Stock Market Highlights of 2024
A very exciting year comes to an end next week
The stock market in 2024 was very dynamic, with the influence of macroeconomic shifts, technological advancements, and evolving global trends. While geopolitical and economic challenges continued, optimism about stabilization and diversification opportunities fueled market activity. In this article, the key themes that defined 2024 will be reviewed. This is the first article of a 3-part series that will guide us into 2025 with my favorite themes and stock picks as I did at the beginning of 2024.
Market performance
How to begin an article about 2024 without mentioning the strong performance of the US market?
The performance has been close to 30% for both the S&P 500 and the Nasdaq. Europe has lagged with around 9% performance overall, with some markets, such as France and Poland, showing very poor results for different reasons. Performance was better in Asia with 13 to 15% in China (for the Shanghai composite index) and in Japan (Topix).
Still weak Chinese growth
The weak growth in China during 2024 has had significant effects on global markets, with weak domestic consumption and the ongoing commercial tensions, especially with the US, but also with Europe. China's GDP growth should be around 5%, largely due to sluggish exports, a struggling property market, and low consumer confidence.
Retail sales growth in China has remained weak, with discretionary goods like cosmetics and luxury items seeing lower demand. This strongly impacted some companies depending on this sector like luxury (LVMH, Kering, …)
This decline in consumption, alongside structural issues like unemployment and a weak labor market, has reduced expectations for a quick economic recovery.
Market concentration
In December, Broadcom reached a $1T market cap transformating the Magnificent 7 into the BATMMAAN (Broadcom, Apple, Tesla, Microsoft, Meta, Alphabet, Amazon and NVidia). The concentration of the top 10 companies in the S&P 500 continued to increase. This concentration is driven by strong results but also by passive management, with ETFs accentuating the concentration effect, and the potential for a subsequent decline.
This is maybe not finished, as those companies continue to have incredible fundamental performances, but this raises questions.
Geopolitical tensions
Ukraine, Gaza, Iran, Syria - 2024 is marked by numerous geopolitical hotspots. The defense sector has emerged as a clear winner, driven by rising tensions. For now, these conflicts remain largely regional.
The war in Ukraine has reshaped modern military doctrine, highlighting the critical roles of drones, cyberattacks, and advanced technology on the battlefield. It has also intensified concerns about a potential escalation between China and Taiwan.
Moreover, the war has underscored the European reliance on the United States for security, driving increased military spending across the region. However, while defense budgets are expected to rise in the coming years, sluggish economic growth may temper the scale of these ambitions.
Energy
The exponential growth of data centers, driven by AI, cloud computing, and digitalization, is becoming a significant force in energy consumption. In response, many regions are accelerating investments in renewable energy, particularly solar and wind, but the intermittency of these sources remains a challenge when powering critical infrastructure like data centers.
To meet this surging energy demand while maintaining grid stability, nuclear energy is regaining momentum. Seen as a reliable, low-carbon alternative, nuclear power offers a great option. Countries in Europe, Asia, and North America are revisiting nuclear policies, extending the life of existing reactors, and exploring new technologies like small modular reactors (SMRs), which promise faster deployment and lower costs. Main actors like Amazon or Alphabet invested in this technology and first results are expected to be at the end of the decade.
Rate cuts
After 2 years of aggressive rate hikes in 2022 and 2023 to reduce inflation, many central banks, including the US Federal Reserve and the European Central Bank, reduced their rates. While inflation showed signs of moderation, inflation is not dead and there are still fears of a resurgence of price pressures.
The central bank policies in 2024 has been a balancing act: maintaining restrictive rates to reduce inflation while carefully managing the risks of economic stagnation. The result is for now a soft landing, but inflation is still there. This will prevent the central banks from reducing the rates too quickly in 2025.
AI
AI has undoubtedly been the star of 2024, creating a strong market momentum. As one of the most transformative innovations of our time, AI is already redefining our jobs, economies, and everyday lives.
While NVIDIA stands out as the clear leader in this revolution (for now) several other companies are also riding the wave of opportunity:
Data center players like Arista Networks and Schneider Electric, which are capitalizing on the infrastructure demands of AI (Energy providers could also be in this category)
Semiconductor giants such as Broadcom and TSMC
And, of course, the hyperscalers (Microsoft, Alphabet, Amazon, Oracle, etc)
Conclusion
Optimism surrounding artificial intelligence and reduction in interest rates fueled strong market performance, particularly in the United States. However, risks continue to be present: geopolitical tensions, inflation, slowing growth in several regions (China and Europe) and high valuation of the US stock markets.
As we look ahead, the forces that shaped 2024 will continue to drive markets into the new year. The next article of this series will dive deeper into the opportunities that lie ahead, spotlighting my favorite investment themes and stock picks to position for 2025. Stay tuned!