Once again, market results of 2024 have economists and forecasters second guessing. A resilient U.S. economy and strong market returns overcame recession expectations, elevated interest rates, and global political shifts. Continuing the momentum from 2023, the U.S. economy grew in each quarter of 2024 as growth surpassed beginning-of-year consensus estimates, resulting in higher-than-expected interest rates across the yield curve. The Fed initiated a rate-cutting cycle in September as rate cut expectations ebbed and flowed on waning, yet persistent inflation. This was met with the un-inversion of the 2s-10s Treasury curve for the first time in over two years. The year also provided a dynamic geopolitical landscape as elections took place in over 64 countries representing nearly 50% of the earth’s population. With most elections on the backs of the global pandemic and inflationary spikes, changes to the incumbent party were the result. In spite of geopolitical shifts and sustained inflation, the surprise of domestic economic stability culminated in robust investment returns.  

The US inflationary environment remained a key theme in 2024,as it did in 2023. Throughout the year, inflationary pressures continued their influence over consumer prices, albeit at a diminishing rate. That said, consumer sentiment reflected cautious optimism, as people adjusted their spending behaviors in response to the evolving economic landscape. 2024 was a textbook demonstration of the complexities of monetary policy, as the Fed sought to find balance among its dual mandate of controlling inflation and fostering economic stability.  Expect continued debate surrounding the longevity, re-ignition, and impact inflation will have in this next cycle.

Credit spreads, which represent an influential barometer of investor risk appetite, have signaled risk to be rewarded. Due to largely solid corporate fundamentals and a supportive technical backdrop, spreads across both investment grade and non-investment grade rated assets have materially tightened. In some asset classes, this has resulted in spreads tightening to near 25-year tights. While spreads are tight, yields remain historically attractive and are likely to act as a partial buffer against a potential spread widening environment. Despite the various aforementioned volatility dynamics, we believe spreads may continue to indicate broad economic stability and a supportive outlook for credit markets.

Looking ahead, we believe fixed-income markets present a complex, yet compelling landscape for investors. While future outcomes are never guaranteed, we see strong corporate fundamentals coupled with the elevated yield that credit offers, as the underpinnings for fixed income assets. We expect many themes experienced in 2024 to continue in 2025 – perhaps heightened by uncertain policy on the domestic and geopolitical stage. Moreover, we believe by teaming with an experienced partner who is underwriting these developments, inflation trends, credit dynamics, and global economic influences, investors can navigate the fixed income markets with confidence. As we enter 2025, we remain committed to our partners and our process, and wish all a safe, prosperous, and happy new year.