The global markets in 2024 presented a complex landscape for investors, shaped by geopolitical tensions, evolving monetary policies and divergent economic trajectories. Inflationary pressures and restrictive stances by central banks marked the start of the year, but by mid-year the focus shifted to heightened geopolitical uncertainty and a move by central banks to looser monetary policies.
The fourth quarter saw political developments at the forefront of investors’ minds. US markets initially rallied on Donald Trump and the Republican Party’s US election victory in November, before retracing much of those gains in December as investors digested the potential economic implications of proposed trade and fiscal policies. In other large economies, political crises came to a head, increasing policy path uncertainty. We saw the collapse of respective governments in both Germany and France as each country’s prime minister lost a vote of no confidence by his respective parliament. At the same time, the UK Labour Party released a polarizing budget and political disruption brewed in Canada with the eventual resignation of the prime minister.
Global central banks started reducing interest rates in the second quarter, however, renewed uncertainty surrounding inflation later in the year created doubt about the prospect of further cuts. Inflation rates in many economies remained above target, prompting policymakers to voice concerns about the potential economic and trade policies of the incoming US administration. As a result, longer-term bond yields increased heading into the end of the year as market participants adjusted expectations.
Economic data across global economies diverged in the fourth quarter. The US economy outperformed expectations, exceeding consensus forecasts for GDP growth, business activity and sentiment, while a leading indicators index turned positive for the first time in nearly three years. In contrast, other major economies faced persistent economic challenges. Europe grappled with slower growth as energy costs and elevated borrowing costs weighed on business investment. China, traditionally a growth engine, struggled to regain its footing amid a weaker-than-expected post-pandemic recovery. Elsewhere, emerging markets faced capital outflows and fiscal pressures, exacerbated by higher borrowing costs and currency depreciation. Investors seemed to anticipate that these issues could worsen if trade tensions and political conflicts escalate in 2025.
Overall, in 2024, equity markets delivered mixed results. Domestic equities had another banner year while developed international and emerging markets gained modestly, facing headwinds from a strong US dollar and slowing demand from China. The S&P 500 ended the year with a gain of 25.0%, driven by significant advances in the technology (Apple, Nvidia) and communication services (Meta, Google) sectors, however, market breadth continues to remain at or near all-time lows. Forty percent of the S&P 500 by market cap is made up of just ten stocks and less than twenty percent of individual stocks in the S&P 500 outperformed the overall index. Growth continued to best value and large-cap outperformed small-cap. The MSCI ACWI Ex US (developed international) returned 5.5% on tepid economic data and geopolitical developments. The MSCI Emerging Markets Index returned approximately 7.5%, driven by challenges in key economies such as Brazil, Mexico and Korea.
Meanwhile, fixed-income markets saw a muted first half of the year, followed by one of their largest gains in nearly two decades in the third quarter, driven by moderating inflation and falling interest rates. However, it was not meant to last, as the US fixed income markets sank in the fourth quarter amid rising rates, tempered Fed rate cut expectations and stronger than expected economic data. Additionally, US fixed income markets saw increased pressure from “bond vigilantes” concerned with rising debt levels. The Bloomberg U.S. Aggregate Bond Index ended the year returning 1.3%.
In commodities, oil prices (West Texas Intermediate) swung between the mid-$60’s and the high-$80’s per barrel, thanks to geopolitical uncertainties, ultimately closing right where they started in the low $70’s. The price of gold surged, nearly reaching $2,800 per ounce, driven by geopolitical uncertainty, increased central bank buying and potential for softer global economic demand. The yellow metal ended the year at $2,624 per ounce, in the 99th percentile for price levels in nominal terms. On the currency front, the US dollar’s strength remained a key theme, supported by resilient economic growth and higher interest rates versus other major developed market economies.
Looking ahead, 2025 holds promise but is not without challenges. The global economy is expected to expand moderately, supported by easing inflationary pressures and the potential for central banks to continue more accommodative policies started in the latter part of 2024. Below are a few key themes we are watching in 2025:
Key Themes for 2025
- Monetary Policy Transition: Although lower developed market policy rates and stimulative policies in China have potentially helped limit downside risks to economic growth, will the overall impacts be substantial enough to boost long-term growth above its trend? Will the U.S. Central Bank change course from its current easing cycle?
- Consumer Spending: Given the depletion of any remaining pandemic-era excess savings in the United States and cooling labor markets across the developed geographies, will consumer spending slow down creating a headwind for GDP growth?
- Geopolitical Risks: Will heightened geopolitical tensions dampen investor sentiment? Will they have a negative effect on supply chains? Will the economic and trade policies of new administrations reignite inflation? Will global fracturing negatively impact markets?
Although we identify key themes of which we are keen observers heading into a new year, every year there are numerous, usually unpredictable, events that impact markets. These events shape investor sentiment and seem to negate the relevance of annual market projections. With the benefit of 20/20 hindsight, it is easy to look back and identify the specific catalysts that impacted market sentiment and moved asset prices; however, attempting to predict these sudden changes for profit is a different matter entirely – and one that Oxford does not attempt. At Oxford we seek to combat uncertainties while taking advantage of market opportunities by constructing balanced portfolios emphasizing alignment of interests, diversification of risk and targeted alpha where opportunity for success is highest.
As we step into 2025, we remain committed to delivering value for our clients through thoughtful asset allocation, rigorous investment research and a disciplined approach to risk management. For those of you who are our clients, we thank you for entrusting us with your capital. We will continue to work tirelessly to be good stewards of your portfolio and compounders of your wealth.
The information contained in this report is confidential and proprietary to Oxford and is provided solely for use by Oxford clients and prospective clients. The opinions expressed are those of Oxford Financial Group, Ltd. The opinions are as of date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. The information in this presentation is for educational and illustrative purposes only and does not constitute investment, tax or legal advice. Tax and legal counsel should be engaged before taking any action. Past performance is not indicative of future results. OFG-2501-26
