LONDON (Reuters) – Investors began 2024 bracing for a subdued stock market, a surge in U.S. Treasury bonds fueled by aggressive interest rate cuts, and a rally in emerging market currencies. However, global markets defied these predictions, delivering surprises across the board.
For the second consecutive year, global stocks posted gains exceeding 17%, weathering a storm of geopolitical and economic challenges. The Middle East and Ukraine were mired in conflict, Germany faced a contracting economy and political turmoil, France wrestled with budgetary chaos, and China experienced a slowdown. Yet, robust Wall Street performance, driven by artificial intelligence (AI) enthusiasm and strong U.S. economic growth, kept markets buoyant. The U.S. dollar soared by 7% against major currencies, reinforcing its dominance.
The reelection of Donald Trump on November 5 added fuel to market exuberance, with optimism surrounding his proposed tax cuts and deregulation policies. This surge in investor sentiment propelled Bitcoin to an impressive 128% gain for the year.
Wall Street Leads the Charge
Wall Street emerged as the engine driving global markets. The S&P 500 climbed 24% in 2024, marking its best two-year stretch since 1998. U.S. tech stocks, particularly those linked to AI, played a pivotal role. Nvidia’s stock skyrocketed 172%, while Tesla saw a 69% increase. The “Magnificent Seven” tech giants now account for a fifth of MSCI’s world share index, highlighting their outsized influence.
Challenges in Europe
In contrast, Europe struggled. The euro dropped 5.5% against the dollar, and European stocks delivered their worst relative performance against U.S. equities in over two decades. Although the European Central Bank implemented four rate cuts, the region’s economy remained sluggish. Nonetheless, some analysts predict a modest recovery in 2025.
The Resilient Dollar and Emerging Market Pressures
The dollar’s strength, coupled with concerns over U.S. trade policies, battered emerging market currencies. Egypt and Nigeria saw their currencies devalue by about 40%, while Brazil’s real fell more than 20% amid debt concerns. Among emerging market currencies, only a few—such as Malaysia’s ringgit, South Africa’s rand, and Israel’s shekel—remained relatively stable.
“We maintain a cautious outlook on emerging market currencies, primarily due to the uncertainty surrounding Trump’s trade policies,” said Arif Joshi, co-head of emerging market debt at Lazard Asset Management.
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China’s Volatility
Chinese markets saw wild swings throughout the year. Stocks rallied by nearly 16% in a single week in September after Beijing hinted at economic stimulus measures but experienced sharp declines during other periods. Despite the turbulence, investors who stayed the course enjoyed a 14.5% annual gain. However, concerns over China’s unpredictable policy moves continue to unsettle global markets.
Bond Market Bruises
While interest rates fell across major economies, bond investors faced a challenging year. Persistent inflation forced central banks to scale back monetary easing, leading to losses in bond markets. U.S. 10-year Treasury yields rose by 60 basis points, while the U.K.’s 10-year gilt yield jumped 100 basis points.
Japan, which raised interest rates twice in 2024, saw its 10-year bond yield increase by 45 basis points—the largest annual rise since 2003. Uncertainty over Trump’s fiscal policies and growing inflation fears suggest a tough road ahead for bond markets.
Unexpected Winners
Despite the volatility, some high-risk bond markets delivered extraordinary returns. Lebanon’s defaulted dollar bonds surged by 100% as investors speculated that regional instability would weaken Hezbollah’s influence. Argentina’s dollar bonds also doubled in value, fueled by optimism surrounding President Javier Milei’s reforms and his alignment with Trump. Ukrainian bonds posted over 60% gains, driven by hopes that Trump’s diplomacy could help resolve the Russia-Ukraine conflict.
As markets enter 2025, their growing dependence on U.S. trends poses both opportunities and risks. With uncertainty looming, finding safe havens may prove increasingly challenging.