The Five Insights into the Market Surprises of 2024

In 2024, the U.S. market exhibited several unexpected patterns that defied conventional financial predictions and indicators. Despite aggressive interest rate hikes by the Federal Reserve, the economy demonstrated resilience, recording a robust growth rate of approximately 2.9%, higher than anticipated. Factors such as concentrated wealth among corporations and affluent households, as well as alternative financing via shadow banking systems, played notable roles in cushioning the impact of these rate increases. Rising unemployment, traditionally a detriment to consumer activity, paradoxically maintained strong consumption levels, partially propelled by immigration-driven economic contributions and concentrated affluence. Notably, conventional economic tools struggled to predict market behaviour as the economy's services sector gained dominance and a few large conglomerates increased their market power. Financial conditions also eased unexpectedly, facilitated by increased short-term Treasury bill issuance, which contributed to liquidity despite monetary tightening. Additionally, the fervour for generative AI and technological advancements drove unprecedented gains for mega-cap tech companies, elevating the S&P 500 index by more than 25%, defying long-standing valuation dynamics constrained by high rates. For 2025, investors face pressing uncertainties such as the trajectory of deregulation, potential constraints from reforms like immigration policies, and shifts in Treasury issuance strategies that could tighten conditions even if rates decline. Portfolio diversification, active risk management, and historical risk assessment thus remain pivotal for navigating unpredictable markets. As 2024 highlighted the shifting landscape of economic predictors and investor priorities, strategies for the incoming year will likely need recalibration to respond to evolving patterns in economics and finance.