Global Market Commentary – New Year’s Review
Please note that the content of this review should not be considered as investment advice or any form of recommendation. If you require investment advice, please do not hesitate to get in touch with a member of our qualified team.
New Year’s Review
- Stock markets (MSCI World Index) gained 21% in 2024
- Bond markets (Bloomberg Global Aggregate Index) declined by 1.7%
- US stocks comfortably outperformed the rest of the world
Key Themes
We are at a point in time where US stocks are dominating all others, in terms of both their outright size and the strength of their returns. In 2024, the MSCI USA index gained 24.6%, almost double the 12.4% return achieved by the rest of the world (MSCI World ex-USA). In 2023 the figures were similar, at 26.5% and 15.7% respectively. However, 2025 does bring a mixed outlook for unemployment and inflation, in the US and elsewhere, therefore it will be interesting to see if investment returns can remain so strong in the coming year.
UK
Stocks in the UK have lagged behind others in recent times. The FTSE All Share Index returned 9.5% in 2024 and 8% in 2023. These may appear to be reasonable returns in isolation, but 18% over two years pales in comparison to 49% for the MSCI World Index. December did at least bring a significant IPO, with French TV studio Canal+ listing its shares on the London Stock Exchange. With a £2.5bn valuation, this was the biggest new listing since 2022.1 As the UK has witnessed a large number of takeovers and precious few IPOs in recent years, many in the City are hoping IPO activity will now increase, to refresh the pool of stocks which investors can select from. There are rumours that fast-fashion retailer Shein may list in London at some point this year.2
United States
The S&P 500 just achieved consecutive years of +20% returns for the first time since the “dot-com” bubble in the late 1990s. Despite that, US investor confidence is currently below average. CNN’s “Fear & Greed Index” is signalling fear3 and the latest surveys by the American Association of Individual Investors (AAII) have also been slightly pessimistic.4 Perhaps US investors are wary of the high valuations for the large tech companies which have driven the S&P 500’s strong returns. Seven of the ten largest companies in the index now trade on forward Price-to-Earnings multiples of more than 30.5 This may leave limited scope for further multiple expansion, while placing heavy reliance on strong profit growth, to support the current share prices.
Europe
European stocks had mixed fortunes in 2024. The Spanish, German and Italian markets did well, returning between 17% and 20% each. On the other hand, France struggled with political turmoil and slowing demand from China for its luxury fashion brands, meaning its stocks gained only 0.9% for the year.6 The European Central Bank is expected to cut interest rates more than others in 2025, to support the economy.
Asia & Emerging Markets
China remains at the centre of attention as we enter the New Year, on three fronts. Firstly, investors will pay close attention to any tit-for-tat trade tariffs being put in place following President Trump’s inauguration on 20 January. Secondly, investors are keen to see whether the Chinese government will deliver on its promises of fiscal and monetary stimulus, to reverse the country’s economic slowdown.7 Thirdly, currency traders are speculating that the Chinese Yuan may be allowed to devalue significantly against other currencies, to support exports.8 Chinese stocks struggled to make any gains for most of 2024, but jolted upwards in late September when the stimulus measures were first promised, to end the year up 19%.9
Bonds
Government bond yields are rising again. The annualised yield on a 10-year UK Gilt is now 4.66%, having been as low as 3.60% in September. US yields are at similar levels. Focus appears to be on high levels of government borrowing, with fiscal deficits being large for peacetime and bond investors demanding higher rates of return to compensate for that. The US experienced credit downgrades from S&P in 2011 and Fitch in 2023, and there is some speculation that Moody’s could remove the last remaining AAA rating in the near future, if debt levels continue to rise.10 The UK lost its “perfect” credit rating several years ago, after the Brexit vote in 2016, having held it since 1978.11 If yields continue to rise, it may create pressure on politicians to reign in public spending.
Points of Interest
The outlook for interest rates has changed quite markedly in the last three months, as bond yields have risen and inflation has remained above the 2% target. The Bank of England base rate is currently 4.75%, which compares to 4.33% in the US and 3.00% in the EU. Markets now forecast that rates will remain above 4% throughout 2025 in the UK and the US.12, 13 The EU is expected to cut by more, towards 2%, due to economic weakness.14
The pound gained 5% on the euro in 2024, helped by that higher interest rate. The dollar has strengthened by even more in recent weeks, but Trump may prefer for the dollar to weaken throughout his presidency, to support US exports.15 If the pound were to experience a period of sustained strength, it could be good for holidaymakers, but dampen investment returns from any unhedged overseas investments.
Summary
The largest companies in the world experienced very strong share price growth in 2024, which followed strong returns in 2023. However, these stocks are concentrated in the US and stocks in many other countries have had less spectacular returns. In the UK, mid and small cap indices are still well below their previous highs from 2021. Could this be the year that UK stocks do better than their American counterparts? Valuation is on their side, but there will also need to be a catalyst. That could come in the form of improved fund inflows or economic conditions domestically, or perhaps a slowdown or valuation reset in America.
In the background, the bond market is quietly warning governments that they should not be complacent about their budgets, and companies may face a higher cost of capital. One thing we can be sure of is that 2025 will bring surprises, with some assets returning more than expected and others returning less. With that in mind, diversification remains key.
Note: Past Performance Is Not A Reliable Indicator Of Future Performance
Sources may be found online at https://greaveswestayre.co.uk/wp-content/uploads/2025/01/Sources-List-8-January-2025.pdf , or provided on request.
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