The year 2024 was a reminder that forecasting the economy is an imperfect science. Even the best financial predictions can fall short. From the surprising strength of the stock market to the Fed’s commitment to high rates and the absence of a recession, the outcomes defied widespread expectations.
But now that the year is ending, it’s easy to see that many of these predictions missed the mark. Economists aren’t dumb. But there are so many variables involved, even the most informed of them can fail to see where it will all lead.
GOBankingRates spoke with Alex Michalka, VP ofinvestment researchat Wealthfront, to get a closer look at some of the most widely believed financial predictions for 2024 — and how reality turned out to be quite different.
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Stock Market Returns Would Be Down
At the start of 2024, it looked like stock market returns would be lackluster or even negative. There was a lot of concern about high interest rates and geopolitical tensions. Inflation was slowing down but still high. All of this seemed to spell doom.
“Fast forward to December, and it’s clear these predictions missed the mark, with the S&P 500 up over 28% year-to-date as of Dec. 18, 2024,” observed Michalka.
But the markets surprised everyone. The S&P 500 posted strong gains, some of the strongest in decades. Consumer spending was high and corporate performance was better than expected. Tech stocks, in particular, got a boost from the artificial intelligence gold rush.
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The Federal Funds Rate Would Drop — Early in the Year
Another widespread prediction was that the Federal Reserve would begin lowering interest rates in 2024. This would be an obvious move for the Fed to make if they wanted to stimulate the economy. Some even thought there would be multiple rate cuts in the first six months of the year.
“Another prediction that missed the mark was the expectation that the federal funds rate would drop more quickly in response to cooling inflation,” explained Michalka. “While this was directionally right, many forecasts on the timing and number of cuts were wrong. If you had tried to use interest rate predictions to time the bond market and generate outsized returns in 2024, you likely would have failed. “
Instead, the Federal Reserve held its ground, keeping higher rates for the first half of the year. With consumer spending high, and growing wages, the central bank prioritized stability over stimulus.
There Would Be a Recession
Heading into 2024, everyone thought a recession was inevitable. It was easy to find to signs of it everywhere, including slowing housing markets, tightening credit conditions and reduced business investments. The consensus was that these factors would come together to trigger a recession early in the year.
“No recession has materialized yet,” Michalka stated.
The U.S. economy defied expectations. It’s true that there was slow growth in some sectors, but the economy remained steady overall. This resilience baffled experts who had spent months warning of an imminent recession.
Michalka added: “The lesson, as always, but especially as we head into a new year and start to hear new predictions, is that trying to time the market based on forecasts is a losing game. Instead, sticking to a diversified, long-term investment strategy remains the best way to build long-term wealth, no crystal ball required.”
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This article originally appeared on GOBankingRates.com: 3 Financial Predictions Money Experts Got Wrong in 2024
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