as of December 31, 2024
Global equity markets fell in the fourth quarter, though not enough to fully offset strong gains over the course of the year. The Federal Reserve (‘Fed’) cut rates in December but signaled a wait-and-see approach to 2025 and decreased the number of expected cuts. Market sentiment was mixed as the “Trump Trade” took effect. Expected de-regulations, especially for the energy sector, tax cuts and business-friendly policies in general could help spur economic activity in the US. However, potential tariffs and immigration restrictions could dampen growth and increase inflation and thus put a floor on interest rates. Equity markets diverged as investors digested both potential tailwinds and headwinds with US equities posting moderate gains over the quarter while non-US and emerging markets that would be on the receiving end of tariffs fell sharply.
A resilient and potentially faster growing US economy, a tentative recovery in Europe and a stimulus announcement in China continued to support our expectation of a moderation in growth, but general resilience and no major recession for the coming year. US inflation increased in the fourth quarter of 2024. Year-over-year through November, core CPI remained at 3.3%, in line with expectations.
Global equities had a weak end to 2024, returning -1.0% for Q4 but still had a strong year returning 17.5%. The S&P 500 returned 2.4% during the quarter, as favored styles rotated back to large and growth from small and value in Q3. It ended the year up by 25%, the first two-year consecutive double-digit gain in more than two decades. International developed stocks fell -8.1% in Q4 and emerging markets equities also had a weak quarter with a return of -4.4%.
Within fixed income (bonds), the Bloomberg US Aggregate Index returned -3.1% during the quarter. Treasuries returned -3.1%, and corporates were down -3.0%. The yield curve shifted higher during the quarter.
Global developed real estate investment trusts (REITs) returned -9.5% during Q4, underperforming broader equity markets by a wide margin. Core listed infrastructure stocks also had negative returns during the quarter. Higher rate sensitivities for both sectors were headwinds during the quarter.
Markets are expecting inflation to decline more slowly than previously priced in. Labor markets have shown signs of softening. Risks to inflation include immigration restrictions over the coming years and tariffs. Stronger growth because of a more business-friendly incoming administration could further add to inflationary pressures.
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