There are normally certain things you can rely upon in December, however this year a Santa rally was not one of them, as despite a strong year overall that saw world equities gain 15.7%, December ended with a decline of -2.5%. That said, the four seasonal constants, or what I like to call “The Four F’s” – Family, Friends, Food, and Forecasts, were out in force in December. None so much so as the latter of these four – Forecasts, which seem to grow in volume every year. It’s true that when the news cycle slows into year end and market activity dissipates, people need something to talk about and headlines to grab on to, and there is never a shortage of year end forecasters here to fill the void! There are the ‘crystal ballers’ who are prepared to predict the future with a high degree of confidence. Then there are those who like to follow a safe and conservative path to maintain credibility. Others just want to be bold and grab attention with their calls. Here at Arbion we don’t make year end forecasts, instead, we focus on the here and now, and in particular, the macro factors and market themes that are likely to drive the investment narrative over the coming months.

The most impactful detractor to last month’s equity performance was the ‘hawkish’ 25 basis point Fed rate cut, which sent the S&P 500 3% lower on the day, effectively putting an early end to any Santa rally, where the Fed ruled out the prospect of deep rate cuts in 2025. However, other markets performed better, the Nikkei rebounded strongly by 4.4%, ending 2024 on a strong gain of 19.2%. Despite better performance towards the end of the year, the Europe Stoxx 600 gained just 6.0% last year, only outperforming the FTSE 100 and emerging markets. The latter was, however, dragged down by Latin America this time as Chinese markets did remarkably well in 2024, with the CSI 300 rising 14.7% and HSI rising 17.7% after a major recovery attempt by policymakers in September.

Overall, 2024 was broadly another strong year for asset returns, as economic growth surprised on the upside and central banks finally began to cut interest rates. That meant the S&P 500 posted a return of 23.3%, marking the first time since the late-1990s where it’s achieved back-to-back annual returns above 20%. The index was powered by further gains for the Magnificent 7 stocks, which significantly outperformed for another year, rising 67%. Other assets performed well too, credit spreads tightened further whilst Bitcoin more than doubled. Moreover, the continued US exceptionalism narrative helped push the US Dollar to its strongest annual close since 2001.

Yet despite the generally upbeat performance, there were plenty of bumps along the way. Rate cuts took longer than many expected, meaning that sovereign bonds struggled to gain traction. In fact, the 10yr Treasury yield rose for a 4th consecutive year, which is the first time that’s happened since the 1980s. Political developments also caused several wobbles, particularly around April as tensions in the Middle East escalated. In France, the country’s assets underperformed amidst political uncertainty. And there was huge (albeit brief) market turmoil in the summer, as weak US data and a BoJ rate hike led to the unwinding of the yen carry trade. So with quite a few of these concerns lingering in the background, it was no surprise that gold prices posted their strongest annual gain since 2010, rising 27.2%.