Firstly, we wish a very happy new year to all our readers.

Last year proved a fruitful one for investors. The charge higher in equities produced back-to-back years of strong returns and saw UK investors in global stocks ending 2024 up more than 20%. The introduction of interest rate cuts in most major economies boosted growth and investor confidence, while inflation dropped back to more reasonable territory.

Once again the US market led the way, rising 23.3%, as fears at the start of the year around a rate-driven recession eased, with growth slowing but remaining positive over the year. Large tech stocks once again produced strong returns, with the AI theme gaining considerable attention. Focus in the latter half of the year shifted to the path of interest rate cuts as inflation came under control, however the 10-year treasury yield rose 0.71% over the period as the strong economy lifted expectations of the so-called neutral rate.

Japanese stocks were in the spotlight again with the Nikkei 225 benchmark index breaking out from its all-time high last set in 1990, with inflation and wage hikes appearing to finally settle into positive territory after years of deflation. They rounded out the year as the top performing market in December, rising 3.9%, and the second best overall.

“Politics played a significant part of the backdrop to 2024, with the US, UK, Japan and France all seeing major elections and new leaders....”

UK stocks rose over the year but had a more mixed picture, producing a 5.6% return to investors, with the economy growing but at a slow pace. Despite interest rate cuts, the longer term 10yr Gilt yield rose 1.03%, with inflation proving stickier than other economies despite the lacklustre growth. European and Emerging Markets had similar outcomes, with stock markets rising but perhaps lacking large tech stocks to drive returns.

Politics played a significant part of the backdrop to 2024, with the US, UK, Japan and France all seeing major elections and new leaders (and with Germany and Canada set to follow in 2025). Italy looks set to be the only country in the G7 with a relatively stable backdrop, while President Macron in France faces a tough task to keep together a broad coalition in parliament.

Conflicts in Ukraine and the Middle East raised tensions on a number of occasions, however oil prices were generally stable over the year, falling 3.4%, as demand from China cooled while major producers continued to pump at high levels. The situation in these regions requires ongoing monitoring with both having the potential to drive markets next year.

Gold rose substantially, apparently driven by Central Banks boosting convertible reserves at the expense of US Dollars, with China in particular appearing worried by the potential seizure of Russian assets. Crypto assets were also a notable feature with Bitcoin rising over 120% as the Trump administration promised regulation to bring it into the mainstream.

Finally, although stocks appear to be on a solid footing for the months ahead - with positive economic growth and inflation appearing under control - it would be remiss not to mention key risks which remain through 2025, with politics, trade wars, global conflicts and the path of interest rate hikes likely to feature in the months ahead.

Asset class returns 2020-2024

Areas to watch

President-elect Trump is set to return to the White House promising reduced immigration, tax and spending cuts, and tariffs in the years ahead.
European politics are likely to be a key feature with an election in Germany set to produce a change in government, while the French government struggles with a divided parliament.
The pressure on Keir Starmer to deliver improved public services is set to grow this year following the tax hikes and falling poll ratings in recent months.
The conflict in Ukraine appears to be stalemated, however signs of economic weakness in Russia could provide hints to coming instability and increased risks.
The ongoing instability in the Middle East requires continued monitoring, with the new regime in Syria changing regional power dynamics amid expectations that Israel could launch further direct attacks on Iran.

News - UK

GDP dropped 0.1% in October, following a similar drop in September, as the economy appeared to struggle as inflation expectations rose once more.
The Bank of England held rates at the latest meeting however indicated they expect further cuts in 2025, including at the next meeting in February.
The UK PMI confidence indicator ended the year steady, coming in at 50.5 in December, with the Manufacturing component dropping to an 11-month low offset by the Service sector showing modest recovery.

News - US

President-elect Trump continued to announce appointments and policies in key areas, with the choice of hedge fund manager Scott Bessent as Treasury Secretary seen as a market friendly move.
The Federal Reserve cut interest rates for a third consecutive time, by 0.25% to a range to 4.25-4.5%, however reined in expectations for the number of cuts expected in 2025 commenting that inflation needed to drop further.
The ISM Manufacturing confidence survey recovered to 49.3 in December from 48.4 previously, the strongest reading since March as New Orders hit the highest level in 18 months.

News - China

The powerful Politburo committee indicated its strongest support yet for stimulus in the year ahead amid signs of a slowing economy and a potential trade war with the US.
The 10yr government bond yield dropped to its lowest on record, hitting 1.67% amid expectations of further interest rate cuts.
The Caixin Manufacturing PMI dropped to 50.5 in December from 51.5 in November, indicating marginal growth as new orders and output both declined.

News - Europe

The ECB cut the benchmark interest rate to 3% from 3.25%, the third cut in a row amid signs of the economy slowing while inflation appears to have been controlled.
François Bayrou, a long-time centrist politician, was named as Prime Minister or France as President Macron attempts to navigate a path forward for the budget and wider government.
The Eurozone Composite PMI confidence indicator recovered slightly, rising to 49.5 in December from 48.3 previously, with weakness in the manufacturing sector (where the reading hit a 12-month low) offset by a recovery in Services.

Elsewhere...

Canadian Prime Minister Justin Trudeau announced his resignation following a rocky month as his influential finance minister resigned in protest at voter-pleasing tax breaks while the threat of a trade war with the US looms.
The Bank of Japan indicated they expect further rate hikes in 2025, after hiking twice last year, with inflation remaining above the 2% target for more than two years.

Annual Market Review: A recap of 2024