Madison Diversified Income Fund Q4 2024 Investment Strategy Letter

2025-02-21 11:27:00 ET

Summary

• For the first time in a quarter century, the S&P 500 Index turned in back-to-back calendar year returns greater than 20%.
• The benchmark Bloomberg US Aggregate Bond Index fell -3.1% over the final quarter, taking the full year return down to +1.3% from +4.5% on September 30th.
• There could very well be bouts of volatility over the first half of 2025 as markets reacclimate to a higher level of interest rates and adapt to the new administration’s economic initiatives.

Market Recap – Fourth Quarter 2024

The final quarter of 2024 brought to close a truly remarkable two-year run for U.S. equities. For the first time in a quarter century, the S&P 500 Index (SPX)(SP500) turned in back-to-back calendar year returns greater than 20%. Right up until mid-December it looked like 2024 was a lock for the S&P 500 to outgain 2023’s 26.3% showing. However, a hawkish interest rate cut by the Federal Reserve cooled the mood, and the index stumbled to finish the year with a 25% gain. And while it was generally a very good year for all stocks, with the average S&P 500 stock returning 13%, the continued extreme bifurcation between the largest growth stocks and the “average” stock was notable, making for a rough relative year for those not owning or not owning enough of the “right” stocks. The much hyped Magnificent 7 (Mag-7) stocks produced an average return of over 60% and contributed 53% of the S&P 500 Index’s total return in 2024. The Russell 1000 Growth Index, where the Mag-7 exhibits an even greater concentration, generated a 33% return, versus very respectable absolute, yet less than half as large returns from value and dividend indexes....

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