Market Highlights 2024 and Outlook 2025: Top Sectors, Stocks, and Surprises

As we wrap up 2024, it’s the perfect moment to reflect on the 2024 market performance, analyse key trends, and share insights from the past year. We’ll recap the year with six key topics and discuss our outlook on what’s ahead for the markets in 2025 that is important for you as investors.

Market Performance Highlights

2024 was a standout year across multiple asset classes, characterized by impressive returns:

• S&P 500: The index surged by +25%, reflecting strong corporate earnings and a resilient U.S. economy. Major sectors contributing to this growth included technology, healthcare, and financials.
• Gold: Gold prices jumped +33%, fuelled by geopolitical uncertainties and inflation concerns. This highlighted its continued role as a safe-haven asset.
• Bitcoin: Crypto currency had a stellar yet volatile year, with Bitcoin soaring +136%. Favourable regulatory developments, such as Bitcoin ETFs, and a risk-on sentiment among investors played significant roles in its rally.

We focus on sectors rather than individual stocks, as they offer broader, more stable opportunities that investors can gain exposure to through Exchange Traded Funds (ETFs). Here are some sector highlights:

• Cybersecurity: With a gain of +30%, this sector benefited from increased cyber threats and the growing importance of digital security for businesses and governments.
• Cloud Computing: Although slightly less robust, cloud computing still posted a strong +20%, driven by the ongoing digital transformation of enterprises.
• Semiconductors: The star of the year with +37%, semiconductors powered AI advancements, data centres, and the electrification of vehicles. Notably, the VanEck Semiconductor ETF mirrored the sector’s growth, demonstrating its robust potential.

Notably, Nvidia Corp (NVDA) was a clear leader, growing an incredible 185% this year, from $48 to $137. This aligns with predictions of annual growth in the AI sector at 37% over the next 5-6 years. Similarly, the Polar Capital Artificial Intelligence Fund gained 36%, underscoring the sector’s promise.

Slower-Than-Expected Interest Rate Cuts

One of the influences on 2024 market performance was the slower-than-expected pace of interest rate cuts. After aggressive rate hikes in 2022 and 2023 to combat inflation, markets anticipated a more pronounced easing in 2024, and were left disappointed. However, central banks, particularly in the U.S. and Europe, adopted a cautious approach, prioritizing economic stability over market expectations.

The key reasons for the delay include:

1. Persistent Inflationary Pressures: Despite initial successes in curbing inflation, persistent cost pressures in energy and labour markets made policymakers wary of easing too quickly, which could reignite inflation.
2. Resilient Labor Markets: Employment data remained robust across major economies, reducing the urgency for central banks to stimulate growth through aggressive rate cuts.
3. Global Economic Divergence: While the U.S. economy displayed resilience, Europe faced slower growth, and China’s recovery faltered. This divergence complicated coordinated monetary policy actions and led to a measured approach.

The slower than expected rate cuts impacted the markets in different ways:

• Bond Markets: The slower pace of rate cuts resulted in muted performance for bonds, as yields remained higher for longer than anticipated, hurting national markets with high debt, such as France. However, this offered opportunities for income-focused investors.
• Equities: Certain sectors, like technology and consumer discretionary, faced headwinds due to elevated borrowing costs.
• Currency Markets: The U.S. dollar retained strength against other major currencies as interest rate differentials remained wide.

As we move into 2025, central banks are expected to maintain their cautious stance. While modest rate cuts are likely, any acceleration will depend on clearer evidence of economic cooling and subdued inflation.

Source: ECB