2024 in review: Stability prevails amid global conflicts and election fears

The year began with ongoing conflict in the Middle East and Ukraine, which some feared could disrupt trade and oil and negatively impact stock markets.

Investors had concerns about general elections too, with some 40 countries heading to the polls. For instance, a tight election result in America could’ve ended in Donald Trump disputing it and led to similar unrest witnessed during the 2021 Capitol Hill riots.

However, these concerns did not materialise. Oil prices remained stable, even falling throughout the year, and the disruptions did not spread to the wider global economy. The elections, particularly in the United States (US), proceeded without significant disruption or cause geopolitical destabilisation. In India and Japan poll results were much tighter, while there were repercussions following the European elections halfway through the year.  

The delicate task of curbing inflation remained a key focus for many central banks except for Japan’s central bank, the Bank of Japan (BOJ), which pivoted away from its zero-interest rate policy. It meant Japan saw its first interest rate rise in 17 years¹ from -0.1% to a range of 0% to 0.1%. This was driven by signs of moderate economic recovery, wage increases and a rise in inflation.

There were expectations for interest rates to fall globally, particularly in the United Kingdom (UK), America and Europe. Cuts were expected to begin in the US in March but were slower to materialise than expected. Europe was one of the first movers, with the European Central Bank (ECB) cutting rates for the first time in five years reducing its main lending rate from 4% to 3.75%. More cuts followed, with the rate now at 3%.

The Bank of England (BoE) reduced interest rates for the second time in November from 5% to 4.75% and held it at this rate this month, citing concerns over persistent inflation. Analysts predict that while there might be some gradual reductions, a return to previous low interest rates is unlikely.²

The US’ Federal Reserve (Fed) mirrored the BoE with a second interest rate cut last month by 25 basis points (bps) to a range of 4.5% to 4.7%. It was smaller than the 50bps cut in September and was due to similar concerns the over inflation.

UK
At the start of 2024, the UK economy bounced back from a recession, however, growth slowed throughout the year. As the year drew to a close, we saw the economy shrink once more.

The stock market rallied in March and April and hit record highs in May with industrials, oil and gas and financials experiencing a rebound. However, performance has moved sideways for much of the rest of the year.

There have been some periods of volatility with a sell-off before and after the Autumn Budget due to concerns over higher debt levels and doubts about whether Labour’s new policies would weigh on the economy or translate into growth. Despite this, the UK’s listed financials have performed quite well, while aerospace and defensive companies have benefited from the geopolitical uncertainty and this helped drive the industrials sector higher.

Looking ahead to 2025, while global growth is forecast to be positive, the UK could potentially be impacted by Trump’s tariffs and slower growth adding an element of uncertainty to the economic outlook next year.

US
2024 started with caution and optimism. The US stock market had just delivered significant gains in 2023; however, some areas were getting more expensive with valuations stretched. This was offset by optimism that the US economy was continuing to grow and inflation would fall – supporting stock markets.  The latter view won out and the US market, which has been exceptional over the past decade as it has constantly outperformed its global peers, continued to deliver.

Recently this performance has been primarily driven by the so-called ‘Magnificent Seven.’ These are artificial intelligence (AI) related stocks, which include Amazon, Alphabet, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. Having led much of the recent rally in the US there were expectations these stocks would pull back and allow the wider US market to take up the lead. Although we saw more performance from the wider market, the Magnificent Seven continued to dominate for much of 2024.

The backdrop of the US election, the peacefully accepted results, and the expectation that Donald Trump’s policies will favour equities has sparked renewed interest in the stock market.

Looking ahead, 2025 could again be positive for US equities. Despite some volatility, the overall trajectory for the US market is predicted to be upward. There are still risks to consider, such as high valuations and market concentration. Together, the Magnificent Seven account for a near record 33% of the S&P500 market cap. If the AI theme fails to deliver, then tech stocks could drag down overall US equity performance. America’s debt also continues to accumulate at an alarming rate. With further tax cuts coming from Trump this could rise even faster.

Japan
Japan’s performance for 2024 has been mixed. At the beginning of the year, the Nikkei 225 surged to a new all-time high,³ 34 years after its last peak. This resurgence was partly due to corporate governance reforms led by the government and the Tokyo Stock Exchange, which boosted shareholder value.

For decades, Japan struggled with poor growth, low interest rates, and deflation, deterring consumer spending. However, some investors took advantage of the low rates by borrowing money in Japan and using that cash to invest in higher-yielding assets around the world such as stocks and US Treasury bonds (this practice was referred to as the yen ‘carry trade’).

Currency plays a key role in the performance of Japanese stock markets which benefit from a weaker yen. The yen fell significantly in 2024 as investors conducted more carry trade transactions. But then Japan surprised markets and raised interest rates from a range of 0% to 0.1% to 0.25% in August. This resulted in many investors rushing to reverse carry trades contributing to the panic and a recovery in the yen. Since this event, the currency has weakened, but remains off its recent lows, while the stock market has been slowly recovering.

In late October Japan had a general election following the resignation of its Prime Minister, Fumio Kishida, due to low popularity ratings. The ruling Liberal Democratic Party and coalition partner, Komeito, lost their parliamentary majority for the first time since 2009. This didn’t impact markets this year but does raise concerns for 2025 and beyond.

Europe
Europe has also seen mixed performance in 2024. European stock markets initially participated in the rally of the first half of the year as semi-conductor stocks led the way.  Markets became more volatile as they gave way to concerns about the far right gaining seats in the European Parliament while a shock election in France raised further uncertainty, but relief followed when this did not materialise.

However, at the end of 2024 political instability remains an issue in some parts following the collapse of France’s government due to a budget crisis and political gridlock. It has significantly impacted financial markets with the CAC40 declining.
 
In Germany, the political landscape does not look any clearer. While the world watched the US election unfold Germany was entering political meltdown. Chancellor Olaf Scholz fired his Finance Minister Christian Lindner, leader of one of the three coalition parties. Two of Lindner’s colleagues in cabinet also quit. Scholz called a vote of confidence on 16th December, which he lost - paving the way for an election in early 2025.

Despite the political uncertainty Germany’s DAX 40 has remained buoyant and even hit new record highs this month. France on the other had has seen its stock market slump over the second half of the year which has resulted in Europe ex UK being the worst performing sector of the major regions in 2024.

Asia
Chinese financial markets faced significant challenges this year, including slowing economic growth, a declining property market, and subdued consumer confidence. To address these issues, the People's Bank of China (PBOC) introduced a comprehensive economic stimulus package in September.

Stimulus measures include a reduction of key interest rates and reserve requirements for banks to increase liquidity and encourage lending, as well as targeted measures to stabilise the property sector. The markets reacted positively to the PBOC's announcement, with increased confidence that these measures would help revive the economy.

Although the PBOC’s stimulus provided a much-needed boost, the effectiveness of the stimulus package is still being evaluated, with some experts expressing concerns about its timing and sufficiency.

The year saw India’s fortunes transform with the country outpacing other major economies, such as the UK. Investors are attracted by its favourable demographics, potential for further growth due partly because of its rising middle class, political stability and high-quality stock market by emerging market standards.

But there are still some risks to take note of. The government performed poorly in the general elections in June, failing to win a majority, which could hamper further economic reforms. Consumption also started to slow and in the latter half of 2024 the country’s gross domestic product (GDP) reduced to 5.4% from last year’s 8.1%⁴. Another prime concern is that India looks too expensive - the jury is still out on whether the price is right for buying into its growth story.

Gold prices surged past $2,400 per troy ounce in April, driven by escalating geopolitical risks, concerns over budget deficits, and increased central bank demand. 

Usually, gold’s performance doesn’t correlate with US equities, which also performed well in 2024. However, investors have been drawn to gold for its risk protection benefits as geopolitical tensions continue. This trend could continue into 2025. 

Last year bonds regained some appeal as a viable investment option in anticipation of interest rate cuts in 2024. But enthusiasm for UK gilts (government bonds) and US treasuries has been more subdued this year.

Although interest rates have been falling cuts began later than expected and the trajectory of that fall has been slower than initially expected. Inflation remained sticky whilst growth, particularly in the US, has been stronger than expected. It’s led to more volatility in the government bond market in 2024 as investors constantly re-evaluated their expectations.

US exceptionalism once again won out in 2024 and is hard to ignore, but investors must bear in mind that this has been supported by gains in the technology sector driven by growth in AI. There are still concerns that America’s fiscal deficit, incoming tariffs, and sector concentration could pose further risk for investors.

Over-reliance on one sector could prove to be a mistake and diversification remains a crucial strategy for any investor. While 2024 presented various economic hurdles there is potential for further growth in 2025.

1. BBC.co.uk, Japan raises interest rate for the first time in 17 years, 19 March 2024
2. FT.com, Japan’s Nikkei 225 index eclipses record high after 34 years, 22 February 2024
3. CFO.com, India's GDP Growth slows to 5.4% in Q2, lowest in 7 quarters, 30 November 2024