In one of our early newsletters for 2024, we said that “there may be scope for acceptable returns, albeit at lower levels than 2023” As it turns out, 2024 has been a record-breaking year for equities – driven by the US – that has exceeded our expectations and those of most analysts and economists.
Although markets have occasionally seemed volatile, the S&P 500 and MSCI World experienced only two negative months this year (April and October). If the current trends hold, both indices will end December in the black for the month and deliver returns above 25% for the full year.
These returns are extremely pleasing off the back of 2023’s strong performance – especially given that many investors and analysts had thought that the Big Tech rally would run out of steam and that the markets had already priced in the Federal Reserve interest rate cuts that were expected to take place during 2024.
To put the year in context, Ninety One pointed out in a recent newsletter that it is only the second time that the S&P 500 has produced this level of returns in back-to-back years – the last time was in 1954 and 1955. Furthermore, the S&P 500 closed at record highs on more than 50 days in 2024.
The positive returns were driven by a confluence of factors. Firstly, the real performance of the US economy has defied expectations, and the Fed appears to have achieved the much-desired soft (or not), landing. America’s GDP showed nearly 3% economic growth, outpacing other developed global economies, and employment numbers remain extremely healthy.
Furthermore, falling inflation and interest rates created a favourable environment for equities. The Fed has cut interest rates by 75 basis points since the first cut in September and it is widely expected to deliver another 25-basis-point rate cut at its policy meeting next week.
Finally, the AI boom that unfolded in 2023 continued into 2024 and has shown little sign of slowing down. While there have been some signs of the market rally broadening into small caps and other sectors, the Magnificent Seven BigTech stocks have driven an outsized portion of the S&P 500’s gains. (It should be noted that the returns from Dynasty’s preferred active managers significantly lagged this index due to their deliberately lower concentration to Big Tech, but nonetheless produced a solid set of returns ranging between 12 and 17 percent year-to-date as at 30 November.)
However, we enter 2025 after a year of geopolitical uncertainty and sweeping change. A brutal dictatorship has just fallen in Syria, and Iran and its proxies seem wounded by the conflict in Israel. Yet there are few signs that the tense situation in the Middle East will calm down any time soon. Likewise, the war between Russia and Ukraine continues to rage.
As we noted in January, 2024 was a year of elections. One of the megatrends we saw was that incumbent governments lost their outright majority or were replaced in countries as diverse as Botswana, Mozambique, South Africa, India, Japan, France, Portugal and the UK.
Incumbents have been removed from office in 40 of 54 elections in Western democracies since 2020. Nowhere is this shift more noteworthy than in the US, where Donald Trump and the Republican Party stormed to victory on the back of anti-establishment sentiment after the post-pandemic surge in inflation.
While investors should pay heed to these trends, economics rather than politics directly shaped the markets in 2024 and is expected to do so again in 2025. Lower interest rates (not just in the US, but most countries) and inflation should act as tailwinds to markets as we enter the new year.
The policy decisions that Trump and other leaders make may, of course, affect economics and therefore impact financial markets. Consequently, many observers believe that looser regulation and lower corporate taxes will be positive for corporate earnings. They are also hopeful that Trump’s threats on tariffs will be more bark than bite.
As such, economists at many of the world’s largest banks and asset managers are expecting 2025 to be another positive year for earnings growth for the S&P 500 in the order of 10% plus. It seems unlikely that we could see equity performances as strong as 2023 and 2024, but the consensus earnings growth forecasts for the S&P 500 should provide a reasonable underpin for global equities markets in general.
This will be our last News Flash for 2024. The new year will begin with our First Quarterly Update on 17 January 2025, followed by our first weekly News Flash on Friday 24th 2025.
“As we approach the end of 2024, global investors can rejoice in several positive developments coming through, including the broadening out of earnings from established market leaders and the goldilocks scenario of ‘immaculate disinflation’ still underway. With these factors in mind, staying focused on fundamentals will be key to navigating future uncertainties and seizing new opportunities in the year ahead.”
– Malcolm Smith, Head of International Equities Group at JP Morgan
Global News
- Investor enthusiasm for US tech giants drove stocks higher on Wednesday, ending a two-day slump. A favourable inflation report bolstered expectations of further Fed rate cuts, lifting the Nasdaq 100 by 1.9% to a record high and the S&P 500 by 0.8%. Broadcom surged on news of a potential AI deal with Apple, while the Magnificent Seven stocks, including Tesla, Amazon, and Meta, hit all-time highs. Despite lingering inflation concerns, Wall Street’s optimism remained strong.
- President-elect Donald Trump told NBC on Sunday that he has no plans to replace Fed chairman Jerome Powell once he returns to the White House. Powell, whose term expires in May 2026, told reporters last month that he wouldn’t step aside early if Trump asked for his resignation. Powell stated within days of the election that he was ready to defend the Fed’s independence from political pressure, insisting the incoming president does not have the power to fire him or other senior Fed leaders.
- US consumer prices rose at a pace that was in line with expectations last month, with the so-called core consumer price index, which excludes food and energy costs, gaining 0.3% for a fourth straight month, Bureau of Labor Statistics figures showed on Wednesday. From a year ago, it rose 3.3%. Investors still widely expect the US central bank to cut borrowing costs by a quarter percentage point next week. However, price pressures have also underscored concerns that progress toward the US central bank’s 2% target may be stalling.
- A recent rebound in central bank gold purchases may strengthen forecasts that gold prices will continue to rise into next year, with Goldman Sachs now predicting the price could hit $3,000/oz by year-end. The price of gold has gained nearly 50% over the past two years, driven largely by safe-haven demand from the world’s central banks. After reaching record highs in 2022 and 2023, central bank purchases began slowing at the start of this year, dropping to a low of less than 25 tonnes in August.
- Chinese President Xi Jinping has warned the US against restarting a trade war, saying there would be “no winners”. These comments were made on Tuesday evening during a meeting with the heads of several global financial institutions, including the World Bank and International Monetary Fund. China’s yuan slid the most in a week on Tuesday on the news that Beijing is considering allowing the currency to weaken next year in response to the threat of a trade war with the US.
- China is reportedly investigating Nvidia, the world’s largest supplier of AI processors, for alleged anti-competitive practices, according to state media. The government suspects that Nvidia’s 2020 acquisition of Israeli networking firm Mellanox may violate China’s anti-monopoly laws, though specific concerns about the merger were not detailed. This year, Nvidia has significantly expanded its presence in China, adding hundreds of employees to bolster research and focus on autonomous driving technologies. By year-end, the company is expected to have around 4,000 employees in China, up from approximately 3,000 at the start of 2024.
- Chinese-based ByteDance and its short-video app TikTok filed an emergency request with the US Court of Appeals for the District of Columbia on Monday to temporarily block a law that would require it to sell TikTok by 19 January or face a ban in the US, pending a review by the US Supreme Court. It warned that, otherwise, TikTok will be shut down for its more than 170 million US monthly users on the eve of a presidential inauguration.
- The European Central Bank cut interest rates by 25bp to 3% for the fourth time this year yesterday as inflation approaches 2% and economic challenges persist across Europe. The move has fueled speculation among traders of further rate cuts next year. Joining the trend, the Swiss National Bank unexpectedly slashed rates by half a point to 0.5%, while Denmark’s central bank also lowered borrowing costs. These rate cuts come amid escalating political instability in France and Germany and anticipation of Trump’s potential return to the White House.
- German chancellor Olaf Scholz called for a confidence vote in Parliament on Wednesday, taking the first formal step toward disbanding the government and leading to snap elections in February that will likely oust him from office. In November, the chancellor fired his finance minister, precipitating the breakup of his fragile three-party coalition. Scholz expects to lose the vote, which is likely to happen on Monday.
- Google has overcome a key challenge in quantum computing with a new generation chip, solving a computing problem in five minutes that would take a classical computer more time than the history of the universe. Along with other tech giants, Alphabet’s Google is chasing quantum computing because it promises computing speeds far faster than today’s fastest systems. Alphabet shares posted their biggest one-day gain since April on the news, gaining 5.6%.
- The global airline industry will likely rake in more than $1 trillion in revenue next year, as passenger numbers look set to hit an all-time high of five billion, the International Air Transport Association (IATA) said Tuesday. Because of the pandemic, the sector recorded three consecutive years of losses between 2020 and 2022, amounting to almost $187 billion. IATA said that production of “sustainable aviation fuels” was expected to reach 1.3 billion litres in 2024, more than double the figure for the previous year.
- Elon Musk’s wealth has soared beyond $400 billion, driven by Tesla’s 71% stock surge and a high valuation for SpaceX. Tesla reached a record high of $424.9, while Musk capitalised on SpaceX shares amid investor demand at a $350 billion valuation. Enthusiastic Tesla supporters are banking on Musk’s connections with Trump to deliver policy advantages for the EV leader. With Neuralink, SpaceX, and the social media platform X under his control, Musk’s astronomical fortune has outpaced Amazon founder Jeff Bezos and Oracle co-founder Larry Ellison.
- As at Thursday’s close, the S&P 500 was 1.9% down for the week.
Local News
- According to today’s research provided to the Dynasty Investment Committee by Analytics FX Solutions, the Rand has shown notable strength in 2024, gaining 1.4% against the US dollar this week and 2.9% year-to-date, compared to a 4.6% decline in the Emerging Market Currency Index. On a trade-weighted basis, the Rand has strengthened 9.8% year-to-date, with most gains following the May National Election. This means that the Rand is, undoubtedly, one of the best performing emerging market currencies in 2024. The currency’s strength has been driven by seasonal import payment declines, improved sentiment after the Government of National Unity (GNU) announcement, an S&P outlook upgrade, lower inflation, and the Reserve Bank’s cautious monetary policy. While high real interest rates are attracting foreign investment, persistent risks and growing import intensity suggest potential weakening if domestic demand rises. Notwithstanding all this positivity, the country is still burdened with a relatively high level of economic and political risk, which adds to a weaker bias for the rand over time.
- Consumer inflation inched up to 2.9% in November from 2.8% in October, according to the latest data from Statistics South Africa, reflecting overall price stability. Food prices, a key component of household spending, dropped sharply to 2.3% in November, down from 3.6% in October, marking the lowest rate in 14 years.
- South Africa recorded a substantial trade balance of R116.1 billion this year so far when compared with the first ten months of last year’s cumulative R30.2 billion as commodities prices have risen with a stronger rand and a stronger term of trade. Yet, the economy could have beat expectations had it not been for logistical constraints experienced by Transnet holding back performance. Trade balance figures were released last week Friday.
- A resurgence in tourism and an uptick in metal prices pushed the South African Chamber of Commerce and Industry business confidence index to a nine-year high in November as sentiment continues to benefit from the formation of a GNU. The surge in sentiment is due to an increase in the number of overseas tourists, improved precious metal prices and a belief the economy will fare better in the new year.
- Confidence in the agricultural sector has reached its highest level in more than two years as of the last quarter of 2024 according to Agricultural Business Chamber. The optimism, which comes on the back of a 0.3% contraction in GDP in the third quarter mostly due to the volatile agricultural sector, is a result of a combination of factors, including favourable weather conditions, with expectations that La Niña rains will be supportive of the 2024/25 agricultural season. The developments will mean that food prices may stabilise and, at best, decline.
- Loadshedding may return as early as next month but will remain at low levels until the end of 2028, when South Africans may suffer the consequences of an electricity supply deficit from January to September, an analysis by boutique financial advisory firm Cresco shows. Cresco forecasts stage 1 load-shedding in January and February next year, February 2026, and February, May and July 2027.
- New ministers and deputies added to the cabinet in the GNU will cost taxpayers an additional R239 million in 2025/26. This was revealed by Finance Minister Enoch Godongwana in a parliamentary Q&A session yesterday. The new cabinet size has been met with criticism since its formation in July. While President Cyril Ramaphosa had planned to reduce his executive, the new administration saw the cabinet expand from 30 to 32 ministers and from 36 to 43 deputy ministers.
- A coalition of healthcare professionals, under the Universal Healthcare Access Coalition, has proposed an alternative to South Africa’s National Health Insurance (NHI) plan to strengthen both public and private healthcare while easing the burden on the state system. The plan, which has been put forward to Ramaphosa, includes mandatory medical scheme membership for higher-income individuals, risk equalisation, and a new publicly sponsored medical scheme. It also suggests improving healthcare governance and exploring cost-sharing with neighbouring countries. The coalition argues that the current NHI plan is fiscally and institutionally unfeasible and may fail to achieve universal coverage
- The Road Freight Association on Monday called for political intervention by South Africa in the post-electoral conflict in Mozambique. It has estimated that the full closure or suspension of Port of Maputo operations and the ceasing of any road freight logistics within Mozambique costs around R10 million a day to the local economy. Operations on the South African side at Lebombo border crossing with Mozambique, a key coal and chrome export hub, remained suspended on Wednesday due to the conflict.
- Transnet National Ports Authority (TNPA) has selected FFS Tank Terminals to operate the liquid bulk terminal at the Port of Cape Town over the next 25 years. Yesterday, TPNA said the appointment of FFS Tank Terminals, which is already the existing terminal operator at the port’s liquid bulk precinct, is a “strategic move to enhance the Port’s efficiency and competitiveness”. This comes as the state-owned entity ramps up private participation in ports.
- Barloworld’s share price shot up over 15% on Wednesday after its CEO Dominic Sewela and the Saudi Arabian family-owned business, Zahid Group, firmed up an offer for all of the JSE-listed international heavy equipment distributor’s shares, at a 44% premium to the level of the share price as at last Friday’s close. The offer, which will lead to the delisting of Barloworld if it goes ahead, values Barloworld at R23 billion.
- Growthpoint is planning a R2 billion-plus twin-tower apartment development in Sandton, in the group’s first major apartment project in the city. It is undertaking the deal as a joint venture with luxury apartment developer Tricolt. At the same time, The Victoria & Alfred Waterfront, co-owned by Growthpoint Properties and the Government Employees Pension Fund, is planning a R20 billion expansion of the adjacent Granger Bay precinct and wants permission for the development.
- A consortium comprising Altvest Capital, investment platform EasyEquities, 27four Investment Managers and RainFin has submitted a proposal to buy as much as 40% of the commercial rights for the Springboks through a special purpose vehicle. If successful, the group aims to list the special purpose vehicle on the JSE, allowing retail investors to buy shares for as little as R1 through EasyEquities. SA Rugby member unions last Friday rejected a plan to sell a 20% stake in a newly created commercial-rights company for $75 million to Seattle-based Ackerley Sports Group.
- As at the time of writing the rand was 0.4% stronger against the dollar and the ALSI was 0.5% up for the week.
Sources: Dynasty, Business Report, AFP, Bloomberg, CNN, BusinessLIVE, Wall Street Journal, New York Times, Moneyweb, Reuters, Analytics Consulting, etc.
