1 / Market overview

1.1   Elections, central banks and AI drove investment returns in 2024

It would be hard to blame American investors for concentrating solely on their domestic market in 2024. Not only did U.S. equities (S&P 500 +24%) perform best, U.S. companies also led the way in the hottest investment trend – artificial intelligence. In addition, the most consequential election for global financial investments also took place on U.S. soil.  Trump's re-election victory resulted in some very pronounced market movements. The consequences were not all that positive for international investments but the S&P 500 delivered the best monthly return of the year in November, with a gain of 5.8%^[1] following the election. Bitcoin rose in price by as much as 50%, some prison operators gained over 60%, and the carmaker with close ties to the new presidential adviser Elon Musk was able to almost double its market capitalization to USD 1.5 trillion. The Mexican peso, European carmakers and Chinese exporters were among the losers.

There were also important elections outside the U.S. and, as is well known, more people than ever before expressed their opinions at the ballot box. Unhappiness with governments was the norm: In all twelve western industrialized countries with national elections the incumbent parties were voted out of office – for the first time in 120 years, according to the Financial Times. Despite the fact that political events often have little impact on the markets, there were other countries where, as in the U.S. last year, politics proved to be a big market mover. In France, Emmanuel Macron's dissolution of parliament in the summer fueled the underperformance of French bonds and equities, while the first year in government of radical free-market reformer Javier Milei, who took office in December 2023, gave a strong boost to Argentinian equities and bonds.

Even though politics played a special role in 2024, the main drivers for the financial markets were once again the central banks, the economic environment and corporate earnings. The central banks started their cycle of interest rate cuts in 2024, with a Swiss cut in March, followed by the European Central Bank (ECB) in June and finally the U.S. Federal Reserve (The Fed) in September, which cut by 50 basis points (bps). Going against this tide, in March the Bank of Japan (BoJ) ended its era of negative interest rates. These cuts assumed inflation would keep falling and were expected to help growth. But both the economy and inflation sent mixed signals over the course of the year, leading to market corrections. The most severe of these occurred in August, when weak U.S. economic data met with a rate hike in Japan and a widespread unwinding of the so-called yen carry trade. The Nikkei, which had only surpassed its 1989 high in the spring, lost almost 11% in a single day.

Ultimately, these setbacks, and even the lack of a year-end rally (the S&P 500 fell 2.4% in December), couldn’t prevent 2024 from being a positive year for investments overall. With the exception of some commodities, emerging markets (EM) and longer-dated U.S. Treasuries, most asset classes posted decent gains. They were driven by a stronger than expected U.S. economy, falling central bank interest rates and profit growth, particularly among large technology stocks in the U.S. The S&P 500 rose by more than 20% for the second year in a row. The last time this happened was in the late 1990s, when the index rose by more than 20% for five years in a row.

1.2 Equities and gold fared particularly well in 2024, whereas sovereign bonds were mixed

Even though the U.S. was at the center of the action, other stock markets were also able to achieve good results in 2024, despite adverse circumstances. For example, the Dax rose by almost a fifth despite disappointing domestic economic data, thanks to the fact that around 80% of its companies' sales are generated abroad. China's major stock indices also saw double-digit growth on average, despite equally weak economic data, but in the hope of government stimulus programs. Japan's Nikkei rose by 21%, although this increase shrinks to less than 9% in dollar terms, as the yen depreciated against the dollar for the fourth year in a row. However, America's exceptionalism becomes clear again when you look at the major technology stocks separately: The so-called Magnificent 7 rose by two-thirds, with the leading semiconductor stock Nvidia alone adding $2 trillion to its market capitalization. The narrowness of the equity rally in 2024 can also be seen from the fact that only eight stocks contributed to half the annual return from the MSCI AC World Index.

In the bond market, corporate bonds performed best on both sides of the Atlantic, while longer-dated U.S. Treasuries even posted losses as Fed rate cut hopes were scaled back. The fact that U.S. bond yields ended the year higher than expected contributed – alongside Trump's economic and foreign policy pronouncements – to the dollar index rising by as much as 7.1% over the course of the year. This put particular pressure on emerging market currencies and, to some extent, bonds. Among Europe's government bonds, French 10-year bonds yielded more than their Spanish counterparts for the first time ever. On the other hand, Swiss 10-year yields approached the zero line again, which in turn ensured that their spread over German government bonds reached 210 basis points, the highest level so far this millennium.

In commodities, the weakness of oil (Brent -3.2%) despite geopolitical tensions in the Middle East was striking, as was the sharpest rise in the price of gold since 2010, of 28%. In euro terms, the precious metal gained 35%.