DSN Portfolio Review
Quarter 4 - 2024
12 -Month Market Commentary
2024 was a great year for globally diversified investors. Global stocks returned 19.6% in sterling terms, and all major equity regions are in the black. The US was once again a standout, gaining 27.3% in sterling terms from a year ago. This was once again led by technology stocks, which gained 31.9% in 2024. China was the second best performer, though its 18.8% return came almost entirely in a brief period in September. Markets started the year expecting multiple interest rate cuts. While these did come, they took longer than expected. The trend for developed markets suggests further rate cuts in 2025, which should continue to support global growth.
January-March 2024
January started with a hangover from the ‘Santa rally’ that ended 2023, but markets were rallying again by February. Investors started the year expecting swift and substantial interest rate cuts, but persistent inflation pressures pushed back the timeline. Fortunately, global growth optimism was so strong that it didn’t matter. March continued the rally, meaning that Q1 global equity returns were an impressive 9.2%. Encouragingly, optimism spread beyond the dominant US mega-caps, suggesting investors were positive about global growth – not just rate cuts.
April-June 2024
The start of Q2 marked the first difficult period of 2024, thanks to persistent inflation pressures and delayed interest rate cuts. Stocks lost 2.4% in April, mostly concentrated on those regions that performed well previously (the US and Japan). These troubles were thankfully short-lived, and overall Q2 returns were positive. Stock indices climbed to new all-time highs in May and June. This was largely down to strong US tech profits, and the realisation that rate cuts might not be needed to support growth – at least in the US.
July-September 2024
The start of Q3 reversed the outperformance of US tech. Tech stocks lost 2.3% through July, while smaller caps – in the US and around the world – had their best period for some time. The start of August, however, was tough for virtually all assets. Global liquidity came under pressure due to a now infamous unwinding of the Japanese yen ‘carry trade’. Markets fell and volatility spiked, but these quickly calmed and global stocks recovered into the end of the month. Interestingly, this fall and recovery pattern was repeated in September. Markets were buoyed at the end of September by the US Federal Reserve’s larger-than-usual interest rate cut, and unexpected economic stimulus from the Chinese government. Chinese stocks spiked upwards on the news, but have bounced back and forth since.
October-December 2024
The fourth quarter saw a return to US dominance of global capital markets. American stocks were virtually the only positive performers in October and November, but the US’ huge share of global market cap meant that this was enough for global equity indices to be positive. Much of this was down to Donald Trump’s re-election in November. However, several assets reacted negatively to Trump’s tariff threats against major trading partners in Mexico, Canada and China. Outside the US, European bonds were spooked by the collapse of the French and German governments. UK yields, which are very closely linked to the US, also moved higher after the autumn budget.
There was no ‘Santa Rally’ to finish 2024, unlike the year before. Global stocks pulled back in December, after the US Federal Reserve signalled fewer upcoming interest rate cuts. The good news is that, after a strong year, no Santa Rally was needed. We have now had two consecutive years of strong global stock returns, and every major equity region is in the black.
Market Positioning
Mid-Term Outlook
The range of plausible scenarios for markets and global growth in the next few months is wide. Trump’s second presidency is the great unknown. We know he wants to cut corporate taxes and slash regulation, while imposing tariffs on foreign goods and deporting millions. But we do not know how much of that he will be able to achieve in the short-term, or how the effects of his policies will interact with each other and more importantly rekindle inflation, suppressing which was his other big campaign promise.
China is another big unknown. The government has recently announced several economic stimulus measures to support its floundering domestic demand, and intends to unveil more. But many doubt Beijing’s commitment to supporting growth – or even its ability to do so. Trump’s promised 60% tariffs on Chinese goods would obviously hurt exporters, but again we do not know if that figure is realistic. Beijing is likely to announce more stimulus (and perhaps taris of its own) in response, but probably only once the Trump administration’s stance becomes clearer.
The UK and Europe have much worse growth outlooks than the US, but that comparative weakness has brought down interest rate expectations commensurately. Even though UK inflation recently surprised to the upside, Britian’s inflation pressures are fading and we expect the Bank of England to favour lower rates. Trump taris would be a big problem for European exporters, but there will probably be room for negotiation. Markets are pricing significant downsides for Europe, but these are not guaranteed, particularly if Chinese demand rebounds.
It is hard to justify big investment calls when there are so many uncertainties, which is why we have left portfolios’ regional and asset class weightings unchanged. Trump tax cuts could boost growth but could also hurt US bond yields. Tariffs could reinforce US outperformance or disproportionately hurt American consumers and lead to foreign retaliation. The risks have grown but the potential rewards have as well. The best thing is to stay put.
Sub-Asset Class – Fund Changes
The were no changes in the models over the last quarter.
Important Information
The text is provided by Tatton Investment Management. The information in this document does not constitute investment advice or a recommendation for any product and investment decisions should not be made on the basis of it.
Tatton is a trading style of Tatton Investment Management Limited, which is authorised and regulated by the Financial Conduct Authority. Financial Services Register number 733471. Tatton Investment Management Limited is registered in England and Wales No. 08219008. Registered address: Paradigm House, Brooke Court, Wilmslow, Cheshire, SK9 3ND.
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