Record Gains Amid Global Challenges

Global markets in 2024 defied initial forecasts of stagnation, with world stocks posting a second consecutive annual gain exceeding 17%. This robust performance persisted despite geopolitical and economic headwinds, including wars in the Middle East and Ukraine, economic contraction in Germany, and China’s slowdown.

The rally was largely fueled by Wall Street’s exceptional gains, driven by the surge in artificial intelligence (AI) investments and resilient U.S. economic growth. The dollar strengthened by 7%, further consolidating the U.S. market’s influence. Investor sentiment surged after Donald Trump’s election victory in November, with expectations of tax cuts and deregulation boosting market optimism. Bitcoin capitalized on the momentum, recording an astounding 128% annual gain.

However, global markets remain vulnerable to U.S. trends, a reality underscored by the Federal Reserve’s cautious approach to interest rate cuts. Weak job data and unexpected monetary tightening in Japan added to volatility, sparking a brief but sharp market rout in August. Concerns linger over Trump’s trade policies potentially reigniting inflation and increasing government debt, posing risks to the Treasury market and broader financial stability.

Wall Street’s Unyielding Momentum

Wall Street emerged as the undisputed leader, with the S&P 500 index soaring by 24%, marking its strongest two-year streak since 1998. Tech giants like Nvidia, which saw a staggering 172% rise, and Tesla, which gained 69%, exemplified the market’s resilience. The “Magnificent Seven” U.S. tech firms now account for nearly 20% of the global MSCI share index, underscoring their outsized influence.

Yet, this concentration also raises concerns about market fragility should these firms underperform. European markets, in contrast, struggled to keep pace, with the euro sliding 5.5% against the dollar. Despite a series of European Central Bank rate cuts, economic recovery in the region remains elusive, though experts forecast potential improvement in 2025.

Gold emerged as a safe haven, climbing 27% amid limited alternatives for diversification. Meanwhile, emerging market currencies bore the brunt of U.S. dollar strength, with Egypt, Nigeria, and Brazil facing steep losses due to devaluations and fiscal concerns.

Mixed Fortunes for Bonds and China

Bond markets faced a turbulent year, with inflationary pressures and cautious central bank policies dashing hopes for significant monetary easing. U.S. 10-year Treasury yields climbed by 60 basis points, while Britain and Germany also recorded notable increases. Japan’s double rate hikes drove its 10-year bond yield to its highest annual jump since 2003. Uncertainty looms as Trump’s policies are expected to influence the Federal Reserve’s trajectory in 2025.

In China, market volatility defined the year as stocks experienced sharp fluctuations. A 16% surge in September followed Beijing’s stimulus signals, but subsequent declines highlighted the persistent instability. Despite these challenges, Chinese equities posted a 14.5% annual gain, rewarding patient investors. However, analysts warn that the country’s short-term boom-bust cycle will persist until more decisive actions are taken.

Amid these global shifts, surprise winners emerged in riskier bond markets. Argentina’s and Lebanon’s bonds delivered exceptional returns, while Ukraine’s bonds gained over 60%, driven by optimism surrounding potential geopolitical resolutions under Trump’s administration. As global markets transition into 2025, investors remain vigilant about navigating the increasingly U.S.-centric financial landscape.