2024 delivered an impressive year of resilience and growth with strong returns across most major asset classes. The numbers would signal a year of stability, however 2024 brought an almost unprecedented level of rapid change:
According to the International Institute for Democracy and Electoral Assistance 1.6 billion voters in 74 countries headed to the polls. In nearly a third of the elections the ruling party was ousted often by significant majorities signalling a widespread dissatisfaction with incumbent rulers.
Central banks globally commenced a major synchronised policy easing cycle including the Fed -1% (including one ‘jumbo’ 50bp cut), ECB -1.35%, BoE -0.5%. The RBA and Norges banks held rates unchanged, while the BoJ increased rates by 0.35% ending more than 8 years of negative interest rates.
Geopolitical risks continued to rise with escalation in the Hamas/Israel conflict, Israel vs Iran bombings and missile strikes, the Ukraine vs Russian war as well as an astonishingly rapid toppling of the Assad regime in Syria. In fact according to estimates by the NGO Armed Conflict Location and Event Data (ACLED) political violence increased by 25% globally in 2024 compared to 2023, with one in eight people exposed to conflict and 223,000 people killed.
Technology stocks in the US rode the AI wave, with the sector up 35% over the year. Whilst more concentrated, the Australian tech sector returns were even more impressive delivering 48% for investors during the year. Financial stocks were also strong performers supported by central bank easing and a stable banking environment. The lagging sectors were energy stocks, miners as well as healthcare. A somewhat interesting mix of sectors encompassing both traditionally cyclical and defensive companies. These sectors were hit by a combination of high inflation, China slowdown fees and regulatory changes which were significantly severe to deliver negative returns for the year in the case of US materials -1.8% and ASX materials sector – 17.3%.
Looking Ahead to 2025
Our ongoing analysis indicates that the global economy is experiencing a slowdown, increasing the risk of a potential recession. While this is not guaranteed, recent history highlights the resilience of the U.S. economy in the face of rising interest rates, reinforcing the notion that recessions are relatively uncommon. However, in August 2024, economists at J.P. Morgan Chase raised their probability estimates for a U.S. recession to 35% for 2024 and 45% for 2025.
Will these predictions prove accurate? Economic data is typically released with a time lag and is subject to revisions, meaning we may not have a clear understanding until well after events unfold. For instance, the National Bureau of Economic Research (NBER), the official body responsible for determining U.S. recessions, announced the COVID-induced recession of early 2020 in July 2021—15 months after it began.
A useful analogy for understanding economic growth is that of a spinning top. At high speeds, it remains stable and self-sustaining; however, as it slows down, it becomes increasingly unstable and wobbly before if unaided ultimately toppling over. Similarly, as economic growth approaches stagnation, unpredictable outcomes can arise on a much larger scale. Imagine a table of spinning tops of various sizes representing the global economy; with the U.S. and China being the largest commanding nearly a quarter of the space each. If a smaller top slows or falls, it may affect those nearby without causing widespread disruption. In contrast, if the U.S. or China tops slow, wobble or bump into each other the ramifications can be more meaningful and negative.
As we enter 2025, we are carrying balanced optimism for what this year may bring. While our perspective is that the sea change in markets will continue and we are likely to see more downside, we still see some compelling opportunities in areas like emerging markets and fixed interest, but we must remain patient and liquid as the timing of when these opportunities will become more compelling or evaporate is unknown.
As we move through Q1 we will get a new set of quarterly data, a read on the underlying Q4 earnings of companies and the health of the ever important consumer. We will also be monitoring the implications of Trump's inauguration as the 47th U.S. President and potential policy shifts for winners and losers and the inevitable volatility he firebrand style of leadership brings.
We look forward to stewarding our clients’ assets successfully again in 2025.