Investment Year In Review 2024 | 2024's Balancing Act: Counting Votes and Crunching Rates

Markets navigated a delicate global economic landscape balanced between politics and policy. High-stakes elections, shifting interest rates, and market volatility kept investors and policymakers on edge. As inflation cooled, uncertainty remained while central banks and governments walked a fine line between growth and stability.

Over 60 nations, including the European Union, held national elections in 2024, collectively representing nearly half the global population, but few captured the attention as much as the U.S. Shortly after Trump’s victory, he revived his aggressive tariff rhetoric proposing rates as high as 50% to 60% on Chinese imports. While Trump’s cabinet choices may temper his more extreme proposals, tariffs are expected to strategically target intermediate goods, generate revenue to offset tax cuts, and serve as negotiating leverage. Even a restrained implementation could profoundly impact global trade, inflation and economic growth.

The U.S. economy grew at an annualised rate of 2.6% in Q4 2024, its slowest pace in three quarters, down from 3.1% in the previous period. Despite the deceleration, growth remained strong, bringing the full-year expansion to 2.8%, compared to 2.9% in 2023.

U.S. markets were mainly driven by gains in the tech sector, especially the Nasdaq 100, which saw significant growth from a few dominant companies. This concentrated strength helped the U.S. economy outperform many other regions early in the year. As the year progressed, the Federal Reserve (Fed) maintained a hawkish stance, contributing to rising bond yields. In December, the Fed made a 25-basis-point rate cut, but their updated projections indicated a more cautious outlook for 2025. The Fed’s cautious rate cut plan suggested that while inflation remained a concern, the economy was positioned for steady growth as it entered 2025.

The S&P 500 had another fantastic year, rising more than 20% for the second year in a row. However, a handful of companies deserve much of the credit for this outstanding performance. The much talked about ‘Magnificent Seven’ stocks’ performance in 2024 accounted for more than half of the index’s return. The market capitalisation of these seven companies makes up more than one-third of the value of the S&P 500.

Inflation and recession risks eased but did not disappear entirely, varying by region. The UK’s Consumer Price Index (CPI) stood at 2.5% YoY whilst the Eurozone’s CPI reached 2.4%. Lastly, the U.S. recorded CPI of 2.9%, an increase from 2023. Leaders remain cautiously optimistic, closely monitoring conditions and seeking innovative growth strategies amid persistent high costs.

Europe’s economy faced significant headwinds. The manufacturing sector struggled with high energy costs, stringent regulations and weak export demand exacerbated by competition from China. Political instability in France and Germany further compounded economic difficulties. European equities underperformed, hindered by limited exposure to AI-driven growth and persistent economic weakness.

Global equities exhibited significant divergence, with varying performance across asset classes and regions. This divergence was driven by several key factors, including economic policy uncertainty, trade tensions, and currency fluctuations. The election of new governments introduced uncertainty regarding economic policies, impacting investor sentiment and creating volatility in markets. Rising trade tensions and unpredictable policy shifts further deepened market disparities, while a strong US dollar amplified losses, particularly in emerging economies. Market dynamics also varied across regions, with AI-related industries experiencing rapid growth, while other sectors faced weaker demand.

Risk exposure was also uneven across regions and sectors, reflecting broader macroeconomic conditions. Japanese and broader Asian markets benefited from a weaker yen and strong corporate earnings, while China struggled with sluggish growth, a weakening property sector, and escalating trade tensions with the U.S. In Europe, manufacturing and automotive equities faced significant headwinds. Meanwhile, Mexican markets suffered as shifting U.S. trade policies dampened investor confidence.

Shifting monetary policies, trade tensions, and geopolitical instability made 2024 a volatile yet dynamic year for global markets. The ongoing evolution of these factors will continue to shape investment landscapes, requiring investors to navigate an increasingly complex environment.

Unresolved conflicts such as Russia-Ukraine and Israel-Hamas, alongside tensions between China and Taiwan, underscored the fragility of geopolitical stability. Traditional power dynamics continued to shift, with new nations gaining influence as global alignment grew more fragmented.

Recent research from Willis Towers Watson states that geopolitical risks remain significant and multifaceted, affecting businesses in areas such as trade regulations, financial investment flows, market shifts, commodity prices, inflation, supply chains, and employee security.

South Africa entered 2024 on a cautious note, with sluggish economic growth, persistent load-shedding, and political uncertainty ahead of the general elections weighing on investor sentiment. While equities saw some early gains, fiscal pressures, weak business confidence, and global market volatility limited momentum.

Mid-year, conditions remained challenging as external factors such as China’s economic slowdown and a stronger U.S. dollar added to domestic headwinds. The South African Reserve Bank cut interest rates twice in 2024, totalling 50bps for the year. The markets experienced volatility around the elections, but a stable political outcome provided some relief.

The FTSE/JSE All Share Index ended up 13.44% for the full year, however, in the final quarter, pressure persisted, with equities declining for three consecutive months and the index ending 2.13% down for the quarter. Inflation remained contained, with December CPI at 3% YoY, and the rand weakened over 4.5% against the dollar. Meanwhile, the SA bond market posted an impressive 17.18% for the year.

Despite these challenges, South Africa showed resilience in key areas. Energy stability improved and consumer spending picked up, the latter which may be partly attributable to the withdrawal of R43 billion from retirement savings since the launch of the two-pot retirement system in September.

While structural headwinds and global uncertainty continued to weigh on markets, early signs of recovery suggest a more stable foundation heading into 2025.

The Destiny Portfolios continue their top-tier performance with various measures introduced over the past few years having led to this success. The most significant of those are mentioned hereunder:

As 2025 unfolds, the lessons of 2024 underscore the importance of adapting to volatile and unpredictable conditions. Actively managing risks and seizing opportunities in this evolving economic and geopolitical landscape will remain critical for investors and businesses worldwide.