Market commentary equities: 2024 – another year of magnificent growth
In our market commentary, Mark Frielinghaus, CFA, Portfolio Manager Equities, looks back on an extremely resilient and growth-fueled year for global equities and highlights the market environment for 2025.
Mark Frielinghaus, CFA
Principal Investment Strategist Equities
The year 2024 was marked by remarkable resilience and growth in global markets. Developed markets shone brightly, with a strong Q4 performance, while Europe and emerging markets showed some signs of weakness. Despite this, risk assets performed well, driven by the continued strength of the US economy.
Global growth stocks dominated, thanks to the impressive performance of US mega-cap technology stocks. Financials also performed well, rising more than 10 % as the prospects for deregulation improved. Commodities, however, were held back by weak demand in China.
Figure 1: Equity market returns across regions
Central banks in developed markets began to normalise policy, but resilient growth and sticky inflation led to a slower pace of rate cuts.
Developed market equities delivered strong double-digit returns, with the US economy decoupling from other major regions. The Magnificent 7 (+1) 8, a group of leading tech companies, again led the way in 2024. The +1 stems from the tremendous rise of Broadcom in 2024. Showing exponential stock price appreciation as well as stellar earnings forecasts, the chipmaker resembles the early rise of Nvidia. The weight of Broadcom in the MSCI World index almost doubled within the last year, rising from 0.8 % towards 1.5 %, emphasising the tremendous opportunities of the AI business. Nvidia was once again leader of the pack performance wise with Nvidia returning +189 %. The chart below shows the stellar performance pattern of the Magnificent 7 (+1) group and their influence on the concentration of major stock indices over the long term.
Figure 2: Magnificent 7 (+1) and index concentration
European equities lagged their US and emerging market counterparts, returning 8.6 % due to economic weakness and limited exposure to artificial intelligence. Asian markets, including China, faced challenges but rebounded in the second half of the year. The chart below shows the tremendous performance pattern of the Magnificent 7+1 group and their influence on the concentration of major stock indices over the past years.
Figure 3: Style returns across regions
Sector & styles: A year of opportunities
In 2024, diversified multi-factor strategies in developed markets were challenged by the poor performance of small caps and value. However, quality remained stable and growth/momentum strategies outperformed, driven by the strong performance of the Magnificent 7+1. In Europe, the environment was more favourable for multi-factor strategies as the value component added to returns and underperformance was much more limited than in the US. Defensive strategies also performed well in Europe, with the MSCI MinVol Index outperforming the broader market by 3 %.
Emerging markets were a mixed bag of style returns, with value and small caps also being shunned, but with a positive contribution from growth/momentum. Overall, growth and momentum strategies performed well across all regions, while small-cap, value and defensive strategies struggled to keep pace with the markets.
Figure 4: Valuation metrics across regions
In 2024, the US stock market has experienced a significant increase in valuation, with prices reaching unprecedented levels. Indeed, US equities are now more expensive than at any time in history, with the exception of the TMT bubble in the early 2000s. They are also more expensive than their global peers, particularly in Europe and emerging markets. They are also more expensive than their mid- and small-cap counterparts. The fixed income alternative is also becoming more attractive, with 10-year Treasury yields approaching 5 % and investment-grade bond yields exceeding US equity earnings yields. This phenomenon is rare and has not been seen for around 20 years. It is important for investors to consider these developments carefully and assess the potential impact on their portfolios.
Figure 5: Yield comparison across asset classes for the US
Conclusion
Overall, 2024 was another remarkable year for risk assets, driven by the continued strength of the US equities, in particular technology stocks and the resilience of global markets. The return for the asset class in 2025 will depend on the continued strength of the US economy and/or the recovery of other regions. Central bank policy will also remain key as markets have already priced in optimism for further rate cuts.
Looking ahead to 2025, we expect the global economy to continue its growth trajectory, driven by the robustness of the US economy and the resilience of European and emerging markets. While there may be challenges ahead, including potential headwinds from policy agendas and ongoing geopolitical tensions, we remain optimistic about the future and look forward to the opportunities in 2025.
