2024 Investment Market Summary

Across most major economies, inflation continued its downward trajectory after the peaks seen in 2022 – with lower energy prices, higher interest rates, and the easing of supply chain constraints all feeding into the disinflationary process. In the US, the December 2023 rate (released in January 2024) came in at 3.4% and bottomed out at 2.4% in September before the last released figure came in at 2.7% for November. It was a similar story in the UK, which recorded figures of 4%, 1.7%, and 2.6% in the same time period. Undoubtedly, the region that made the most headway in reducing inflation was the eurozone, where each year’s rate came in below 3% – starting December 2023 at 2.9% – and ending in November 2024 at 2.2%.

This backdrop meant the European Central Bank was able to lead the way by cutting its key interest rates four times in 2024 – and bringing the deposit facility rate to 3% by October, with the Bank of England following suit and reducing its own rate in both August and November to 4.75%. The US Federal Reserve, initially more cautious due to concerns around sticky services inflation, delivered a surprise 50bp cut in September to kick off their cutting cycle amid signs of labour market weakness, bringing their rate to 5% – and following with two consecutive 25bps cuts to round out the year at 4.5%. Their final cut on 18th December was described as a ‘hawkish’ one by observers – as Fed Chair Jerome Powell warned ‘we are going to be cautious about further rate cuts in 2025’, with an acknowledgement that policymakers were beginning to think about how President Trump’s policies would affect the inflation picture.

Indeed, political developments significantly influenced market sentiment and economic policies throughout the year. In the United Kingdom, the Labour Party’s return to power after 14 years of Conservative rule was followed by a controversial first budget in October. The budget introduced £40 billion in tax hikes, causing volatility in equities and gilts due to concerns over economic growth prospects. The FTSE 100 experienced fluctuations, falling -4.29% in the lead-up and immediate aftermath of the budget announcement before rallying and subsequently declining again by year-end. In the US, Donald Trump’s re-election in November initially resulted in market euphoria, with the S&P 500 rising +5.60% and the Russell 2000 +9.72% from 4th November to month-end as investors anticipated pro-business policies and tax cuts. However, enthusiasm waned by December as market participants began to fully digest the consequences of proposed spending increases, tax decreases, and potential tariff implementations on the US budget deficit. The yield on the 10-year Treasury rose from 3.787% to 4.576% over the fourth quarter, reflecting those concerns.

It was a turbulent time in the East in the third quarter, as a perfect storm of weak economic data in the US created an expectation that interest rates would need to be cut more aggressively (weakening the US dollar) – with this, combined with a surprise interest rate hike by the Bank of Japan (strengthening the Japanese yen) meaning that the yen sharply appreciated after years of relative weakness to the dollar at the start of August. This resulted in a ‘carry trade’ unwinding aggressively whereby institutions were borrowing money in yen, exchanging it for US dollars, and then purchasing assets – with those institutions benefiting from both a low borrowing rate and a favourable exchange rate. As both of these factors unwound, institutions needed to cover their newfound losses – causing turmoil in global markets, with the Nikkei 225 enduring its worst one-day loss in history (-12.40%). Despite fears that this would result in a global equity market sell-off – the Nikkei recovered to end August only -1.16% down.

September also saw the People’s Bank of China unleash a huge stimulus package aimed at easing the numerous woes present in their economy and investment markets. The headline measures included cutting the reserve ratio requirement (the amount of reserves lenders must hold) by 50bps, a move which freed up around 1 trillion yuan ($142bn) for new lending, as well as announcing plans to relax borrowing restrictions for investing in shares on Chinese exchanges. However, despite the CSI 300 reacting extremely positively initially as it rose +32.47% from close on 23rd September through to 8th October – the index proceeded to lose a further -7.55% through to the end of the year as investors generally accepted that more would be needed to solve the country’s myriad of issues.

In terms of market leadership, the technology-focused ‘Magnificent 7’ stocks continued to post stellar returns – with Nvidia following up its over 220% return in 2023 with a return of over 170% in 2024. Meta was also a strong performer, with a gain of just over 69% – though it was Tesla which proved to be the most interesting of the seven, after it had lost -4.02% in the run-up to the US election on 4th November, before ending the year 65% up due to the closeness of CEO Elon Musk and Trump. However, after a stellar 2 years, there are fears that perfection is now expected from each of the 7’s earnings announcements, with mere ‘beats’ no longer enough. This was perhaps best hinted at on 20th November as Nvidia beat earnings estimates across the board yet saw its share price fall -7.95% through to the end of the year.