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- Despite a 2.7% decline in December, 2024 saw the S&P 500 earn a stellar 25%, marking a strong year for stocks.
- Stocks have shown positive returns most of the time, with the past 16 years representing the longest bull market in U.S. history.
- The past decade delivered the best Sharpe ratio for stocks (0.73) but one of the worst for bonds (-0.02).
- Wall Street forecasts an 8% return in 2025, below the 99-year average but suggesting continued market highs.
Despite the fact that a “Santa Rally” did not happen last month year – the S&P 500 declined 2.7% in December – the year 2024 was still stellar, earning 25%. The following bar chart and the two histograms below it put 2024 into perspective. It was a very good year for stocks and gold, but not so good for bonds.
It’s interesting to note that stocks have positive returns most of the time, as shown in the following graphic. It’s also instructive to be aware that the past 16 years have seen the longest bull market for stocks in U.S. history.
Cumulative Returns
The following table summarizes returns over five- and 10-year periods. The past 10 years have delivered the best Sharpe ratio – return per unit of risk – of 0.73 for stocks but one of the worst for bonds, losing .02% per unit of risk. There is other interesting data you’ll find in the table, and you may want to spend some time there.
Sources: Ibbotson & Sinquefield’s book for 1926-1978 and data compiled by the author
Conclusion
Last year was very good for stocks. It was also the third year in this decade that stocks earned more than 20%. It’s been a Roaring 2020s so far. As a result, the U.S. stock market is very expensive by any measure, which historically has led to a correction.
Nonetheless, Wall Street is forecasting an 8% return in 2025. That’s below the 10.4% average nominal return over the past 99 years, but it is a forecast of even higher highs. Do you believe it? Will “The Bull” keep running this new year, or is it getting tired?
Happy New Year
Ron Surz is president of Target Date Solutions, developer of the patented Safe Landing Glide Path and Soteria personalized target date accounts. He is also co-host of the Baby Boomer Investing Show. Surz’s passion is helping his fellow baby boomers at this critical time in their lives when they are relying on their lifetime savings to support a retirement with dignity, so he wrote a book, “Baby Boomer Investing in the Perilous 2020s,” and he provides a financial educational curriculum.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
