It's that time of year when we pause, take a step back and take stock. There is little doubt that 2024 has been all about Wall Street and the more than respectable returns it has delivered for some portfolios. But it’s worth qualifying that an pointing out that the most impressive gains have come from a quality growth bias.
Similarly, the increase in the US weighting within the MSCI World Index (which now stands at around 73%) should be noted, as should the influence of the tech sector and the dominance of the Magnificent Seven,spearheaded by Nvidia.
Year-to-date, the MSCI World Index has registered sterling gains of 22%. But strip out the US weighting from the equation, and it's up by only 6.5%. Taiwan, India and the Chinese local domestic market are also regions that have all enjoyed a good year – they have registered performances ranging from 14% to 27%. Regarding the MSCI global sectors (indices that track market segments across global sectors), semiconductors are up by 59%, media & entertainment by 36%, retail by 36%, information technology by 35% and communication services by 33%.
The financial markets performed well last month: Wall Street's major indices registered record highs and some impressive monthly gains.
With solid fundamentals in place and significant momentum in the market, a carefully designed and constructed portfolio has left us feeling grateful for 2024. But what about 2025? While we continue to believe that exposure to AI, innovation and mega cap technology stocks will deliver further investment returns, the US stock market is beginning to widen out, and sectors such as industrials, materials, financials and consumer discretionary all look rather attractive. Similarly, US mid and small caps also look appealing as interest rates are cut and the second Trump presidency is poised for launch.
The S&P 500 Index closed at 6032.40 – a 7.5% increase over the month and its best monthly performance of the year. Approximately 60% of its constituents ended the month positively, reflecting broad-based gains across all sectors.
The Dow Jones Industrial Average Index finished the month at 44910.65, up by 7% over the trading month. This also represented a record high for the index, driven by strong performances across various sectors, particularly technology and consumer goods. This would indicate that consumer spending is still healthy amongst Americans.
As for the Nasdaq Composite Index, this closed out the month at 19,218.66 giving the heavily weighted tech index a 6% rise for November. Semiconductor stocks contributed significantly to these gains following news of potential easing in export restrictions to China.
But it was the Russell 2000 Index, which focuses on smaller companies, that delivered the best performances: the index rallied a further 10.8% over the month. This was fuelled by investor optimism regarding potential tax cuts under the incoming Trump administration.
Much of the US stock market's momentum can be attributed to the post-election rally catalysed by Trump's victory: many investors are extremely upbeat about the new administration’s fiscal policies and prospects for economic growth.
And then of course there is the likelihood of further interest rate cuts, which is also bolstering market confidence. Although the Federal Reserve Bank is expected to cut interest rates again this month, some important data is scheduled to be published over the next few days that could push Fed chair Jerome Powell either way. We subscribe to the belief that interest rates are likely to remain higher for longer in the US – we do not anticipate any significant rate cuts any time soon. In Europe, however, the story is somewhat different, and we do believe that aggressive cuts are on the cards.
Nearly two weeks into December, several sectors in the US economy appear to be performing well, driven by positive market trends and economic indicators. In fact, the services sector continues to show robust growth: readings so far this month indicate expansion and no signs of weakness in manufacturing. Elsewhere, things are less rosy – particularly in Europe where political upheaval is cause for concern. And in the UK, the first six months of the new Labour government have been far from smooth.
The UK stock market delivered mixed results in November, particularly for key indices such as the FTSE 100 and the FTSE 250.
The FTSE 100 started the month on a slight downturn. But it traded back to a level of 8287.30 – a slight recovery from its earlier lows, although indicative nevertheless of a measure of volatility. The FTSE 250 was also not immune to trouble-free trading in both October and November.
Key events impacting performance
The UK market was influenced by international factors, including economic policies in China and potential changes in political direction across the Atlantic. Market dynamics were overshadowed by concerns over Trump's second presidency, contributing to investor uncertainty.
Not all sectors performed equally well. Mining stocks were particularly affected by China’s economic situation: companies such as Antofagasta and Rio Tinto suffered notable declines due to reduced demand expectations.
But dividends and buybacks could help market sentiment
The FTSE 100 is expected to deliver substantial dividends and share buybacks totalling over £128 billion, which could enhance overall market returns and investor confidence as we head into 2025.
A challenging month for the UK
Overall, November was a challenge for the UK stock market, but there are some signs that it may recover towards the end of the year. The performance of individual stocks varied widely on sector-specific news and broader economic indicators, suggesting that investors remain cautious yet hopeful for upcoming gains. One problem that the UK market has is the current market cap weighting allocated to it: currently, the MSCI World Index weighting stands at 3.4%.
In Europe, meanwhile...
European markets performed positively in November after a more challenging October. Positive corporate developments and stabilising economic indicators helped to push the bourses a little higher. Investors remain cautiously optimistic as they navigate through inflationary concerns and anticipated central bank responses to the current economic conditions.
The final trading days of 2024 look set to deliver
Overall, November 2024 was characterised by bullish sentiment in the financial markets, driven by political developments and favourable economic indicators. As we head into the festive season, investors have numerous reasons to be cheerful. Many of the stock markets have been hitting record highs, while bond markets still offer attractive yields. But perhaps most importantly, the US economy continues to grow with no signs of a recession on the horizon.
What might 2025 bring?
Many analysts and market watchers are optimistic about the outlook for the stock market in 2025 – predictions for the S&P 500 Index range from 6400 to 7100.
Although uncertainties remain (particularly regarding trade policies and inflation), the consensus is that strong economic fundamentals could result in substantial gains next year. That is not to say that the US economy – and others around the world – will not face challenges and that markets will not have new anxieties to grapple with.
Chief amongst these will doubtless be related to whatever policies the new incumbent of the White House decides to formulate. Policy changes in areas such as tariffs and immigration could weigh heavily on consumer confidence, and could impact both inflation and overall economic growth. Any escalation in trade conflicts could also give rise to volatility and uncertainty. In our view, however, Trump is unlikely to implement the most extreme versions of these policy proposals. The overall economic impact is therefore likely to be contained.
As ever, any meaningful pullbacks should be seen as further buying opportunities for quality assets – whether it be equities or bonds. An active global approach to investment is always the way forward.
As 2024 draws to a close, I would like to thank you all for your support and wish you a happy Christmas and a prosperous New Year.
