December Update
As 2024 drew to a close, global markets faced a mixed bag of performances in December. Despite a modest decline for the month, the year overall stood out as one of resilience and remarkable growth. Let’s dive into the key takeaways for December 2024 and the broader themes that shaped the financial landscape.
December Market Performance: A Subtle Decline
In December 2024, global equities experienced a modest decline, with the S&P 500 falling by 1.2%. This pullback was influenced by several key factors including rising Treasury Yields and US Fed commentary. The yield on 10-year U.S. Treasury bonds surpassed 4.5%, reaching its highest level since May. This increase in yields was driven by robust economic indicators, including a strong labor market report. The U.S. economy added 256,000 jobs in December, and the unemployment rate decreased to 4.1%, signaling continued economic strength. Federal Reserve's Monetary Policy Outlook: The Federal Reserve's December meeting revealed a more cautious approach to future rate cuts. The Fed projected 50 basis points fewer cuts in 2025 compared to previous expectations, indicating a slower pace of monetary easing.
For the past few years, we've been saying that the narrative of rapid rate cuts, prior to this rate cutting cycle, is hard to justify, given the ongoing resilience of the US labor market. This has reinforced the idea that yields will stay higher for longer. In simple terms, this means that interest rates will likely remain above their neutral level for a longer period than many expected and at levels higher than we would prefer. During COVID, the fiscal stimulus and the amount of money provided to consumers were unprecedented. As a result, it will take much longer than anticipated for that money to fully flow through the economy. Consequently, economic conditions will persist for a longer period, and expectations for rate cuts should be kept in check. This has largely remained true, and now with Trump presidency, with tariffs and America First policies, it’s anyone’s guess where rates will be by year end.
Source: LSEG
S&P 500 and Nasdaq 100: A Record-Breaking Year
The S&P 500 closed 2024 with an impressive 25% annual gain, driven by robust economic growth and the continued dominance of key technology players. The S&P 500 has experienced annual returns exceeding 20% in 22 out of the past 151 years, which is about 14.6% of the time. Meanwhile, the Nasdaq 100 surged by an extraordinary 30%, reflecting the strength of tech-heavy sectors and the broader adoption of artificial intelligence and other transformative technologies. The Nasdaq 100 has had annual returns exceeding 20% in 10 out of the 38 years since its inception in 1986.
A significant portion of the performance for both indices came from the so-called "Magnificent Seven" (MAG-7) — Microsoft, Apple, Alphabet, Amazon, Meta, Nvidia, and Tesla. These companies alone accounted for over 65% of the S&P 500’s total return and nearly 75% of the Nasdaq 100’s performance for the year. Nvidia and Tesla stood out particularly, benefiting from AI advancements and innovation in robotics and automation.
ASX 200: Australia’s Resilient Market
The ASX 200 delivered steady gains throughout the year, ending 2024 with an 8.5% annual increase. Australian equities were supported by strong performances in mining and energy sectors, driven by commodity demand and a weaker Australian dollar that bolstered export competitiveness. Technology and healthcare also contributed to the index’s gains, reflecting a shift toward diversification beyond traditional resource-based sectors.
Emerging Markets: Mixed Results
Emerging markets faced headwinds throughout the year, exacerbated by U.S. tariff concerns and a strengthening dollar. These factors weighed on performance, particularly in markets like India and Southeast Asia. Meanwhile, Chinese equities experienced notable volatility but managed to close the year with modest gains, bolstered by policy support and signs of a gradual economic recovery.
Quantum Computing Took the Spotlight
Are quantum computing stocks the next big thing? Recent data suggests they might be. Call options trading value on quantum computing stocks is now 2,500% above average. Call options volume in $IONQ, $RGTI, $QBTS, and $QUBT relative to their average volume has risen 10 times in just one month.
To put this into perspective, Nvidia’s ($NVDA) record volume in March was 435% above average. As a result, the quantum computing ETF, $QTUM, has jumped 23% over this time and is up 50% year-to-date. This rapid surge highlights growing investor interest in the potential of quantum computing as a transformative technology.
Google’s Quantum AI Breakthrough: A Catalyst for Advanced Computing
Quantum computing really came into the spotlight following Google’s groundbreaking Quantum AI announcement. Google’s quantum computer demonstrated an ability to solve problems that would take the best supercomputers 10 septillion years in just five minutes—a staggering achievement. For perspective, 10 septillion years is far longer than the age of the universe, which is approximately 13.8 billion years.
This leap is made possible by the unique capabilities of quantum computers, which operate using quantum bits, or qubits. Unlike traditional bits that represent either a 0 or 1, qubits can exist in multiple states simultaneously due to the principle of superposition. This allows quantum computers to process complex calculations in parallel, vastly outperforming classical systems.
Why Does This Matter?
Quantum computing has the potential to revolutionize several fields:
Cryptography: Traditional encryption methods could be rendered obsolete, requiring new, more secure solutions.
Drug Discovery: Faster simulations of molecular interactions could lead to groundbreaking advancements in medicine and materials science.
Optimization Problems: Applications range from supply chain logistics to financial modeling at scales currently unimaginable.
Climate and Weather Predictions: Quantum computing could improve the accuracy of long-term forecasts and modeling.
Google’s announcement underscores the transformative potential of quantum computing, solidifying it as a key focus within the broader Advanced Computing investment theme. As this technology evolves, its implications for industries and economies are profound, making it a space to watch closely in 2025.
Our whitepaper examines Quantum Computing as a critical thematic investment opportunity, still in the foundational phase of the S-curve. Similar to Semiconductors, this technology is pivotal, particularly in terms of national security, with the potential to redefine global power structures and technological advancement.
We already have indirect exposure to this thematic through our investments in major tech and semiconductor companies. However, we are actively exploring pure-play opportunities that offer fair-value, market-priced entry points. At this stage, many companies in the sector are trading on hype from recent technological breakthroughs, with fundamentals still in the early stages of development. This has led to significant "buy the rumor, sell the fact" market activity. As the fundamentals of individual companies improve, we expect the sector to provide attractive opportunities to build long-term, investable positions.
Major Themes Shaping 2024
Artificial Intelligence as a Growth Driver: AI advancements remained a focal point, driving market enthusiasm and substantial gains across technology and related sectors. The accelerating adoption of AI-driven solutions in cloud computing, automation, and semiconductors continued to bolster investor confidence, fueling valuation expansion.
U.S. Economic Strength: The resilience of the U.S. economy, supported by strong consumer spending, steady employment growth, and corporate earnings resilience, provided a solid foundation for equity markets. Despite global uncertainties, the U.S. remained a key driver of economic stability.
Trump Presidency and Market Reactions: The surprise victory of Donald Trump in the November 2024 U.S. presidential election added a new layer of complexity for global markets. Expectations of a return to more aggressive trade policies, particularly toward China, spurred volatility in key sectors, including technology and manufacturing. Investors also weighed the potential for fiscal stimulus measures, deregulation, and infrastructure spending, which could provide a short-term boost to growth but may increase uncertainty over longer-term geopolitical and economic stability.
Monetary Policy and Inflation: Markets reacted positively to cooling inflation data and a measured approach by central banks in adjusting interest rates. The prospect of rate cuts or prolonged stability in monetary policy bolstered risk appetite, particularly in growth-oriented sectors.
Looking Ahead
As we move into 2025, the question remains: can global markets maintain their momentum? Factors such as evolving U.S. monetary policy, geopolitical tensions, and the pace of technological adoption will be crucial in shaping the trajectory. Investors may also keep a close eye on emerging market opportunities as they navigate challenges tied to currency fluctuations and economic growth.
One major source of volatility could stem from the potential return of Trump-era policies, particularly regarding China. If tariffs on Chinese goods are reinstated or increased, this could trigger retaliatory measures from Beijing, impacting global supply chains and trade flows. The technology sector, already strained by U.S. export controls on semiconductors and AI-related tech, may face further restrictions, prompting China to accelerate its domestic semiconductor ambitions.
Additionally, China’s broader economic strategy—such as efforts to boost domestic consumption, state-led industrial policy, and potential monetary stimulus—could influence global risk sentiment. If trade tensions escalate, emerging markets closely tied to China’s supply chain, including key commodity exporters, may experience heightened volatility.
The "January Barometer" is a market theory suggesting that the S&P 500's performance in January can predict its performance for the rest of the year. Historically, the S&P 500's calendar year performance has matched the direction of January returns nearly 77% of the time.
Market Experts' Predictions for the S&P 500's Year-End 2025
Money Managers favor the Trump-era approach of lower tax rates, looser regulatory oversight on daily operations, and a more lenient antitrust environment that facilitates mergers and acquisitions—benefiting shareholders and, naturally, their own profitability. They also see artificial intelligence as a major catalyst for profit growth. Looking at 27 projections for the S&P 500 Index, the most widely watched index among investment professionals, the sweet spot for the year-end level for the index is about 6,600. That would translate into a 10% annual gain from the 2024 close of 5,881.63.
Source: S&P500 closing predictions. Staff Research