2024: The story of a year in four charts

What were the key macroeconomic drivers for the major financial markets in 2024?

A. Economic

2024: growth and inflation vs growth normalisation and falling inflation

1. The most important macroeconomic factors in January to April 2024 were in the US, and both were related to economic growth and inflation. US GDP growth started picking up to high rates of growth at the start of the year, having slowed during the second half of 2023, while the price of consumer goods rose. This combination of reaccelerating and strong growth, and higher inflation and inflation concerns, pushed up US government bond yields to their year high. Other advanced economy bond markets such as the UK were highly sensitive to US bond yield moves throughout 2024. So, as US bond yields rose, so did the yield on UK government bonds. Equity markets rose and then fell, as the positive prospect of stronger growth was offset by the negative prospect of higher interest rates to tackle inflation.

1. The US inflationary picture flipped in May to August, with month-on-month US inflation slowing. While investors became increasingly confident that the US labour market and wider economy was normalising and inflation falling towards the Federal Reserve’s 2% target. The Federal Reserve indicated it would gradually cut interest rates. The first US interest rate cut of this economic cycle duly followed in September. Consequently, US bond yields fell significantly over this period, with other bond markets following suit, as their central banks also began cutting interest rates.

1. At their lowest point in September, US bond yields were pricing in around 2% worth of interest rate cuts over the following year. As is often the case at policy turning points, bond markets had got ahead of themselves. Cuts in interest rates that occur around the time economies fall into recession are, typically, also followed by further and larger interest rate cuts, which warrants lower bond yields. However, cuts in interest rates when economic growth remains good – a ‘soft landing’ – typically leads to much fewer future interest rate cuts and bond yields typically unwind part of their recent falls. This is exactly what happened in the last few months of 2024.

B. Technology

An artificial intelligence world

1. A background of good US economic growth over the first half of 2024 and volatile but, ultimately, slower inflation and roughly flat interest rates, was good for equity markets. At the same time, the artificial intelligence (AI) theme continued to be the dominant corporate fundamental driver of equity prices. US large-cap technology companies – semiconductor companies and technology hardware enablers of AI – all performed strongly. Importantly, these were not solely equity returns driven by rising valuations. As in previous years, the earnings growth of these companies – say the Magnificent Seven* group of companies – significantly outstripped the other 493 companies in the S&P 500.

1. It’s hard to continually beat high expectations. These US large-cap technology companies are no longer capital-light businesses but have been ramping up their investment spending at a very high rate. Investors have been confident about the future revenues from these capital investments in technology. However, the July earnings reporting season saw some disappointment in earnings outcomes, against very high expectations.

1. Plus ça change. A combination of good US economic growth, Federal Reserve interest rate cuts, and the eventual win of President-elect Trump, who was seen as more business-friendly, has supported a rally in both technology and broader equity prices in the second half of the year.

C. Government policy

Government policy is becoming increasingly important for financial markets

1. In the UK’s autumn Budget, government net borrowing forecasts were revised up by £28bn a year on average over the next five years, relative to the spring Budget plans – at the upper range of what had been expected. An increase in borrowing for long-term public investment, also announced at the Budget, was a little less than expected. The Budget is expansionary – it will help boost UK demand and growth over the next three quarters. It will also add a little to UK inflation through tax measures such as the increase in employer National Insurance contributions. These three higher borrowing, growth, and inflation factors led to a small increase in UK bond yields relative to other markets. Although, we note that the big move up in UK bond yields since September is much more linked to rising US bond yields and not the Budget.

1. Former President Trump won a second, non-consecutive term, securing both the electoral college and the popular vote. Republicans have also taken control of the Senate and the House of Representatives. A Republican sweep, meaning control of both houses, gives the Trump administration greater scope to advance its legislative agenda. Market reaction on the day after the polls closed aligned with our view that markets would initially see Trump's policies (on tariffs, tax cuts, and deregulation) as likely to boost corporate profitability. However, they could also add to inflation and a larger government deficit, potentially slowing future Fed rate cuts. The S&P 500 rose 2.5% to new highs, US 10- year government bonds saw a sharp sell-off with yields rising over 15 basis points, and the dollar strengthened, particularly against currencies like the Chinese yuan, and the euro, which face higher tariff risks. Subsequent price action has been more varied – and again in line with our views – as investors began to focus on particular policies, what is most likely, and their particular effects.

D. Geopolitics

Supply and demand dynamics in commodities have been most important

1. & 2. The Brent oil price touched $90 in April, as the risk of an escalation in Israel’s war in Gaza increased. Short-term volatility in oil markets also occurred in October, as Iran and Israel exchanged strikes on each other’s territory, increasing their direct military confrontation. From a purely macroeconomic and energy market perspective, the impact of these events has been short-lived, with the oil price falling since April, and largely trading in a $70 to $75 range since September. Why, given geopolitical risk looks so high? It is because the actual supply and demand fundamentals for the oil market have outweighed geopolitical risk. The oil market has quite significant excess supply, for instance, from high levels of production in the US, Canada, and Brazil, which is pushing against weak demand, especially from China. This supply-demand imbalance is expected to continue through 2025 and has been the dominant factor in oil markets in 2024.

We hope you have found the commentary we have produced for you this year interesting and useful. Thank you for all your feedback, which we always welcome. All that remains is for us to wish you a merry festive season, and peace and prosperity in 2025.

*The Magnificent Seven stocks are Alphabet, Amazon, Apple, Meta Platforms, Nvidia, Microsoft and Tesla.

If you would like to discuss any of the topics covered in this month’s outlook, our door is always open. Contact us


Content correct as of publication on 6th December 2024