The U.S. consumer landscape shifted dramatically in 2024 as pandemic-era savings dried up. The $2.1 trillion in excess savings accumulated during the COVID-19 lockdowns was entirely spent by mid-year, leaving a cumulative deficit of $170 billion. This depletion is already tightening financial conditions for households and amplifying the economic pressures on borrowers. Homeless rates just hit a record high, driven in part by a lack of affordable housing, high inflation, high immigration rates, and relaxed West Coast drug policies.

With excess savings exhausted, consumers pushed costs to their credit cards to the tune of $1 trillion dollars. Not all of these costs are being paid back. In the past two years, the charge-off rate - the percent of bad loans written off by credit companies - has risen 86 percent to 4.69 percent. That's a level last seen in 2011. 

The Federal Reserve’s ongoing battle to rein in inflation has further strained household budgets by making mortgages unaffordable, leading to increased borrowing costs and diminished purchasing power. These dynamics are not isolated to lending markets but are expected to ripple across the broader economy, potentially dampening growth in sectors heavily reliant on consumer demand. Ironically, the best way to bring down high costs of living from housing costs is by reducing the Fed borrowing rates - a policy that flies in the face of efforts to cool inflation in other areas of the economy that was overstimulated by excess government spending during COVID. 

Adding to these financial pressures is the growing U.S. national debt, which reached a record $36.2 trillion in 2024. The average interest rate on this debt has more than doubled to 3.4% over the past three years, and interest payments now exceed the annual budgets of every U.S. Federal agency. 

Expectations for the Musk-led government spending cuts to reduce Federal spending were seen in the valuations of government contractors like Lockheed Martin (LMT), Booz Allen Hamilton (BAH), SAIC, and ICF International (ICFI), which were slashed by over 20 percent in just two months as the stocks sold off.  Similarly, renewable energy stocks like First Solar (FSLR) and SunRun (SUN) sold off huge on the belief that Trump would end all federal incentives for solar power.

On the flip side, expected Trump tax cuts and reduced regulations for finance, oil, gas, and manufacturers led to outsized gains for financial firms, consumer discretionary stocks, utilities, and industrials, which significantly outperformed other sectors by 2:1 and even 3:1. Across all industries, the best performers were the semiconductors, whose index (SMH) was up 50% over the past year.

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