Barring any end of year surprises, 2024 is likely to be remembered as a good year for global equity investors. Current performance figures indicate that the MSCI World Index is on track to post double-digit returns, the S&P 500 is doing even better, and the MSCI Europe Index is modestly positive.
However, the headline numbers belie the rollercoaster of a ride that investors experienced this year, which saw the continuation and broadening of the artificial intelligence (AI) boom, the sharpest bouts of volatility since the pandemic and election-related uncertainty.
Below, we recap the biggest lessons we learned from this year that we’ll be taking into 2025.
Lesson 1: More than meets the AI
At the turn of the year, when investors considered AI, their minds would often immediately go to the Magnificent Seven stocks. But 2024 showed us that there is more to the trend than just these seven companies.
This year, we invested in a number of companies in Europe and Japan which are also heavily exposed to AI along the value chain, such as Relx and Hitachi. With the AI trade extending from purely enterprise software into robotics, industrials and automation, these regions’ significantly higher weighting to industrials versus the S&P 500 could start to pay dividends.
Lesson 2: Asian equity markets shouldn’t be overlooked
While much attention has fallen on AI and US stocks, Asian equity markets showed in 2024 why they shouldn’t be overlooked.
Questions may persist over the sustainability of the tailwinds behind the performance of Asian equities: Can the Japanese economy truly move past the era of low economic growth; how far will the Chinese government’s stimulus go in reviving its economy; and what will trade policy and tariffs from the incoming US administration look like?
Nevertheless, we believe that for a selective stock picker there are opportunities in this key area of growth for the global economy.
Lesson 3: History does not repeat itself, but it often rhymes
Given the relatively benign end to the year for equities, it might be easy to forget the sharp bout of volatility in August that took the market by surprise. The market volatility served as a crucial lesson that long-standing trends and seemingly invincible trades which investors may have become somewhat complacent about over the past decade can quickly unravel. The unwinding of the Japanese yen carry trade and the pressure on the US dollar's prolonged bull market highlighted the shifting dynamics that investors must navigate.
As the Federal Reserve cuts rates, the dollar's dominance may face significant challenges, potentially signalling a shift in market leadership. Similarly, the Magnificent Seven trade, which had been a reliable source of substantial returns, showed signs of vulnerability. The steep valuations and subsequent pullbacks, exacerbated by high-profile selling, emphasise the importance of careful stock selection and valuation scrutiny.
Lesson 4: Preparing for a returning Trump administration
From Trump’s first term as president, we observed how broadly positive some of his policies were for equity markets. Given the decisiveness of the Republican victory, we expect him to move swiftly to shape business-friendly policies, tax reforms, tariffs and new energy policies.
However, it remains to be seen if he can turn the various campaign promises into reality as he goes through his second term; politics is not an easy playing field and unseen challenges will doubtless emerge. With that in mind, it is crucial to continue focussing on economic fundamentals and downplaying the shorter-term noise which often dominates news headlines.
As we close the chapter on 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 is head of international equity funds at JPMorgan Asset Management. The views expressed above should not be taken as investment advice.