Markets in 2024: Wall Road’s high-octane rally retains traders captive to the US

By Naomi Rovnick, Dhara Ranasinghe and Rodrigo Campos

LONDON (Reuters) – Markets that started the yr with traders anticipating a world inventory rally to fizzle, swift U.S. rate of interest cuts to spice up Treasuries and soften the greenback and rising market currencies to strengthen have firmly defied that consensus.

World shares are set for a second consecutive annual achieve of 16%, unfazed by wars within the Center East and Ukraine, Germany’s financial contraction and authorities collapse, French price range chaos and China’s slowdown.

That comes largely because of a second yr of giant good points for Wall Road shares as synthetic intelligence fever and strong financial development sucked extra international capital into U.S. property and took the greenback up 6.6% towards friends in 2024.

U.S. exuberance rose after Donald Trump’s Nov. 5 election win, as merchants targeted on the President-elect’s plans for tax cuts and deregulation, with the surge in animal spirits propelling cryptocurrency bitcoin to a 122% annual achieve.

World markets enter 2025 more and more uncovered to U.S. traits – a threat issue that burst into life after the Federal Reserve roiled markets this month by pointing to fewer fee cuts within the yr forward.

That got here after weak U.S. jobs information and a shock midyear Japanese fee hike that pressured dollar-denominated property and despatched a volatility wrecking ball swinging by way of international markets and sparked a short-lived rout in August.

Debt traders, in the meantime, are rising anxious about Trump’s proposed commerce tariffs refueling inflation and worry extreme White Home borrowing that might roil the $28 trillion Treasury market and spark wider authorities bond disruption.

“It may be troublesome, within the occasion of a (U.S.) pullback, to seek out wherever to cover,” Barclays (LON:BARC) non-public financial institution chief market strategist Julien Lafargue stated.

WALL STREET JUGGERNAUTS

Wall Road’s S&P 500 share index is 24% larger this yr after the same leap final yr, in its strongest two-year streak since 1998.

Shares in synthetic intelligence chipmaker Nvidia (NASDAQ:NVDA) rose 178% in 2024, Elon Musk’s carmaker Tesla (NASDAQ:TSLA) gained 68% whereas traders’ publicity to U.S. shares hit report ranges in December.

The mixed worth of the so-called Magnificent Seven U.S. tech shares accounts for round a fifth of MSCI’s world share index, in line with Schroders (LON:SDR), elevating market risk ranges if their earnings or AI know-how disappoint.

EUROPE’S STRUGGLES

The euro slid round 5.7% towards the greenback this yr whereas European shares carried out worse relative to their U.S. friends than they’ve in a minimum of 25 years.

After 4 European Central Financial institution fee cuts, the euro zone economic system is declining extra slowly and a few forecasters are tipping Europe for a 2025 rebound.

The possibilities of any worldwide market rallying if the U.S. falters are often slim. Gold gained 26% in 2024 as traders struggled to seek out different diversification trades.

MIGHTY DOLLAR

U.S. tariff fears and greenback power have hit rising market currencies significantly exhausting, exacerbating losses for struggling nations.

Currencies in Egypt and Nigeria fell round 70% towards the greenback following devaluations, and Brazil’s actual weakened greater than 27% as worries about authorities debt and spending intensified.

A sparse set of gentle annual good points included a 2.8% rise for Malaysia’s ringgit. Among the many prime performers South Africa’s rand and the Hong Kong greenback rose 2% and 0.5%, respectively, whereas Israel’s shekel was set for a 1.5% decline for the yr.

“We proceed to be cautious on rising market currencies, and the primary purpose behind that’s the Trump commerce battle,” stated Arif Joshi, co-head of rising market debt at Lazard (NYSE:LAZ) Asset Administration.

CHINA ROLLERCOASTER

Chinese language shares had a wild yr, surging virtually 16% in a single week in September after Beijing signaled its readiness to stimulate the weakening economic system, with plenty of deep weekly falls since.

Traders who held on to China in 2024 had been rewarded with an 16.5% annual achieve however many count on the short-term increase and bust cycle to proceed, disrupting markets in Europe and Asia, till Beijing takes direct motion.

BOND BULLS BRUISED

Rates of interest fell throughout large economies this yr however bond traders suffered annual losses after spending a lot of 2024 pricing in additional financial easing than central banks finally delivered as inflation stayed stickier than anticipated.

U.S. 10-year Treasury yields rose almost 70 foundation factors in 2024, Britain’s 10-year gilt yield jumped 107 bps and 10-year German yields rose 33 bps.

In Japan, the place rates of interest rose twice this yr as inflation accelerated, the 10-year bond yield added 47 bps in its largest yearly leap since 2003.

Subsequent (LON:NXT) yr seems difficult for bond markets unsure about how Trump’s insurance policies will sway the U.S. Federal Reserve. French debt turmoil final month additionally signaled the so-called bond vigilantes stand able to punish governments for extreme borrowing.

SURPRISE WINNERS

Bond traders’ 2024 wins got here from a few of the riskiest markets.

Lebanon’s defaulted greenback bonds returned round 100% over the yr as traders anticipated Center East battle weakening armed group Hezbollah.

An formidable reform programme and the prospect of Trump’s White Home return powered a 100% return for greenback bonds issued by Argentina, whose chief Javier Milei has shut ties with the U.S. president-elect. Boosted by bets that Trump may finish Russia’s Ukraine invasion, Ukrainian bonds returned over 60%.