Risk assets delivered another strong performance in 2024. For a second consecutive year, dominance from the US helped developed market equities deliver total returns of 21% (6.5% excluding the US), while emerging market equities posted a respectable 9.3% return.
The US equity market delivered a total return of 26.0%, driven by outsized gains in artificial intelligence (AI) stocks. Back-to-back years of 25%+ gains for US equities have only occurred three times in history: 1935-1936, 1954-1955, and 1997-1998. By comparison, the UK market delivered a respectable 9.6%, Japanese equities returned 9%, and European equities 5%. While strong individually, these returns paled next to the US.
Fixed income returns in 2024 were mixed, like equity markets, risk assets led the way. High-yield bonds returned over 8%, and corporate bonds delivered low single-digit gains, whilst pressurised by rising yields government bonds lagged. Yields fell in late 2023 on expectations of rate cuts in 2024, but as fewer than anticipated interest rate cuts materialised, government bond yields rose, and prices fell. UK Gilts, particularly sensitive to rising yields due to their long duration, delivered a disappointing -3% return. However, Gilts now appear attractive given inflated equity market valuations.
Developed market central banks began reducing interest rates in the second half of 2024. US rates currently stand at 4.5% after three consecutive cuts since August. The European Central Bank has cut rates four times since June, while the Bank of England reduced rates twice, ending the year at 4.75%. While further cuts are expected in 2025, resilient growth and sticky inflation—particularly in the US— have tempered expectations for the pace of rate reductions. This narrative is likely to weigh on financial markets in early 2025.
It’s been a year of remarkable political transformation. In this unique year for democracy, around 1.5 billion voters participated in elections across more than 50 countries. In July, the UK underwent a seismic political change as the Labour Party secured 412 seats, ending 14 years of Conservative rule in one of its largest-ever defeats. Meanwhile, the US experienced an unexpected twist when President Joe Biden stepped down as a presidential candidate in July. This paved the way for Donald Trump to reclaim the presidency in November, with strong support in both Republican and traditionally Democratic states.
Despite high interest rates and a small increase in unemployment, the US economy grew 2.9% in 2024, supported by robust consumer spending. Europe, however, faced a contrasting reality. Manufacturing struggled with high energy costs, declining consumer confidence, and reduced Chinese demand. Political discord in France and Germany, driven by fiscal strain and rising populism, further weakened the region. The UK economy also faced challenges; optimism following Labour’s summer victory waned after an autumn budget-imposed business tax hikes and above-inflation increases to the living wage, prompting caution among businesses.
Looking ahead to 2025, geopolitical risks remain a concern. An unpredictable US President, the risk of trade wars and ongoing conflicts in Ukraine and the Middle East could disrupt equity markets, particularly those trading at high valuations like the US. Investors must assess whether 2024’s key drivers will persist. US equity returns have been highly concentrated, but a broadening of equity returns may emerge. Globally, attractive opportunities can be found in UK, European, and Emerging Market equities, as well as in sovereign bonds, with UK gilts offering yields above 4%
At BRI, portfolios remain diversified. 2025 may bring uncertainties, including new political policies and market volatility, however these are inherent aspects of financial market investing. History shows that markets have faced these challenges before and have consistently rebounded stronger. This time is no exception. It’s important to stay focused on the long-term benefits of investing.
Tom Hopkins MCSI
Senior Portfolio Manager
Market Commentary January 2025
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Risk assets delivered another strong performance in 2024. For a second consecutive year, dominance from the US helped developed market equities deliver total returns of 21% (6.5% excluding the US), while emerging market equities posted a respectable 9.3% return.
The US equity market delivered a total return of 26.0%, driven by outsized gains in artificial intelligence (AI) stocks. Back-to-back years of 25%+ gains for US equities have only occurred three times in history: 1935-1936, 1954-1955, and 1997-1998. By comparison, the UK market delivered a respectable 9.6%, Japanese equities returned 9%, and European equities 5%. While strong individually, these returns paled next to the US.
Fixed income returns in 2024 were mixed, like equity markets, risk assets led the way. High-yield bonds returned over 8%, and corporate bonds delivered low single-digit gains, whilst pressurised by rising yields government bonds lagged. Yields fell in late 2023 on expectations of rate cuts in 2024, but as fewer than anticipated interest rate cuts materialised, government bond yields rose, and prices fell. UK Gilts, particularly sensitive to rising yields due to their long duration, delivered a disappointing -3% return. However, Gilts now appear attractive given inflated equity market valuations.
Developed market central banks began reducing interest rates in the second half of 2024. US rates currently stand at 4.5% after three consecutive cuts since August. The European Central Bank has cut rates four times since June, while the Bank of England reduced rates twice, ending the year at 4.75%. While further cuts are expected in 2025, resilient growth and sticky inflation—particularly in the US— have tempered expectations for the pace of rate reductions. This narrative is likely to weigh on financial markets in early 2025.
It’s been a year of remarkable political transformation. In this unique year for democracy, around 1.5 billion voters participated in elections across more than 50 countries. In July, the UK underwent a seismic political change as the Labour Party secured 412 seats, ending 14 years of Conservative rule in one of its largest-ever defeats. Meanwhile, the US experienced an unexpected twist when President Joe Biden stepped down as a presidential candidate in July. This paved the way for Donald Trump to reclaim the presidency in November, with strong support in both Republican and traditionally Democratic states.
Despite high interest rates and a small increase in unemployment, the US economy grew 2.9% in 2024, supported by robust consumer spending. Europe, however, faced a contrasting reality. Manufacturing struggled with high energy costs, declining consumer confidence, and reduced Chinese demand. Political discord in France and Germany, driven by fiscal strain and rising populism, further weakened the region. The UK economy also faced challenges; optimism following Labour’s summer victory waned after an autumn budget-imposed business tax hikes and above-inflation increases to the living wage, prompting caution among businesses.
Looking ahead to 2025, geopolitical risks remain a concern. An unpredictable US President, the risk of trade wars and ongoing conflicts in Ukraine and the Middle East could disrupt equity markets, particularly those trading at high valuations like the US. Investors must assess whether 2024’s key drivers will persist. US equity returns have been highly concentrated, but a broadening of equity returns may emerge. Globally, attractive opportunities can be found in UK, European, and Emerging Market equities, as well as in sovereign bonds, with UK gilts offering yields above 4%
At BRI, portfolios remain diversified. 2025 may bring uncertainties, including new political policies and market volatility, however these are inherent aspects of financial market investing. History shows that markets have faced these challenges before and have consistently rebounded stronger. This time is no exception. It’s important to stay focused on the long-term benefits of investing.
Tom Hopkins MCSI
Senior Portfolio Manager
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