The past two years have been remarkable for investors, with the S&P 500 posting back-to-back gains of over +20%. The chart below takes a closer look at 2024’s price movement and uses yellow shading to mark the days when it closed at an all-time high. At the start of this year, the S&P 500’s previous all-time high was set in January 2022. It took over two years to reclaim the prior high, but once the index broke through in late January 2024, it set more than 50 new highs this year.

The U.S. presidential election results fueled November’s stock market rally, as investors focused on the incoming administration’s policy agenda and its implications. The S&P 500 gained +6.0%, its biggest monthly return since November 2023. The index traded above the key 6,000 level and set a new all-time high, bringing its year-to-date return to +27%.

The election is over, and global markets are analyzing the outcome and starting to adjust portfolios. Republicans are set to control the White House, Senate, and House, but the results are also notable for a historical reason: the president-elect, Donald Trump, is returning to office after a previous election loss—a rare political comeback not seen since Grover Cleveland in 1892. As a result, investors are looking to Trump’s first term as a roadmap for how this administration’s policies may impact markets.

Stocks finished October lower as investors navigated Q3 earnings, the upcoming election, and uncertain Federal Reserve policy. The S&P 500 posted its first monthly loss since April, lowering its year-to-date return to +20.7%. Large-cap stocks slightly outperformed small-cap stocks, but most investment factors produced similar returns.

The economy is in uncharted territory. Figure 1 graphs the Leading Economic Index (LEI), which tracks ten data points that tend to change before the overall economy does. Economists monitor the LEI because it includes data that can provide insight into future economic activity, such as unemployment claims, building permits, and manufacturing hours worked.

The major development in 3Q24 was the Federal Reserve’s decision to cut interest rates by -0.50%, the first rate cut of this cycle. It came as the Fed shifted its focus, with unemployment rising to a 33-month high and inflation moving back to target. In the equity market, stocks ended the quarter higher despite some turbulence, including a brief but sharp sell-off in early August. The S&P 500 posted its fourth consecutive quarterly gain and ended September near an all-time high.

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While elected leaders can influence economic growth by enacting laws and regulations, data suggests that who occupies the White House has little to no impact on investment performance. Fundamental factors like corporate earnings growth and valuations impact the stock market far more than political headlines. Politicians make many promises during election years, but these often go unfulfilled because of the government’s system of checks and balances. Moreover, the economic outcomes of policies are less predictable than officials think, with the economy more influenced by factors like job growth, interest rates, and inflation.

Stocks traded higher in August despite an early-month selloff. The S&P 500 dropped over -5% in the first week after a report showed unemployment rose to 4.3% in July. Small-cap stocks underperformed as investors pulled back from riskier assets amid volatility. However, financial markets quickly stabilized and climbed throughout the month.

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The stock market had a strong start this year. The S&P 500 gained over +15% in the first six months, its 16th strongest first-half return since 1931. The equity market’s rise continued into early July, and the index set a new all-time closing high on July 16th. However, the stock market experienced increased volatility as it traded lower over the past few weeks. The selloff accelerated in the first week of August after a report showed unemployment rose to 4.3% in July, a nearly 3-year high. The recent volatility has been a notable change from the first half’s steady climb, with the S&P 500 at one point -8% below its all-time high from mid-July.

The S&P 500 ended July slightly higher, its third consecutive monthly gain. The index initially traded higher and briefly surpassed 5,600 for the first time before it traded lower in late July and gave back some of the gains.

The stock market had a strong start in the first half of 2024. Figure 1 compares the S&P 500’s year-to-date return against its average annual return path since 1931. It shows returns for the first half of the year were above average, with the S&P 500 already surpassing its average full-year return. In Q1, the S&P 500 set 22 new all-time highs after not setting a new high since January 2022. There was a -5% sell-off in April, but the S&P 500 recovered by mid-May and set new highs in late Q2. By the end of June, the S&P 500’s +15% return ranked as the 16th strongest first-half return since 1931. It was also more than 7% above the average full-year return, despite only being at the mid-year mark.

The topic of interest rate cuts continues to dominate the financial markets. Investors are focused on when the Federal Reserve will lower rates, all while keeping a close eye on corporate earnings and valuations. Economists are analyzing inflation and labor market data to determine their impact on the probability and timing of rate cuts. Speeches by Fed members and minutes of recent Fed meetings have received greater scrutiny as investors search for clues about the central bank's next steps. This letter recaps the second quarter, discusses investors’ focus on the Federal Reserve, and looks ahead to the remainder of 2024.

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The S&P 500 Index is a well-known stock market index that tracks the performance of 500 of the largest U.S. companies. Many large-cap ETFs passively track the broad index, and investors use it as a benchmark to gauge the relative performance of their portfolios. This year, a unique phenomenon is impacting the S&P 500. A single stock has contributed over one-third of the S&P 500’s total return, which means its inclusion or exclusion in different market indices has made a big difference.

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The S&P 500 set a new all-time high in May after trading lower in April. The technology-heavy Nasdaq 100 Index gained +6.2% and set a new all-time high, with mega-cap stocks like Nvidia, Apple, Microsoft, and Facebook-parent Meta leading the recovery.

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