve, and less regulation. Similar to small caps, though, gains within those sectors were mostly short-lived.

Bitcoin (BTC-USD) has been the exception. The largest cryptocurrency has surged over 130% since the start of the year and remains one of the biggest beneficiaries of the post-election rally.

Trump’s win pushed bitcoin prices to all-time highs, with the administration viewed as generally friendly to the alternative asset class.

Although the cryptocurrency lost some momentum after exceeding $100,000 earlier this month, investors and analysts remain mostly bullish heading into 2025.

In July, Trump attended a bitcoin conference in Nashville and has since pledged to usher in more supportive regulation. His promises also included appointing a crypto Presidential Advisory Council and firing current SEC Chair Gary Gensler, who announced he would step down on Jan. 20.

The US economy has been resilient over the course of 2024. Retail sales once again topped estimates for the month of November, GDP remains strong and above trend, the unemployment rate continues to hover at around 4%, and despite its bumpy path down to 2%, inflation has moderated.

That positive backdrop means investors have grown increasingly confident the US economy will achieve a “soft landing,” in which prices stabilize and unemployment remains low.

But the election of Donald Trump has complicated the outlook.

“The risks are certainly tilted in the direction of higher inflation,” Nancy Vanden Houten, lead US economist at Oxford Economics, told Yahoo Finance. “A lot of the risk comes from the possibility of certain policies being implemented under the Trump administration on tariffs and on immigration.”

President-elect Donald Trump’s proposed policies, such as high tariffs on imported goods, tax cuts for corporations, and curbs on immigration, are considered potentially inflationary by economists. On top of those fears, inflation continues to be sticky, pressured by recent hotter-than-expected readings on monthly “core” price increases, which strip out volatile food and energy costs.

In November, the core Personal Consumption Expenditures (PCE) index and the core Consumer Price Index (CPI), both closely tracked by the central bank, rose 2.8% and 3.3%, respectively, over the prior-year period.

According to updated economic forecasts from the Fed’s Summary of Economic Projections (SEP), central bank leaders see core inflation hitting 2.5% next year — higher than September’s projection of 2.2% — before cooling to 2.2% in 2026 and 2.0% in 2027.

“We’ve had a year-end projection for inflation, and it’s kind of fallen apart as we approach the end of the year,” Federal Reserve Chair Jerome Powell said at the Fed’s final policy meeting of the year on Dec. 18. “I can tell you that might be the single biggest factor — inflation has once again underperformed relative to expectations.”

But wrangling inflation is not the only goal for the Fed next year. The jobs market is also a critical part of its dual mandate — and upholding that strength will be paramount for the health of stocks and the US economy.

The unemployment rate oscillated throughout the year but has remained mostly steady at around 4%.

In July, the rate hit its highest level of 2024 — 4.3% — and triggered a closely tracked recession indicator known as the Sahm Rule. Typically, the rule suggests the US economy has entered a recession if the three-month average of the national unemployment rate has risen 0.5% or more from the previous 12-month low. In essence, once the unemployment rate starts moving higher, it rarely reverses course.

But economists, including the rule’s inventor, Claudia Sahm, were quick to point out that the indicator may not be flashing a red warning sign this time around, given other factors at play in the economy.

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After a brief market sell-off following a weaker-than-expected July jobs report as investors grew wary of the growth outlook for the US economy, markets rallied back. The unemployment rate’s rapid rise subsided and the labor market appeared to be cooling, but not at the quickly concerning pace many had feared.

While the unemployment rate’s swift ascent didn’t fully take hold in 2024, a clear picture of a slowing labor market formed. Economists have begun using the phrase “low hire, low fire” when defining the current state of the labor market. Largely, it’s seen as sitting in a place that would be consistent with a “soft landing,” where inflation eventually falls to the Fed’s 2% target without the economy spinning into a recession.

The chart below shows how the hiring and quits rates have both moved lower throughout 2024 and now sit at lower levels than seen just before the onset of the pandemic in 2020. Data like this demonstrates how the labor market came off the boil in 2024 and has prompted the Federal Reserve to no longer seek further cooling on that side of its dual mandate.

“Downside risks to the labor market do appear to have diminished, but the labor market is now looser than pre-pandemic and it’s clearly still cooling further,” Powell said on Dec. 18. “So far, in a gradual and orderly way. We don’t think we need further cooling in the labor market to get inflation down to 2%.”

The Federal Reserve lowered interest rates by 25 basis points to a range of 4.25%-4.5% at its final meeting of the year and signaled it would slow down the pace of its cuts after slashing interest rates by a total of 100 basis points in 2024.

Fed officials see the fed funds rate falling to 3.9% in 2025, higher than the Fed’s previous September projection of 3.4%. Outside of September’s jumbo 50 basis point cut, the Fed has moved in 25 basis point increments over the last year or so, indicating the central bank expects to cut interest rates two more times in 2025. In September, officials had projected four cuts next year.

Heading into the decision, markets were pricing in two to three additional rate cuts next year, according to Bloomberg data. That’s now shifted to between one and two cuts.

In 2026, officials see two additional cuts, bringing the fed funds rate down to 3.4%. In September, officials had pegged interest rates to come down to 2.9% in 2026.

The updated projections suggest the Federal Reserve will take a more cautious approach after launching its long-awaited easing cycle earlier this year.

As 2024 comes to a close, strategists are encouraged by the story the charts above tell. While the Fed expects to cut interest rates less than initially hoped, the economy remains on solid footing for now and corporate earnings are expected to keep growing in the year ahead.

Of the 17 strategists with S&P 500 targets for the end of 2025, just one sees the benchmark index ending next year lower. With a high-water mark of 7,100, the median target sits at 6,600, reflecting a roughly 11% increase from current levels.

When detailing a case for the S&P 500 to end 2025 at 7,007, Wells Fargo equity strategist Christopher Harvey wrote he initially wanted to “lean contrarian,” given concerns about bullish market sentiment, lofty stock valuations, and already solid economic growth.

But, Harvey wrote, “the data did not support” a weak or negative year for the S&P 500, offering similar sentiments to how many on Wall Street feel about 2025, barring unexpected shocks.

“2025 is likely to be a solid-to-strong year,” Harvey wrote.

Josh Schafer and Alexandra Canal are both Senior Reporters at Yahoo Finance.

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