Q4 2024 Market Commentary

21/01/2025

Global Markets

Note: All quoted equity performance figures are in GBP terms.

Equity markets posted strong returns through Q4. The MSCI World index finished the quarter up 6.9%, with Emerging Markets (-1.5%) lagging Developed Markets.

Following Donald Trump’s victory in the US presidential election and the prospect that Trump’s policy programme will accelerate growth, drive tax reductions, and streamline regulation, US equities reached new highs, with the S&P 500’s post-election rally in November marking its strongest monthly performance of the year. Notably, gains were led by the communication services, information technology and consumer discretionary sectors with the “Magnificent Seven” stocks continuing to deliver outsized returns.

In the UK, the FTSE 100 Index delivered a marginal quarterly decline, down -0.2%. Several domestically focused sectors declined amid concerns around the new UK government’s fiscal policies outlined in its Autumn Budget. Specifically, the increase in the National Insurance tax on employment proved to particularly dampen business confidence. In terms of sector, financials, oil & gas, and technology were the best performing.

The Japanese equity market rallied during the fourth quarter, up 3.2% as one of the better-performing markets globally. Continued optimism about the end of deflation, alongside a weak yen and developing corporate governance reforms allowed the market to end the year positively. However, the yen's weakness diminished returns for non-yen-based investors.

Overall, Donald Trump’s re-election as US President in November caused emerging market stocks to lag the global equity market. The MSCI EM index fell -1.5%, driven by investor concerns about the impact of Trump’s proposed higher trade tariffs. China was a notable laggard in this instance.

Equity Styles

Global Momentum (+6.9%) was the strongest performing equity style over the quarter, and the only style to outperform broader markets. Quality delivered negative returns, finishing the quarter down -2.8%, whilst Value was the lowest returning style, delivering returns of -3.4%. Despite a late dip towards the end of the year, the Momentum factor continued to deliver strong returns in what was a very strong year for global equity markets.

Inflation

In the final quarter of 2024, major central banks continued to ease monetary policy, notwithstanding marginal inflationary upticks. In the US, inflation edged up to 2.7% in the 12 months to November, a marginal increase from October’s 2.6%. In response, the Federal Reserve actioned two 25 basis point cuts to its benchmark rate, bringing it to the 4.25%-4.5% range. These decisions were prompted by signs of moderating inflation and a weakening labour market.

The UK's 12-month headline inflation rate climbed to an 8-month high of 2.6% in November, up from 2.3% the month before. Amidst this, The Bank of England cut interest rates by 25 basis points in November, before keeping them unchanged at its December meeting, signalling a cautious approach regarding future adjustments to interest rates.

Finally, the eurozone also reported a rise in inflation in November – namely, prices rose 2.3% year-on-year, up from 2% in October. In December, the European Central Bank cut interest rates for the fourth time in 2024, lowering its deposit rate to 3%.

Fixed Income

Note: All quoted fixed income performance figures are in GBP-hedged terms.

The fixed income markets faced significant turbulence in the final quarter of 2024, largely influenced by geopolitical uncertainties, central bank policies and variable inflation rates. Overall, government bonds sold off and prices fell in most major markets despite widespread rate cuts. Falling prices led to the yields on both US and UK 10-year government bonds rising to 4.6% during the quarter. Elsewhere in fixed income markets, corporate bonds had a mixed quarter. High Yield bonds outperformed Investment Grade, returning 0.5% whilst the latter returned -1.5%.