Markets in 2024: Wall Street's High-Octane Rally Dominates Global Investments

By Naomi Rovnick, Dhara Ranasinghe, and Rodrigo Campos

LONDON - As 2024 unfolds, markets initially expected a slowdown in global stock rallies, with hopes pinned on swift U.S. interest rate cuts that would favor Treasuries, weaken the dollar, and strengthen emerging market currencies. However, this consensus has not played out as anticipated.

Global stocks are on track for a second consecutive annual gain exceeding 17%, dismissing concerns from turmoil in the Middle East and Ukraine, a contraction in Germany's economy, chaos in France's budget, and a slowing economy in China.

This robust performance is primarily driven by a remarkable rally in Wall Street stocks. The excitement around artificial intelligence and steady economic growth has attracted substantial global capital to U.S. assets, pushing the dollar up 7% against other currencies this year.

The mood on Wall Street surged following Donald Trump's election victory on November 5. Traders are optimistic about his proposed tax cuts and deregulation policies. This upward trend in investor confidence has even driven cryptocurrency Bitcoin to a staggering 128% gain in 2024.

As we approach 2025, global markets find themselves increasingly reliant on U.S. economic trends. This vulnerability was starkly highlighted when the Federal Reserve surprised the markets by indicating fewer anticipated rate cuts for the upcoming year, following weaker U.S. jobs data and an unexpected rate hike in Japan.

Bond investors are becoming more nervous owing to Trump's suggested trade tariffs, which could heighten inflation. There are growing concerns over the potential impact of ongoing U.S. government borrowing on the $28 trillion Treasury market, possibly creating wider disruptions in the government bond sector.

"It will be challenging to find safe havens in the event of a U.S. market pullback," expressed Julien Lafargue, chief market strategist at Barclays private bank.

Wall Street's Resilient Performance

Wall Street has experienced a significant rally, with its main index rising by 24% in 2024, following a similar increase last year. This marks the strongest two-year performance since 1998.

Notable performers include Nvidia, whose shares have soared by 172%, and Tesla, which has seen a 69% increase. As a result, investors' exposure to U.S. equities reached unprecedented highs by December.

The aggregated value of the prominent "Magnificent Seven" U.S. tech stocks now constitutes around 20% of the MSCI world share index, which poses a risk should their earnings or advancements in AI technology fail to meet projections.

The Struggles of Europe

In contrast, the euro has depreciated by approximately 5.5% against the dollar this year. European stock markets have underperformed relative to their U.S. counterparts more significantly than in the past quarter-century.

After experiencing four rate cuts by the European Central Bank, the euro zone’s economy is slowly declining, with some analysts predicting a potential rebound in 2025.

Historically, the likelihood of a global market rally succeeding if the U.S. falters has been minimal. Gold gained around 27% in 2024, as investors sought shelter amid uncertainty.

The Dominance of the Dollar

The strengthening U.S. dollar and preemptive tariff concerns have strongly impacted emerging market currencies. Countries like Egypt and Nigeria saw their currencies plunge by around 40% following devaluations, and Brazil's real fell over 20% due to worries about rising government debt and spending.

Among emerging markets, gains were minimal, featuring only a 2% increase for Malaysia's ringgit, while the Hong Kong dollar and Israel's currency remained stable for the year.

"We maintain a cautious stance on emerging market currencies primarily due to factors tied to the Trump trade war," noted Arif Joshi, co-head of emerging market debt at Lazard Asset Management.

China's Market Variability

This year was tumultuous for Chinese stocks, which briefly surged almost 16% in a week following indications from Beijing that it would stimulate the sagging economy, despite experiencing several significant weekly declines thereafter.

Investors who held stakes in Chinese equity were rewarded with an annual gain of 14.5%, but many anticipate that the ongoing boom-and-bust cycles will continue disrupting both European and Asian markets until Beijing implements concrete strategies.

The Bond Market Challenges

Across major economies, interest rates declined throughout the year, yet bond investors faced annual losses as they overestimated monetary easing that central banks ultimately did not provide, primarily due to persistent inflation.

In the U.S., rates rose by about 60 basis points in 2024, while the UK's 10-year gilt yields increased by 100 basis points, and German yields rose by 16 basis points. Japan, where rates were adjusted upward twice amid rising inflation, also saw a significant yield increase.

Looking ahead, the bond markets face uncertainty regarding the implications of Trump's policies on the U.S. Federal Reserve. The recent upheaval in French debt markets signaled that bond vigilantes are prepared to act against excessive government borrowing.

Surprising Achievements in Bond Markets

Interestingly, some of the most remarkable gains in bonds in 2024 emerged from high-risk areas.

Lebanon’s defaulted dollar bonds yielded returns of about 100% this year, as investors hoped for a weakening of armed factions in the region. Argentina's dollar bonds also returned 100%, driven by an ambitious reform plan and connections to Trump’s administration. Similarly, Ukrainian bonds appreciated over 60%, fueled by speculation about potential U.S. intervention in the ongoing conflict with Russia.

Markets, Stocks, Investors